If you’re stuck in the rut of selling your time, do yourself a favor and grab this free eBook I’ve cosponsored with my friends from FreshBooks – Breaking the Time Barrier.

Very early on in my consulting career I learned an important lesson about time – You only have so much.

unlock the time barrier

photo credit: subcircle via photopin cc

I know that may seem like an obvious thing, but many businesses still base their pricing, and therefore their capacity to earn, on time calculations. You know, it takes me 10 hours to build this so that will be 10 X $75/hr.

When I provided consulting services this way I quickly filled up my capacity and essentially trapped my profit potential. After I had done this for a few years I started to raise my prices and a funny thing happened – I stayed just as busy.

Then one day a potential client called and said he heard that I was really good at getting companies featured in the local business journal. Instead of suggesting an hourly fee I told him that if I was successful the cost would be $2,500. At first he balked, but then he considered there really wasn’t any risk unless he got a result.

I hung up the phone and made one call to a journalist that I knew was looking for precisely this kind of story. I secured the interview and called my client back with the good news and an invoice. He said, “but wait, it apparently only took you 15 minutes to get me that story and you want me to pay you $2,500?”

I told him in fact it had taken me the better part of 10 years to be able to get him that story and that he was paying for the value of the result and not my time. He had no argument with that logic, paid the invoice and was thrilled with the result.

That was the day I knew I would spend the rest of my business life using value based pricing. I began to align all of my fees based on the results I knew I could deliver and took time off the table every time it crept into a client conversation. In the end clients don’t want your time, they want a result. When they become confident you can deliver that, they don’t really care how you do it.

The keys to embracing value based pricing

  • Understand that price is a function of perceived value – increase your or your product’s perceived value and you can increase the price. This is why best-selling authors can charge much more for speaking fees and why Apple can charge more for a phone.
  • You must have a clear point of differentiation – Your methodology, point of view, feature set, delivery, packaging, experience, training, design, etc. must set you so far apart from others that there is no way in which a prospect would consider using price as the lone comparison tool.
  • You must measure results – Once you start to appreciate that the work you do delivers tens of thousands or hundreds of thousands of dollars in results to a client, you’ll get much more open about value based pricing. You must measure and review with your clients the actual results they get from working with you so that you can confidently begin to price and sell your work based on this knowledge and proof.

My friend Mike McDerment, co-founder of FreshBooks, just completed a free eBook (with Donald Cowper) in which he chronicles the story of a web designer who comes to appreciate why he’s going broke selling his time vs. selling the results of his work. If you’re stuck in the time rut, do yourself a favor and grab this free eBook – Breaking the Time Barrier – How to Unlock Your True Earning Potential.

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John Jantsch

John Jantsch is a marketing consultant, speaker and author of Duct Tape Marketing, Duct Tape Selling, The Commitment Engine and The Referral Engine and the founder of the Duct Tape Marketing Consultant Network.
  • Deborah Chaddock Brown

    The timing of this article is priceless. haha. Especially the discussion with the customer about the value of your 10 years of experience that led you to provide a response so quickly. I think we get to the point where we under value our own worth because it is just something we know and we forget, that to our clients it is great and powerful wisdom. Thanks, John.

    • It’s so true – it’s like we penalize ourselves for gaining experience and efficiency.

  • John. This post is so important for people to read. I’m going to encourage people to read it and act on your advice. Thanks so much for sharing. Best, Frank

  • John – Totally agree with you on this. Marketing (or any service-based business) is about providing value, not about the time it takes to do the work. Most of my work falls outside of hourly pricing, but sometimes, the work is so varied that it’s difficult to price otherwise. Any recommendations on how to handle those? Maybe the answer lies in that ebook!

    • Hey Laura always great to see your smiling face! The way that I’ve handled it is to create a methodology that people either buy or don’t buy but that I can price based on value.

      • Good point. Thanks, John. I’m working on better articulating that methodology so people are ASKING for that instead of something else. 🙂

  • john waire

    Love this John. I read that e-book last week and could not agree more. Thanks for reinforcing the importance with this post. I’m really working on this myself…

  • Good post. I like your approach. I wish people would use this approach when they are hiring since you never know if there is a mutual fit at least three months into a job.

    • I love that idea – I don’t know why you couldn’t – I’ve always had a 2 week trial with every hire and even let someone go after the two weeks once.

  • OldGuy in Tosa

    I.too, have been following this approach for nearly 40 years, but a couple of points are missing. First, shut up and listen! Listen intently to both the individual client and the market. What are the real needs, not just the ones that glisten on the surface of management paper. I released a product into the marketplace which knocked off a 125 year old offering. And, I did so at nearly 50% over the satreet price of the ‘old timer’. Why? We listened to the clients and the markets of what was hated about the older unit and differentiated it enough to answer the questions and knock them out of No. 1 spot in the industry. The second key point is to develop the street cred to create that demand for you, your company, your advice, your products. That can’t come from a book, necessarily. The school of dirty fingernails small victories and proper placement gets you that!

    • Thanks I think you summed up some the key points of the post nicely! Not sure they were missing though – you pretty must hit points 1 and 2 that I made.

  • Thanks for this post and the download. I’ve been working on a project pricing model for some time and it always works better for everyone. Since we are an agency there are so many working parts, itemizing who’s doing what for each client and then pricing that way would bog us down and cost the client more in the long run.

    I’ve also fallen into the “discount to compete” trap waay too many times. The e-book tells a good story, one we can all learn from.

    • Awesome Janet – now go out there and sell what you’re worth!

  • Danielle

    I’ve been teaching the value-based pricing model for many years in the administrative support business industry. Here’s a video: http://youtu.be/_qOZ34zx4qc

    • Thanks for sharing this Danielle

  • David Gomez

    Great post John! We definitely might be willing to let go some “customers” in order to get the right ones. Thanks so much for your ideas.

  • Marilyn Kay

    This post makes so much sense. This is exactly where I have difficulty. Quoting an hourly rate is such an ingrained model, but it doesn’t really reflect the value people receive. I’m looking forward to reading your free ebook.

    • It’s funny but it’s ingrained with clients too and the fact of the matter is it really pits you against their best interest – it actually pays you to spend more time than you need to.

  • Wow. A light just went on. Damn, I’m a slow learner. Killer expression of this idea John. I’m about to change my ways, I hope.

    • Dang I know I’m doing the world a good deed when a seasoned pro like you can learn something new from me 🙂

      • Nice of you to say John, but…
        I feel like I’m a seasoned pro at (1) writing (2) marketing consulting. I as for scaling my business? I feel like a rookie.

  • Keith Millar

    EXCELLENT! Excuse the shouting but as I said this was excellent.
    Thank you

    • Shouts of joy always permitted!

  • Hi John. I enjoyed this post and it has me thinking about how I charge my clients and the value they are provided. I have a question if you don’t mind. Let’s say you are selling a website design or logo and you come to the value of X. Normally you then charge by the hour after the customer exceeds a set number of revisions. This works to prevent endless changes and keep the project moving forward.

    If you are going to charge by the value and not by the hour, how do you put a limit on the amount of revisions a client can have and what happens when they go beyond that limit?

    • Hey Tom, of course I don’t mind the question, but I think you kind of answered it yourself – you design a package that says “here’s what we do for this price” – anything above that is extra. Of course you’ve got to educate on why that makes sense and you’ve got to have a process to make sure you nail it – so, a lot of that’s on you. But I’m sure you’ve discovered most of these projects that get whacky happen because you didn’t push the client hard enough to think, plan and communicate.

      • Thank you for getting back to me. That helped clarify my pricing structure.

  • pamellaneely

    That’s how top copywriters make millions per year. They get royalties, sometimes 50%, for every sale. If they charged just per sales letter, even $20K per sales letter, they would do OK. But instead they charge royalties (they charge by results) and then go find clients that they can rocket sales for. They make 10x more money, and they make it for years, so long as their sales letter is the control. 

    I’d love to do that, but I’d settle for being a conversion optimization expert that gets 10% of any increases I can create. In one case, I’d have made $90K in an afternoon. Alas, I was only paid by the hour…

  • Glad I snagged the ebook you and Fresh worked up John. Like many SEO guys my services are not as scalable as I’d like. In your example, getting your client a face-to-face with the local business journal guy was pretty straight forward. In my case, getting an SMB to agree that a page 1 ranking for a uber competitive KW phrase is worth “X” amount is not as straight forward and takes a lot longer than 15 minutes 😉

  • Great timing for this post! This is a topic I have been recently mulling over. I like it.

  • Nathan Jansch

    John, you offer yet another insightful and educational article. Thanks. My only recommendation, though is that you change your social media pic. You look way too serious 🙂