Is Your Pricing Model Working for You?

July 10, 2014

In our last post on overcoming the plight of the creative entrepreneur (or the CE as I have been calling us), we talked about charging for our value. In fact, for the majority of our series we have been working on understanding our purpose so that we can understand our real value, then using that understanding to figure out how to charge for for our value. All of this, so that we CEs can live a successful independent life. Many of you may have started to implement these methods into your own businesses, and, hopefully, they have been working for you. However, what I have found is that many CEs get to the point where they understand their value and they now change what they’re worth, but they still haven’t reached creative entrepreneur enlightenment. Why do so many creative entrepreneurs find themselves in this situation? Quite simply, the way they charge is broken.

Charging hourly, and especially charging hourly ‘just because’, can cause you some real headaches.

What is Your Rate?
The question that I get most often from other creative entrepreneurs is “what is your rate?”. When asking this, they are, of course, asking how much I charge for an hour of work. Unfortunately, hourly is how many creative entrepreneurs charge. They take what they want their yearly salary to be and divide it by the number of hours they want to work each year and, whammo, they have an hourly rate. Worse many creative entrepreneurs don’t even think about their yearly salary first, but instead just pick an hourly pricing model because, well, everyone else charges that way when they are independent, don’t they? Rest assured hourly is not the only way that you can or should charge. In fact, many times, I’d caution against it. Because charging hourly, and especially charging hourly “just because”, can cause you some real headaches.

Throughout the series, we’ve been addressing the “I should do this just because that’s what creative entrepreneurs do” mentality, so I won’t go too deeply into the problems with this mentality again (if you’re new to the series, check out It’s Not About What You Do, It’s How You Do It – to get caught up). It should be clear to us all, by now, that intent and purpose are key to finding CE success.

All of this pricing model stuff is great for me, I make more money, I work when I want, but is it feasible? Will people even hire me? Is this really fair to my clients?

So instead, today we’ll talk about the problems with charging hourly (as many of us do). One of the huge problems that I see with it is: if one charges by the hour, then they are charging based on an amount of time. Meaning if their work takes longer to complete they’ll make more money, and if they work faster, they’ll make less money. This can be unfair to the client (why should they pay more because you hit a snag or simply because your process takes longer?), and this can also be extremely unfair to the CE (why should you make less, because you work faster?). It also requires you to be really, really good at estimating how long your work will take before signing a contract, which can be extremely flawed. And, with creative entrepreneurs, estimates are usually flawed to benefit the client, not us.

These points being said, sometimes hourly can work for people, afterall, we’ve all seen people make it work. So, perhaps the biggest problem with all that we are discussing is that picking an hourly pricing model because you think that’s what independents do, means you aren’t tailoring your pricing model to the specifics of your business. You are trying to fit two non-matching items together (your business + a pricing model that isn’t tailored to your business) and, most times, this is what causes us to fail in executing on getting more value from our work.

Picking the Correct Pricing Model
But have no fear, I’m here today to help you pick the best model for you! It can be done, as a matter of fact let me illustrate to you how it can be done, with a story.

I have many independent friends. One of which is an extremely talented mobile product manager and coach. This friend is also extremely brave, and, recently, she decided to abandon the traditional creative independent “I deliver designs” model to follow her passions around teaching and coaching. Thing is, it’s hard to find people that want to hire an independent product manager and coach. Her market is very niche. Also, charging hourly was leaving her with little time, and very little money. For her, as a coach, she needed a pricing model that both allowed her to provide the most value, and still benefit from sharing that value with her clients. In order to determine this, she did two things. First, she experimented with different ways to get paid (hourly versus flat rate versus monthly retainer). She tried all three, and figured out which satisfied her personal business goals best. In conjunction with figuring out ways to get paid, she experimented with when to get paid. She played around with having clients pay her monthly, bi-weekly, and with getting percentages upfront versus at the end of sessions. Needless to say, she found a pricing model that works best for her, and is happy for having taken the time to do so.

How do you figure out what best works for you? My first recommendation is to follow my friend’s lead and experiment with how to get paid, and when to get paid. Then line the two things up with what works best for you. I could go into more detail about when someone should charge hourly versus flat rate versus retainer, and when someone should charge monthly versus weekly, but why reinvent the wheel when there are so many resources out there already, right? One of my favorites is the piece Ironclad Contracts: Tougher Than a Pinky Swear, by Whitney Hess. In her piece, Whitney tells us all about the different hows, whats and whens of charging, in the context of creating a contract that protects you (also extremely important for us CEs). I recommend taking her advice to heart and molding a pricing model that works best for you.

But, Is This Realistic?
Now, I know what you may be thinking or, at least I know what my friend was thinking as she was taking part in her experiments. She was thinking “All of this pricing model stuff is great for me, I make more money, I work when I want, but is it feasible? Will people even hire me? Is this really fair to my clients?”

And I’ll tell you this, just as I told her. It is important to keep in mind that you are no longer a cost, but you are an investment. Therefore, you must always ask yourself if the services and goods you provide add enough value to justify investing in you. If the answer is yes, you are providing them a great deal of value, then the answer is yes it is not only feasible to charge how you want and when you want, but it is more than fair, as you will be directly impacting your client’s bottom line in a big way!

The outcomes of tailoring how you charge to your business are huge. In fact, the outcomes of completing the steps that I have been explaining in this series to date are huge. Once you have understood your why, how and whats, started charging your value, and have created a pricing model that works best for your needs, you have successfully created the foundation you need to start bringing in better business. You’ll no longer question your worth, why your business exists, what you should charge, how to charge and when to charge thereby freeing up brain space to find the right clients for you.

You know what they say about dating, right? In order to find the right person for you, you have to work on yourself first. Well, it’s the same thing with business, and completing these steps means you’ve done the self work. That means in our next post, we’ll talk all about how to find the ideal (or at least better) clients for you. Until then, happy pricing modeling!

Comments

  • Frank McClung

    You’ve done commendable job identifying the issues involved in charging an hourly rate but offered no concrete, detailed alternatives. Maybe a follow-on article?

  • http://www.mecenato.co André Bose do Amaral

    Agree with Frank. I’d love to see more details being discussed. Things like: using time-based discounts for generating approval urgency, tools to lower friction in invoice payments, help on how to draft strong clauses in work agreements, etc.

Related Articles