I completely revamped how I ran my design firm to the point where I worked 19 days in one year and generated over $200,000 to fund my side project.

…Thinking back, my ability to work so little and produce so much income had a lot to do with how I priced and positioned my services, something most small business owners struggle with.

Mike McDerment, Co-Founder and CEO, FreshBooks

A few weeks ago, I was speaking to a friend of mine who was having trouble with determining a price for his work.  Both of us have worked as independent consultants in international health development, so it made send for me to act as his sounding board for figuring out what his hourly base rate should be. He was deeply unhappy with the scanty amount he felt he was being paid.  Making less than $100,000 was demoralizing for him, particularly since he had attended multiple Ivy League universities, had worked for years at one of the Big Three Consulting firms, and had more practical experience than many people who had been in the field decades longer than he. 

The Standard Approach 

“I’ve Googled a whole bunch of companies and created a spreadsheet of the hourly rate from standard consultancy agreements online. It’d be cocky to go too far on the high end, and I don’t want to undersell myself on the low end, so I’m going to propose the average of the median numbers I’ve seen so far.”

I remained quiet.  In our previous phone conversation, I had tried to float the idea of moving away from the expected hourly consulting rates, and instead get him to provide a quote based on the value of the work he delivered.  After that conversation, I had sent him a copy of the pivotal book on pricing for independents and freelancers, Breaking the Time Barrier, with the message “You know your stuff in terms of the technical work.  Now you need to learn how to sell yourself based on value.”

The Commodity Mindset

His situation is not uncommon. One critical mistake that nearly every newbie in the independent work world makes is not knowing how to talk about or position what they do.  

“I’m a web designer. I can make you an outstanding website.”

“I’m an eye doctor.  I can help you improve your eyesight.”

“I’m a lawyer.  I can make sure you have all your legal documents in order.”

Those surface-level ways of describing who you are and what you do are technically accurate, but they are doing a huge disservice to your knowledge and expertise.  Speaking about your work with these types of descriptors stems from a commodity frame of reference.  If you’re a web designer, pitching your work as simply creating an outstanding website doesn’t differentiate you in any way from other web designers.  In selling yourself to potential clients, a good place to begin is by understanding how to set yourself apart from the rest of the field—there are thousands of freelancers and gig workers who can create an outstanding website, so why should anyone choose you?

Using Value Instead of Time

Differentiating yourself from the rest requires you to step selling your services based on how much time you put into doing the work.  Let’s look at three of the core reasons why hourly billing is harmful to your business and your client relationship.

1. Pricing based on time creates a misalignment where the client wants results as fast as possible, but you are paid more the longer it takes.

From a making money perspective, you’d think that billing by the hour helps you cover your costs by making sure your time is always accounted for.  If a project takes longer than expected, you can bill more to make up for the additional time you have to put in. This sounds like a safe way to bill.

However, from a client’s perspective, they don’t care about the specific number of hours it takes you, they care about the outcome.  In fact, the faster you can make a significant profitable change in their business, the better it is for them, and the happier they will be with your services

2. The client is investing in the growth and development of their business.  Your value is in the before-and-after transformation of their business.

Imagine using two consultants for your business: Your business is currently making $5,000 a month. 

Consultant A can help you reach 3x revenue after 12 months of working with you.  You pay that consultant an hourly rate for 12 months. 

Consultant B can help you reach 3x of revenue in 6 months–half the time as compared to Consultant A. That amounts to $60,000 (6 months x $10,000 extra) of additional revenue than if the project were to take longer.

Clients are willing to pay Consultant B a higher amount than Consultant A for that added value delivered in a shorter amount of time.

3. Not all transformations are financial.  Intangible aspects of the transformation should be included in your pricing mechanism. 

When pitching to potential clients, a big part of your selling point should hinge on the before-and-after transformation you can help them make.  For a fitness instructor, this could mean you are helping your client lose weight, cut their spending on fast food by XX%, increase their energy to spend more time with their loved ones, and a number of other transformational changes.

For a management consultant, this could mean you are helping your client increase operational efficiency by XX%, decrease costs by $XXXX, retain high-quality employees through culture change, expand their client base, and many other types of transformations they can experience by working with you.

Pitching based on value as opposed to time is the biggest pricing change you need to make for your business.  My friend, the international health development consultant, eventually stopped seeing his services as just a commodity hourly rate.  Any consultant can charge by the hour and deliver zero value.  The real experts charge based on value and deliver an exceptional service.

Shortly after our talk, my friend began to first have conversations with potential clients about what they wanted to achieve.  He began to understand their pain points beyond “We need to deliver this project”.  He began to see his value within the entire ecosystem of what his clients needed to achieve. His pricing didn’t change overnight, but soon enough, he was being paid far more than he thought he would ever be able to get.

As an independent, you have to do the work itself, but you also have to do the work that gets you work.  Learning how to sell yourself is a critical element of meeting your monthly and annual profit targets to sustain your business and your lifestyle.