The following is an excerpt from Breaking the Time Barrier: How to Unlock Your True Earning Potential, a free ebook offered by our friends at Freshbooks.
In the ebook, Freshbooks co-founder, CEO and co-author Mike McDerment makes the case for independent workers earning what you deserve for your hard work.
It’s a great resource for freelancers, and it’s also an easy read — no one’s throwing numbers or numbers or worksheets at you. Instead of textbook-style lessons, Breaking the Time Barrier shares a conversation between Steve and Karen, who talk through Steve’s hangups about how to price his web-design services.
Whether you’re writing white papers, blog posts, or tweets, you know how long it takes to craft the written word. Are you getting paid enough?
Read on to find out how changing your freelance writing rates from hourly to project-based rates can help you maximize your earning potential — and then get your own copy of Breaking the Time Barrier!
On Friday, Steve stepped into Karen’s café, a cozy spot with leather chairs and shelves lined with old books. He looked around, taking in the aroma of fresh coffee, then made his way to a back table, where Karen was waiting for him.
After Karen greeted him warmly he settled into his chair, thanking her for meeting with him. “I’m happy to help,” she said before a server came and took their order.
Then Karen invited Steve to sketch out his solopreneur journey, which he did over the clatter of coffee cups that surrounded them. When Steve was done she gave him a one-word verdict: “Pricing.”
“Pricing?” he asked.
She nodded as their coffees arrived. “Well…pricing and positioning. From what you’ve told me, it sounds like the way you think about pricing is holding you back.”
“In what way?”
“If someone wanted to know what exactly you sell to your clients, what would you tell them?”
“My services. Web design.”
“How do you charge for your services?”
“I charge them a fee based on my hourly rate.”
“Then aren’t you really selling hours?” Karen asked.
“But I use those hours to design websites.”
“Do those websites have any positive impact on your clients?”
“Sure,” Steve said.
“Do you think it would make more sense to charge a fixed fee that represents the value of the impact your websites have on your clients?”
“Well, I do mostly charge fixed fees—”
“But those fees are based on a multiple of your hours, right?”
“Right,” he said.
“I’m talking about fixed fees based on value, not time.”
“I guess I’m not sure what you mean by value.”
“The value of what I do,” Karen said, “is based on the impact I can have on my client’s business. Impact is how they value my services. So I look at pricing from their point of view. They don’t hire me to design a website for the sake of designing a website. They hire me to design a website that’s going to help them grow their business.
“I find when I look at it like that — from their perspective — it’s clear I’m not selling time. Instead, I’m selling a solution that is going to make an impact for my client and achieve some business objective.”
“So, how do you set your prices then?” Steve asked.
“Let me give you an example. A couple of months ago I sat down with a client to talk about their website. I asked them to tell me why they thought they needed a website. When we drilled down into their reasons, they said they believed a website could generate an additional $100,000 of profit annually for their business.
“So I asked them to make an investment of $20,000 in the website. Based on your hourly pricing model, you’d probably charge in the area of $2,000 to $2,500.”
“Did they agree to your price?”
“Yes. Wouldn’t you invest $20,000 to generate $100,000?”
Steve agreed and he was excited about what Karen was telling him, but lots of questions were flooding his brain.
“I get your math,” he said, “but doesn’t it come down to time in the end anyway? I mean, you spend a certain amount of time on the project. You could theoretically work out your hourly rate and so could your client. You’re probably effectively charging $400 an hour, or something like that. What if your client thinks that’s too high?”
“Your math may be right, but I’m not a collection of hours,” Karen said. “I’m the accumulation of all my skills and talents. I’m wisdom and creativity. I’ve stopped seeing myself as a punch card. My clients don’t see me that way either.
“Yes, sometimes, I’ve had to change my client’s mindset,” she continued. “But it starts with me, first, just as it starts with you. You have to forget selling time. The best thing you could do for yourself is to get the concept of time out of your head.”
“Don’t I need an hourly rate for some stuff? Everyone I know has one.”
“You know me now, and I don’t have an hourly rate.”
“So I should never charge by the hour?”
“To be honest, when I started out I charged an hourly rate and I think hourly rates make sense for someone just starting out, someone with little experience and limited skill. But over time I established myself and my credibility, which led to great references. When that happens, you begin to outgrow the cost-plus pricing model of charging by the hour. So if you stay with that pricing model, you’ll find it very limiting.
“For example,” Karen continued, “since there are only so many hours in a year, it puts a cap on how much revenue you can collect in a year, and it means that the only way to make more money is to work more hours. These are limits… and the truth is, they are false limitations that lead to bad behaviors, like burning yourself out by working around the clock in an effort to earn more.”
“That’s me,” Steve said.
“Me too, when I first went out on my own, until I learned that a value-based approach to pricing your services is a powerful way to break through the time barrier and avoid the bad behaviors.
“But like a lot of people, I didn’t start from scratch, and neither did you. You started your business after many years of design experience. You already had the ability to create value for your clients. And now, after being in business for a while, you’ve got references you can build on. You’ve also had the chance to see the impact your projects have had. I’m sure it’s far greater than you expected.
“Think of the value you created for your clients. That’s an impressive story that you can use to move away from charging based on time to charging based on value.”
Are you on board with Karen’s advice? Have you tried value-based pricing rather than charging hourly rates?