Shift from the Hourly Pricing model to Value-Based Pricing in your business
Are you a Consultant or Coach? If so, please read on…
Are you feeling like you are no longer willing to trade time for money?
Are you frustrated with “being forced” to carry such a heavy client load?
Are you now realizing you would like to switch out of the done-for-you work model to the done-with-you consultant or coaching model?
You want to get out of the hourly pricing mindset, but can’t figure out how to make the switch over and are worried your clients will fire you if you raise your prices. You don’t have anyone in your experience who has done this before and who understands how to help you practically bridge that gap.
I see this quite often and have some observations I would like to share. I acknowledge you and these frustrations are coming from a legitimate place in your soul so let’s explore some reasons why:
You may not have clarity around the actual value you are leveraging for your clients. That’s ok; you’ve been working so hard IN your business but now it’s time to take a step back and work ON your business.
You may have some hidden and underlying mindset issues: your parents told you that you aren’t better than everyone else, you have always been stuck in “survival mode” and cannot fathom your finances being otherwise, no one else around you in your real life is an entrepreneur like you are, you’ve never made that much money before so it seems outrageous to charge more, you’re not even sure how to manage that money after you begin charging your new ideal rates so you just hold back in fear of the unknown, or you struggle with your worthiness to receive higher income.
Here’s how to overcome these issues:
First, take the time to make a decision: to investigate and to find out more information about how to level up your fees (i.e. read below). Every change begins with a decision, meaning “to cut off”, to “draw a line in the sand”, “to release and move forward.” Trust in your ability to bring results for your clients.
So, are you ready to take a real leap of faith in yourself?
Value Ratio: If you are doubling a business’ revenue in a short period of time–like in 12 months’ time–your value is very high. Here are some examples: $600k - $1.2 million in 1 year, increasing your client’s business income by an additional $600k/year. And you’re still charging $1k/month retainer? $600,000:$12,000 doesn’t seem very equitable, does it? And if they can use your consultancy/coaching services and training for repeated success in their business even after you’ve finished working together, your value increases even more.
But you might say, “Well I only meet one hour per week with them so that’s about $250/hour. That rate already seems really high to me.”
Let me remind you that employees get paid for their time. Entrepreneurs get paid for their results.
This is a common mistake that many entrepreneurs make: they value themselves based on a random hourly rate. It’s completely understandable, especially when you are coming from an algorithm-based salaried corporate job or have been instructed that ‘standard practice’ is to charge a specific rate per hour as a consultant. (*The exception would be that if the client requires some short-term, add-on time from you, using an hourly rate to estimate the short-term value of your additional time allocation could help you make a general determination of what to charge. I am stressing the importance of it being “short term” and an “add-on”--not a replacement–to your current monthly retainer fee or package rate. And you obviously do not reveal an hourly rate on your invoice; this is for simple and quick, down and dirty, in-your-head estimation purposes only.)
Here’s the secret when you’re servicing business owners: They need to see a practical ROI on their investment with you and you are the one who needs to communicate that value graciously and clearly.
Side Note: If you are having a hard time placing a specific ROI value on your coaching, go back and interview your past and current clients to discuss it; ask them questions about how your services have provided value to their business. Maybe it wasn’t an exact dollar amount but it brought peace of mind/stress relief [as in the case of a fractional C-Suite consultant or mindset coach] or improved health [as in the case of the health coach] to the business owner so ask them what it could be worth to them or what would they save over a period of time (ie.e medical bills, wasted revenue on bad hires, missed sales, etc.) because of the change you facilitated. If they cannot give a dollar amount, ask them what those results would mean to them over the course of their lives, the real game-changing difference it would make for them.
Here is a simple value-based ratio to initially guide your pricing: 1:6, or 16.7% of new and additional income added to your client’s business, directly based on your consulting or coaching. This should be based on the typical monetary increase you are bringing to your client in 1 year’s time (of course there are no guarantees, yet there are typical scenarios you provide if you are good at bringing consistent results).
For example:
If you can facilitate systems or results to bring your clients an additional $150,000 gross revenue to their business in 1 year, you should be charging ~$25,000. Your coaching holds a one-time fee, whereas their results are ongoing and in perpetuity, if they are teachable and they truly implement your coaching (i.e find those teachable clients!).
Your actual container of time or direct access to you may vary based on your business model and how quickly you can facilitate results. It makes sense to reduce your fees slightly from the ratio above if you limit direct access to you via a shorter time container. It’s safe to say that using fair judgment is the best way to run a business with integrity and to earn trust with your current and future clients.
Another example:
If you are a Fractional C-Suite consultant on retainer, you could explain the offer to the business owner as getting full time C-Suite results for a fraction of the cost (I know this seems obvious, but most business owners are busy and distracted so getting crystal clear on your offer value is golden). Most C-Suite executives are making anywhere from $150,000-$400,000 per year, depending on your experience, industry, and where you work (i.e. Ohio v. New York City). If you are charging $40,000 per year and producing incredible results (don’t forget, as an entrepreneur, you are paid for results), then selling your services should be a no-brainer to the business owner who really wants to really expand their business in the next 12 months.
So it’s time to stop undervaluing your services and the real transformation you bring to your clients. Let me use a little magic to assess your business and co-create a “new normal” of revenue for you.
In my 6-week Profit Mentorship Intensive, shifting out of the hourly pricing model to the value-based pricing model is one of the main things that I help successful 6-figure consultants or coaches to figure out in order to typically go from around $120k per year to $250k+ per year in revenue. We also work on customizing your offer stack for higher profitability, reducing your overall working time per week, and how to manage your 6 figure income with full access to my Profit Stack business resources: customizable trackers and calculators you can use forever. Email me if interested and we will have a quick chat to see if it’s a fit. (cassie@cassiesaquing.com)
Given that this is an offer I believe is likely to add $100k to your bottom line, I have assigned a price, which is a no-brainer, of $7k.
Clarity on what this is not: It’s not about simply raising your prices. It’s also not a cookie-cutter group mastermind or a 5-step evergreen course for consultants or coaches who have not yet reached that 6 figure mark.
Disclaimer: The income amounts stated above are for illustration purposes and are not guaranteed.