When B2B business owners in service industries start their businesses, they typically set an hourly rate. To set this rate, they will likely consider the fees charged by the last company they worked for, how much they were being paid as an employee, how much their competitors charge, or a combination of all three. This may be great for those getting started but it’s not a good long-term pricing strategy if you want to be profitable.
There are many reasons why you won’t want to keep a time-based rate in place. We’ll look at five of the most common here, and provide an alternative for each. If you would like to discuss some of the other pricing strategies you might consider using, let’s chat!
- If you are not new to the business world, you won’t want to be seen as less experienced or incapable. An hourly rate is frequently interpreted as a sign that you are one or both of these.
Consider providing a flat, project-based rate. Don’t forget to factor in any related costs, and include additional time for revisions or updates that will be needed to ensure your client is delighted with the outcome.
- While you might think an hours-based limitation will encourage efficiency, it can easily encourage your team members to work less efficiently. It can also lead to an error-ridden process or result.
If your goal is to maximize efficiency and profitability, consider bundle pricing and providing performance bonuses. And don’t forget to add the anticipated bonus amount into the overall fee.
- Time-based engagements limit your overall earnings potential, because time is limited. In addition to working on client projects, you will need time for marketing and administrative tasks. The maximum amount of time most consultants can devote to client work is less than 50% per year.
Use a dynamic pricing strategy that is determined by who the customer is and when they are buying. Lower prices can be offered to repeat customers or those who buy during slow periods.
- Time can easily become a commodity, especially if you are competing against other professionals who are able to complete the same work in less time. When this happens, you will find yourself increasingly competing on the basis of price. That’s a race you don’t want to run, because it’s almost never really profitable.
Don’t allow yourself to become a commodity. Use a value-based pricing strategy. If your skills are uncommon, you could even consider a premium pricing strategy.
- Perhaps the most compelling reason to avoid an hourly rate is that it will immediately cause your prospective client to feel increased fear about the total cost. This is often subconscious, but it can lead to issues during the project, such as complaints.
In this case, a value-based pricing strategy can go a long way towards ensuring your offerings are seen as an investment.
As you can see, a time-based pricing strategy may be great for anyone starting out, but it’s not really good in the longer term. You need to have a finely crafted pricing strategy based on your unique business to sustain profitability. If you’d like to discuss the best pricing strategy or achieving your goals, set up a meeting with our pricing strategist.
