How to stop hourly billing

Pricing is one of the big issues business owners and freelancers struggle with. Far too many entrepreneurs opt for hourly billing when they start out, only to get stuck in the cycle of charging per hour for their expertise. It’s a pricing model that limits earning potential and stunts any decent level of business growth. It also makes it difficult to outsource because you’re constantly thinking about your bottom line - it’s why I always recommend moving to fixed prices and packages as soon as possible!

But if you’re currently charging per hour, how can you move to fixed pricing?

I recently interviewed Geraldine Carter, owner of SheThinksBigCoaching.com, on this subject for my podcast. She helps Chartered Accountants with pricing and business strategy, so they can go from overworked and underpaid to nicely compensated with a regular, sane work week. So if you’re looking to stop hourly billing yourself, here’s how to switch to fixed pricing.

Pricing (and business) strategy aren’t things we automatically know

Pricing strategy isn’t something every entrepreneur understands, especially when just starting out. But you can learn how to improve it - and the better you get at pricing, the easier business becomes. Because pricing isn’t a one-and-done thing, you’re going to want to regularly review and adapt it based on your knowledge, level of expertise and experience, and your clients' needs.

When you learn how to price effectively, it helps everything. It makes a difference in how much easier your business gets and how much better your customers behave. Because the cheapest customers are often the worst ones, you can pretty much guarantee they'll be the most demanding!

How to move existing clients from hourly billing to fixed pricing

Start with something you repeatedly do, and you're familiar with its scope. You want something that’s a pretty predictable length of time to complete, and you’re accurate to plus or minus 10%. 

Look at how much you typically bill your customer for that thing, and then just take the average. So let’s just say, for example, you usually charge £100 an hour, and it takes you on average 6 hours to complete - that’s £600.

Now set a new fixed price for it. Let’s go with £950 as a flat rate for new clients. 

For existing clients, if they want to purchase it again, explain that you used to bill them hourly, and it’s always worked out pretty close to the same amount of time, every time. You’re happy to stick with x per month and go with that, but review it in 6 months. 

Improve efficiency once you have a set price in place

Once you’ve set the fixed price, look to get more efficient with the process. Look for opportunities to systematise, batch your work, and delegate pieces of it if you can to a VA or an assistant. And look for all the ways you could optimise it so that you can get faster at it.

Once you’ve set the fixed price, your incentive is to get faster at what you do. Because now, you're looking for ways to improve your margins on the same kind of work.

You can also test your pricing and conversion rates. Start by bumping up your prices by 30% and see what conversion rate you get. You can then increase by another 10%, and if you’re still converting clients, you’re in a good spot. Keep increasing your price gradually, and if your conversion rate goes zero, maybe you've gone a little too far, and you lower the cost again.

How to prevent fixed pricing scope creep

When it comes to fixed rates, how do you handle scope creep? There are always going to be people who need and want everything. But firstly, know that needy clients aren’t a pricing problem - they’re a client problem. If you're going to solve that problem, start by getting them into a pricing situation where they may become a good client. If you go through that process, and they're still a bad client, then you want to disengage the client. 

Now, if you’re looking at a way to handle scope creep, start by understanding the scope of your service. It’s up to you as the professional to define the scope and say what's included and what your clients are buying.

It’s also down to you as a professional to hold the boundaries. When you notice a client pushing the boundaries, maybe intentionally or unintentionally, it could be because they don't know or haven't memorised what's inside and outside your scope. You just remind them of those things, and if they still want the other things outside of scope, you can bump them up to the next level of service - give them the choice.

Quoting for something new

If you’re quoting a new client or a new ad-hoc service, It’ll be easier for you if you’re already well-positioned in the marketplace. That is, what you do and who you do it for. The more positioned you are, the more predictable your workload becomes and the better you understand what it takes to deliver the results your clients are requesting. 

When it comes to pricing something new, start by understanding what it’s worth to the client. Why is it important to them, and why do they want it now? What are the outcomes going to be for them - as these things are all emotionally intensive and time-intensive. You can then opt for a flat rate price and productise your service as much as possible.

If you’re looking to price a one-off project, start by understanding what that client is trying to create. Have a standard questionnaire of the things you need to know, and keep asking questions until you understand what will be required on your side to deliver the result they're looking for. And that will help you have a better understanding of how long it's going to take you. You can then figure out the minimum fee you're willing to be paid for doing the work and quote them a price above that. And if they say no, they say no. But at least you're in integrity, and you've given them a chance to decide whether or not it's worth it to have the thing they want for the price you're offering. 

The bottom line here is to slow the conversation down at the outset and understand what is being asked of you before you simply say yes and start working. If you need to have a discovery call or a look under the hood a little, factor that time into your pricing. Because if you don't take your time to get the answers you need to price more effectively, you're going to end up unhappy with your return and dealing with an unhappy client who's paying more than they wanted to.

Because more often than not, when you force people to think about their needs, it also pushes them to be a bit more concise and clear about what they want and how much they're willing to pay for the different options available. 

Your client doesn’t understand your business - they just want the solutions you provide

Remember, your clients don’t know the tools of your trade, and it’s not their job to do so. They’re looking for a solution to a problem or need they have. As the expert, it’s on you to help them think through what they need without having to become an expert on the tools of your trade.

Often, they don’t understand what they're looking for and don't know what’s available; they just need some help. You can then step in and say what you offer - is this what they want to have and are prepared to pay for? Don’t let the client dictate it all for you. Being able to guide them through the process is enormously valuable to them. You’re helping them understand the landscape of what they're dealing with and what they’re asking for to figure out where they are in the realm of available and possible services.

And be prepared to walk away. Don’t let your client dictate what you ought to be doing. That is a surefire recipe for you feeling like a servant or a doormat for them. Come from a place where you understand you may have what they want but may not be the thing they can afford. And that's okay, too - as you may be able to point them somewhere else. 

Hold your ground as the expert

It’s about holding your ground as the expert. When you become an expert at what you do, and you're well known for it, you're sought after, and you're one of the very few (if not the only) available options. The fewer options there are to hire an expert, the more you can increase your prices because where else will they go? Because people will always have an option as to whether or not they purchase from you. Your service is very likely not to be required. So the incentive for you as the professional is to become an increasingly deep expert in what you do, so you can continue to raise your rates, continue to offer increasing amounts of value and offer value quickly. Because people want their problems solved as soon as possible. 

When you divorce your time from your rates and pursue expertise, you can get better and faster at solving people's problems. And your rates continue to increase - and that's how you get your time back.

You can find out more about Geraldine and her services on her website SheThinksBigCoaching.com. You can also opt-in for a copy of her ‘$10,000 an hour CPA scorecard’, where you can rate the quality of your thinking and how well you think about the challenges in your business - you’ll find that here.