Why you’re losing money by charging hourly: A brutally honest breakdown

Listen up, fellow freelancers, consultants, coaches, and service providers! It’s time to talk about why hourly pricing is the bane of our existence. I mean, sure, it’s easy to understand and calculate, but it’s also a trap, and here’s why.

When you charge by the hour, you’re telling your clients that your time is the only thing that matters. The thing is, you know that your expertise and experience are worth so much more than just an hourly rate.

But fear not, my friends. There’s a better way to price your services. It’s called a value-based pricing strategy. Stick around, and you’ll see why. I’ll even show you how to implement a value-based pricing strategy for yourself! 

Let’s go.

How hourly pricing undervalues your work

Think about it, if you’re charging $50 an hour, you’re basically saying that your skills, knowledge, and value to the client are worth a measly $50 an hour. 

That’s like giving your clients a chance to dine in a Michelin-starred restaurant and pay fast-food prices. That’s just not right, is it? And don’t even get me started on how hourly pricing can mess up your client relationships.

If you’re charging by the hour, clients might wonder why it took you two hours to complete a task that someone else finished in half the time. This can create some serious trust issues, which is not a good look for anyone. 

Another thing. When you charge clients by the hour, they may have this perception that you’re a low-value, quick-fix solution to their problems. It positions you as a cheaper option – opening the doors to penny-pinching and haggling. 

So, what exactly is a value-based pricing strategy? 

With a value-based pricing approach, you’re not charging for your time but for the value you bring to your clients. It’s like telling your clients, “I’m not just a productivity machine; I’m a value machine!” (Okay, that might be a bit cheesy, but you get the point.)

Value-based pricing allows you to charge what you’re really worth, based on your customer’s perceived value of your services. This is a far cry from cost-plus pricing or competitor-based pricing, where you base prices on production costs or what competitors charge.

What are the advantages of a value-based pricing model?

There are some pretty sweet advantages to using a value-based pricing strategy. Let’s take a look.

More money

First and foremost, with value-based pricing, you can charge higher prices! That’s right, my friends, higher prices mean higher profits.

It’s like selling luxury cars – people will pay more for perceived value, even if the actual value isn’t much higher than a regular car. And if you’re selling a product with high perceived value, then value-based pricing is the way to go.

More loyalty

Another advantage of value-based pricing is that it can help you build customer loyalty. When customers see that you’re charging based on the value you’re providing, they’ll be more likely to stick with you because they’ll feel like they’re getting their money’s worth.

More differentiation

Value-based pricing also allows you to differentiate yourself from your competitors. If you’re charging the same hourly rate as everyone else, you’re not standing out from the crowd.

But if you’re charging based on the value you bring with value-based pricing, you’re showing your clients that you’re not just another freelancer or consultant. You’re the best of the best, and you’re worth every penny.

More value

A value-based pricing model is not just about charging more for your services; it’s also about delivering more value to your clients to enhance customer loyalty.

When you focus on the value you bring to the table, you’re more likely to go above and beyond for your clients. This tends to produce better results and happier clients (who love telling their friends about the awesome service you’re providing!)

Disadvantages of value-based pricing (because I’m nothing if not fair)

Now for the not-so-great news. There are both advantages and disadvantages of value-based pricing. And since I’m a pretty hardcore fan of value-based pricing, I think it’s only fair if we look at some of the disadvantages of this pricing strategy to remove any bias. 

Knowing your value is tricky

It can be difficult to determine the customer’s perceived value of your product or service. This isn’t an exact science, folks! You might think your product is worth a lot, but your potential customers might not be willing to pay the highest price.

Won’t work for every business

Value-based pricing may not work for all products or services. If you’re in a niche market, for example, then you might have to rely on other pricing strategies. And if you’re trying to compete solely on price, then value-based pricing might not be your best bet.

Potentially higher costs

If you’re trying to provide superior service, then you’ll need to invest in quality training, excellent technology, and knowledgeable staff. These service costs can drive up your prices, which might turn away potential customers who aren’t willing to pay the higher price point.

How to implement a value-based pricing strategy

Transitioning to value-based pricing isn’t as simple as just raising your rates. You need to have a solid understanding of the value you bring to the table and be able to communicate that value. Here are some steps you can take to make the switch to value-based pricing:

#1 Understand your value proposition

Take some time to think about what makes you unique and the value you bring to your clients. What problems do you solve for them? What results do you help them achieve? Understanding your value proposition will help you determine your pricing.

Here’s something that can help: “How to create a brand message that sells (or gets people to buy).

#2 Determine your pricing

Once you know your value proposition, you can start thinking about your pricing. Look at what your competitors are charging and consider what your target market can afford. Don’t be afraid to charge premium rates if you truly believe in the value you bring.

#3 Communicate your value

When communicating your pricing to your clients, focus on the value you bring, not the cost. Show them how your services will help them achieve their goals and solve their problems. Be confident in your pricing and don’t apologize for it.

#4 Offer different pricing packages

Offering different pricing packages can help you cater to clients with different budgets. For example, you could offer a basic package at a lower price point and a premium package that includes more services and higher value.

#5 Deliver on your promises

Once you’ve set your pricing, it’s important to deliver on your promises. Focus on delivering the highest value possible to your clients and exceeding their expectations. This will help build trust and loyalty, leading to long-term client relationships.

It’s time to put your value where their money is

So, if you’re ready to take your business to the next level, it’s time to ditch hourly pricing and embrace value-based pricing. You deserve to be compensated for the incredible value you bring to the table. So go out there and show ’em what you’re worth!

You probably aren’t charging what you’re worth

My hairstylist charged me $20 bucks to color my hair. When I told her she was crazy, she said, “but I just threw some color on, it didn’t take long, no big deal.”

I don’t know about you, but when I “throw color on my head” it doesn’t look the way she makes it look.

My landscaper hasn’t raised his rates since….forever. When I told him he should, his eyes got wide. “But it still takes me the same amount of time or less”.

I don’t know about you, but it would take me 3 weeks (maybe never in the summer) to make my yard look the way he does.

Charging your worth isn’t about time

It doesn’t matter how long something takes you. That’s not what you are selling. You are selling a solution to your customer’s pain or problem.

Hair Stylist: You aren’t covering my grey hair and faded color. You are giving me FUN HAIR that make me feel good and hey hey, I think I look a few years younger too. ?

Landscaper: I don’t care about the grass or leaves, I’m thrilled that I don’t have to worry about the HOA sending me some damn letter about my yard or dying from heat stroke.

I could do these things myself.

I could color my hair and mow the lawn.

I could train my dogs, but I hire a trainer.

I could fix my stove, but I hire an electrician.

I could fix my roof, but I hire anyone just so my husband never climbs a ladder.

I need these services, yes, but they solve deeper issues.

When you solve people’s deeper issues, you can start charging what you’re worth

The dog trainer makes me feel less overwhelmed and stressed by providing me with the tools and resources I need for *my* dog and all her issues.

The electrician and roofer are similar in that they both keep me from being a widow right? But in all seriousness. They give me peace of mind. I know my house isn’t going to burn down or flood.

FedEx? That’s a big company and you might think they ship things. But a lot of places ship things.

I choose FedEx because I know my package is going to get to where it needs to be when I need it there. That peace of mind. That is what they sell.

When you start looking at your services by the value they provide your customer or client, then you can start setting yourself apart from everyone else and charge premium prices for your service.

Your thing isn’t a commodity.

Your thing is valuable and needed by your people.

The hair stylist should be charging more than $20. The landscaper should be charging more than $25. The dog trainer should be charging more than $20. And so on.

And if someone thinks you charge too much, they aren’t your people. Find people who value and respect what you do. (there are a lot of ways to go about that from branding, messaging, copy/tone, service offerings, etc)

I write all of this as a reminder to myself more than anything. I struggled today with charging for my time. “Oh, that’ll just take me 30 minutes, no big deal”. I have done this to the peril of my own business for years.

If you are a service-based business owner reading this, don’t be like me.

Your knowledge and expertise are not common outside of your sphere and you deserve to be paid for it.

Repeat after me: I am not going to feel guilty for asking to be compensated for my time and expertise. I am not going to feel guilty for asking to be charged what I am worth.