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Discussion on: Getting paid per hour or per project?

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simoroshka profile image
Anna Simoroshka

This is a great resource, thank you for the link! I really liked the value based price approach and explanation of how to get there.
I think I might send it to my management as they struggle with the transition from hourly pay to the product/service model.

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jamesmh profile image
James Hickey

Ya, it seems to just make sense. If you have a developer who's really good at what they do, and you charge by the hour, you actually lose money because that person is too fast...

So either:

  • You tell that person to stop being so good because they are costing the company money (that's insane)
  • Price the projects by the value it brings to the client.

The time it takes shouldn't matter to the client - as long as they are given a pretty decent expectation of when it'll finish.

It also avoids the issue of causing clients to get upset when projects go over the estimated time (which always happens). Why should they have to pay for that? Why should they have to take on that risk?

If you charge a flat fee for the entire project, and it goes over the estimated time - it's not on them! They won't get upset at you!

Finally, it makes sense to price the result that they get, not the deliverable. That does involve having to figure out, with the client, what the reason is they want the project in the first place - does it produce more sales/money? More leads? Better reputation for the brand - which leads to more sales? etc.

Just "building a mobile-friendly website" isn't what they really want. What they might really want is "more organic search traffic to get awareness of the brand", etc. - an outcome you can measure (with SEO tools, etc.)

Once you think about it, hourly billing just doesn't make sense!

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anndd profile image
Anna Su**

I don't get this argument. Better (faster) developers charge more per hour.

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jamesmh profile image
James Hickey

Yes, but what happens when you start charging $300+ an hour? You start losing bids.

For example, take the point I mentioned about the fact that most projects go over the estimates.

If you are charging a lot per hour and the project goes over - your client will be on your back like a rabid wolverine. Or, they just won't work with you again.

The shift is instead of charging for time and labour, you charge based on the value that the client receives.

This is a total paradigm shift. It allows you to focus on drilling into why the customer wants what they want (the root reason) and then charge for that.

This almost always means you can charge way more for the project in general, because your price isn't tied to time but to business outcomes.

For example, let's say I'm really good at helping businesses drive more sales because of skills XYZ. Specifically, I guarantee at least a 20% increase in sales per year.

Let's say it takes me 3 days worth of work to cause a 20% increase in sales by changing conversion rates, etc.

For a company making 5 million in revenue that year, that's $1,000,000 extra that I brought in. If I charge 10% of that for my project fees, then I've made $100,000.

What if I charged per hour based on the same gains? I would have to charge $100,000 / (8hrs per day * 3 days).

That's $4,167 per hour.

What sales pitch would you prefer?

  1. "I can help you generate 20% more revenue this year ($1,000,000). I charge 10% of the gains you make. We'll do a 3-day workshop where I'll tell you exactly what needs to be fixed in your business."

Vs. the typical freelancer

  1. "I'll work with you for 3 days at $4,167 per hour to fix your website and make it look better and make it mobile friendly. Maybe we can use Wordpress too."

Notice the difference between charging based on time and labour vs. charging based on business outcomes?

Hope that helps a bit!

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anndd profile image
Anna Su**

Your pitches are apples v oranges and yet, I've never heard of anyone getting sold on the first one or at least not to a crook. There are continuous revenue share models where you get % but only as long as you provide value and there are success fees for one time projects as you described. The only case similar to what you describe where you put value once and gain benefits indefinitely is the VC model, but we all know it rarely works and feeds on big wins.

Even lawyers bill per hour.

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jamesmh profile image
James Hickey

We'll have to to agree to disagree 😂