If you’re like most entrepreneurs, at some point in your journey you questioned the whole “work for yourself” gig and considered getting a job. Every business owner at one time or another questions their ability to succeed. But then you remember what led you to being a business owner in the first place; being able to control your own schedule, and hopefully making more money than you would as an employee. However, in order to be successful in doing so, your revenue model needs to be based on the value you provide, and not the time you spend working.
It’s normal, and perhaps even recommended, that when you first launch a service business you use a time-based pricing model (you can read more about the reason why). However, if you are looking to work less hours, you won’t be able to achieve your financial goals unless you move from a time-based pricing model to a project, fee or value-based one. There are many benefits to doing so which include more free time, increased profitability, and the opportunity to scale your business.
Work Less, Earn More
When your income is dependent on time, you need to work more hours to make more money. With value-based pricing your income is not related to time, but is related to the value you provide, allowing you to achieve your goal of working less and earning more. An example of this might be creating an online course that teaches business owners how to sell more effectively to potential clients. If a business owner can acquire more clients because of your course, what is the financial value to them? Your pricing for that course might be reflective of that value, rather than the time you put into creating it.
Increase Profitability
As a service provider, your profitability doesn’t come from the difference between the selling price of a product and the cost to manufacture it, therefore revenue compared to time is a better measure of profitability. Value-based pricing helps you increase profitability as it relates to time.
Using the example above, suppose it takes you 100 hours to create your online course. You plan to sell this course for one year and get 50 people to sign up for it. If you were to only charge for the time you put in, and gave yourself an hourly rate of $125 per hour, you would earn $12,500 for the entire course. However, if you recognize that the value you provide is worth $2000 for each business owner who purchases your course, you would make $100,000 selling the course. The time you put into creating it is the same either way, but you are much more profitable when you charge based on the value you provide rather than the time you put into it.
Create a Sustainable Business
The scenario above is a great example of creating scalability in a service-based business. Once you get away from income being dependent on time, it becomes much easier to grow your business. With both increased profits and more time, you can afford to delegate tasks to others, hire contractors and employees if you choose, and spend more time on the aspects of your business that not only bring you more joy, but also create a sustainable business that will continue to thrive well into the future.
