Stop charging hourly! Start charging for the Value!
Ask questions to understand the client, business goals, competition, problems, the VALUE and offer your solution based on that, not on your hour.
Money has always been an uncomfortable topic to talk about, especially for us creatives. We value our creation, get satisfaction from the process and the result so much that we often do not really give the importance it deserves to this money topic.
I have been designing for many years now and my one-man freelance design business has generated income in 7 figures. It is not because I’ve worked more hours, on the contrary, each year I've worked fewer hours while earning more. How?
Price for the value, not for your hour!
What is Value?
Businesses greatly value time, the longer they are off the business, the longer they won’t be making revenue. So with this logic, the sooner they go live, the sooner they start making revenue. Now, reflecting this to your hourly pricing, the less hour you put into your work, the less it costs to the client.
Wait! there is a conflict here! How come something that is so valuable to the client would cost less.
Let’s change the logic here.
The lesser hour you take to deliver your work,
The lesser time it takes your client’s business to go live and start generating revenue,
And what is enabling this is your efficient delivery.
That’s the VALUE!
The shorter it takes (without sacrificing the quality), the more valuable it is. Not the other way around.
OK, so how do you finish something quicker without over-working or sacrificing quality?
Experience! The more experience you have, the more you can make educated decisions in your design. That’s how I have been increasing my rate with every project and earning more while working fewer hours.
What your client pays is not really the 1-hour work you do at the technical level,
but the 10 hours of work done in 1 hour backed with years of experience, based on educated design and business decisions, the time you save for your client and the value you give to your client’s business.
What if I don’t have the experience?
There is always someone out there with less experience than you have. It may not be the 10x rate at first for you with less experience, but at least 2x. Btw, there are many ways to position yourself as an expert, but this is a whole another 1000+ words article.
But how do you communicate that to clients?
Here is how a traditional conversation goes for an hourly rate. Of course, this is overly simplified, but the general flow is like this;
(C)lient: I need a website.
(D)esigner: OK, what is it for? what is the scope?
C: A website to sell my clothing products. How much do you charge for that?
D: OK, a typical e-commerce website. It usually takes 15-20 hours, and I charge $100 per hour. So between $1,500 to $2000.
C: OK, can you do $1k? (because there is always a negotiation)
D: Maybe, $1,200?
C: OK. Can you start today?
Here, the designer asks questions to understand the timeline, so he can make the magic calculation to find how much he can make from this project. Congratulations, you just punished your experience and greatly undervalued your design work.
Here is how a value-focused conversation goes:
C: I need a website?
D: OK, I have experience in that. May I first better understand why you need a website, please? What business do you need it for?
C: A website to sell my clothing products. How much do you charge for that?
D: OK, so we are talking about an e-commerce website. How do you currently sell your products? Do you have a physical store? (don't answer that how much $ question yet, you are trying to understand the value now)
C: Yes we have 2 stores in London. There is big interest from people around the country and world. That’s why we want to go online.
D: Awesome! Your product must be of high quality for such demand. What is the average price of your product? How many do you usually sell a year? (you are trying to understand the revenue model)
(or you can directly ask based on the client) How much revenue does your business generate a year?
C: It averages between $1m to $2m.
D: Amazing job for running such a successful business! Do you know how your competition is doing with their online store? Having a reliable, high-quality online store would open your business to millions of potential customers with much greater revenue. It is important to have a digital market that reflects your personality, high-quality products, your attention to detail though...
C: Yes exactly! It is good to see you understand our concerns and goals! How much would it cost to design our online store?
D: (OK now you have a better idea about the client’s business, revenue, potential value, problems, concerns, so you start with a little assurance...) it is important e-commerce websites carry the personality of these physical stores, and it is important ...... I charge between $50k to $30k (for example, 5% of current revenue which is an even smaller amount comparing what the online store is going to bring to the revenue bucket).
C: It sounds a bit expensive. We do not have that kind of budget.
D: I understand. FYI, I’ve experience in this field, I have faced and solved various problems in this area. The design I’m going to hand over is going to be
- time-efficient, so you will be able to start welcoming your new clients sooner.
- high quality, so it will reflect the quality of your products and gain the trust of your new visitors.
- reliable and easy to use, so your visitors will be able to clearly find → add → purchase your products.
I’m offering efficiency, you will not have to go through many design revisions with me and certainly not worry about your online store’s quality. You will be able to focus your energy on your business goals.
C: Well, it all sounds great, but can we do £25k?
(here client either agrees to your price or negotiates. But now you have a good starting number for the negotiation.)
What if the client doesn't want to see the value I add and insists on the low budget?
That's okay, you do not have to take every single project. You can kindly refer him to places where he can find designers for his budget. Your relationship with that client is not finished yet. There have been many occasions where such client has reached back to me after months, saying
"Hey Oykun, so we have found someone to do the job for $1k, it took 5 months and we are not happy with the result!
Do you have any time now to help?"
Now, as you are pricing for the value, there will be some projects you earn 5 figures and some 4 figures for a similar amount of work hours. The difference is the revenue and risk level of these businesses. The more risk, the more value.
There is a crucial matter here though!
You have to deliver what you promise!
This is not a manipulation tactic. This is a way for designers to better communicate their value and earn what they really deserve. Because I have been there, I had many projects that I undervalued my work when I first started.
Don’t punish yourself and don't undervalue your work and your experience by starting client conversations with questions to understand the timeline for your hourly rate calculation.
Instead, ask questions to understand the client, business goals, competition, problems, the VALUE and offer your solution based on that, not on your hour.
If you have any comments or questions about this article, you can write me at Twitter @oykun or email me at hello[at]oykun.com.
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