7 ms·

Don't charge by the hour but by the value This sounds like a recipe for disaster to me without a lot more explanation. Time is the main cost to a provider, so

Don't charge by the hour but by the value This sounds like a recipe for disaster to me without a lot more explanation. Time is the main cost to a provider, so it's very natural that time would also be the driver for billing. "Charging for value" sounds like you're trying to say "fixed price" without actually saying it. I have many, many issues with trying to do fixed price projects of any appreciable size (say, more than 20-40 hours). What do you mean, precisely, by "charge by the value"?

jeffmould 11y ago
https://training.kalzumeus.com/newsletters/archive/consulting_1 https://training.kalzumeus.com/newsletters/archive/consultin... http://www.kalzumeus.com/2012/08/13/doubling-saas-revenue/ http://www.kalzumeus.com/2012/08/13/doubling-saas-revenue/
DrJokepu 11y ago
Really depends on the client. If your client is able to agree on tight specs and project plans, everyone is better off with fixed project fees. The client can more easily plan financially with a fixed budget. You can charge more, because instead of charging $DAILY_RATE * $DAYS, you can charge $REVENUE_CLIENT_WILL_MAKE_WITH_FEATURE - $THEIR_MARGIN, and the latter figure tends to be significantly higher. You can also deliver the project more quickly because now it's in your interest to do so. Everyone wins. That being said, if the client is unable to commit to tight specs and project plans, you need to revert to invoicing on a time & materials basis. But even if you do that, you should really charge a daily rate, rather than an hourly rate.
- vitd 11y ago
  >You can charge more, because instead of charging $DAILY_RATE * $DAYS, you can charge $REVENUE_CLIENT_WILL_MAKE_WITH_FEATURE - $THEIR_MARGIN, and the latter figure tends to be significantly higher. That's really going to depend on the type of work you do and the type of clients you can find. In my experience, it's difficult to get contracts with larger businesses unless you know someone already or have some sort of "in" with them. And smaller business tend to be poorly run and are barely making any money on their products and services, so they have very thin margins or are even losing money.
michaelbuckbee 11y ago
A good example of "charging by value" is productized consulting - where it's a particular task, etc. that needs done for multiple customers. Say you're really good with Postgres, instead of just hanging out a shingle for "any Postgres stuff?" you offer something like a one time $2500 "Postgres Performance Audit". You get really good at this one thing, have a set bunch of scripts, very deep knowledge, predone report template, etc. and providing a bunch of value. So at the end of the day who cares that it only took you 5 hours (effectively making $500/hr). Bunch of examples: http://www.christophengelhardt.com/ultimate-badass-list-of-productized-consulting-services/ http://www.christophengelhardt.com/ultimate-badass-list-of-p...
- aggieben 11y ago
  Ah - I didn't think of this angle, but I like it. Thanks.
- nightski 11y ago
  Except that you are making your services a commodity. A large part of what makes my services valuable is that I can't approach every situation with a pre-fab script and report.
  - genericresponse 11y ago
    No it's a commodity if it's non-differentiated from others. You can still have non-commoditized work that operates at scaled efficiency. You just have to have something that makes you better or different.
- imtringued 11y ago
  As soon as you have a product it's no longer consulting in my eyes.
peterbsmith 11y ago
Some clients are rich. You could charge by what you feel you're worth, say $50/hr. Or you could charge by what they value the work at - at that might be 4x as much. They might be used to paying $200/hr, and are happy to do it. That mentality is similar to charge by value.
- CodeWriter23 11y ago
  Demanding a higher rate allows clients to select for themselves whether they will be on your client list.
embwbam 11y ago
It's vague, because it's a high level idea. I want to earn more than I can by time, therefore I have to get clients to start thinking about how much value they are getting and paying for that. Practically I've had success recently by charging weekly. I keep this rate deliberately lower (about half my old full time consulting rate). Then I send them a weekly report along with the invoice every week. They get to see exactly what they got for the money. It usually takes me 15-20 hours to deliver enough value for the weekly rate. So there are lots of things to try. Small changes in billing can have a large impact on your relationship with your client.
j45 11y ago
You can charge by value when you understand the scope of work, have the ability to manage it, and manage risk. The customer gets a fixed price for a fixed scope with a fixed process.

jeffmould 11y ago

https://training.kalzumeus.com/newsletters/archive/consulting_1 https://training.kalzumeus.com/newsletters/archive/consultin... http://www.kalzumeus.com/2012/08/13/doubling-saas-revenue/ http://www.kalzumeus.com/2012/08/13/doubling-saas-revenue/

DrJokepu 11y ago

Really depends on the client. If your client is able to agree on tight specs and project plans, everyone is better off with fixed project fees. The client can more easily plan financially with a fixed budget. You can charge more, because instead of charging $DAILY_RATE * $DAYS, you can charge $REVENUE_CLIENT_WILL_MAKE_WITH_FEATURE - $THEIR_MARGIN, and the latter figure tends to be significantly higher. You can also deliver the project more quickly because now it's in your interest to do so. Everyone wins. That being said, if the client is unable to commit to tight specs and project plans, you need to revert to invoicing on a time & materials basis. But even if you do that, you should really charge a daily rate, rather than an hourly rate.

vitd 11y ago
>You can charge more, because instead of charging $DAILY_RATE * $DAYS, you can charge $REVENUE_CLIENT_WILL_MAKE_WITH_FEATURE - $THEIR_MARGIN, and the latter figure tends to be significantly higher. That's really going to depend on the type of work you do and the type of clients you can find. In my experience, it's difficult to get contracts with larger businesses unless you know someone already or have some sort of "in" with them. And smaller business tend to be poorly run and are barely making any money on their products and services, so they have very thin margins or are even losing money.

michaelbuckbee 11y ago

A good example of "charging by value" is productized consulting - where it's a particular task, etc. that needs done for multiple customers. Say you're really good with Postgres, instead of just hanging out a shingle for "any Postgres stuff?" you offer something like a one time $2500 "Postgres Performance Audit". You get really good at this one thing, have a set bunch of scripts, very deep knowledge, predone report template, etc. and providing a bunch of value. So at the end of the day who cares that it only took you 5 hours (effectively making $500/hr). Bunch of examples: http://www.christophengelhardt.com/ultimate-badass-list-of-productized-consulting-services/ http://www.christophengelhardt.com/ultimate-badass-list-of-p...

aggieben 11y ago
Ah - I didn't think of this angle, but I like it. Thanks.
nightski 11y ago
Except that you are making your services a commodity. A large part of what makes my services valuable is that I can't approach every situation with a pre-fab script and report.
- genericresponse 11y ago
  No it's a commodity if it's non-differentiated from others. You can still have non-commoditized work that operates at scaled efficiency. You just have to have something that makes you better or different.
imtringued 11y ago
As soon as you have a product it's no longer consulting in my eyes.

peterbsmith 11y ago

Some clients are rich. You could charge by what you feel you're worth, say $50/hr. Or you could charge by what they value the work at - at that might be 4x as much. They might be used to paying $200/hr, and are happy to do it. That mentality is similar to charge by value.

CodeWriter23 11y ago
Demanding a higher rate allows clients to select for themselves whether they will be on your client list.

embwbam 11y ago

It's vague, because it's a high level idea. I want to earn more than I can by time, therefore I have to get clients to start thinking about how much value they are getting and paying for that. Practically I've had success recently by charging weekly. I keep this rate deliberately lower (about half my old full time consulting rate). Then I send them a weekly report along with the invoice every week. They get to see exactly what they got for the money. It usually takes me 15-20 hours to deliver enough value for the weekly rate. So there are lots of things to try. Small changes in billing can have a large impact on your relationship with your client.

j45 11y ago

You can charge by value when you understand the scope of work, have the ability to manage it, and manage risk. The customer gets a fixed price for a fixed scope with a fixed process.