When launching your business you may have decided to provide professional services such as social media management, branding strategy, copy writing, bookkeeping, or business coaching and consulting. Most of us in professional services provide services to other business owners, and our work can be a one-time project, or can consist of an ongoing relationship with our clients. Either way, one of the first questions we have is, “how do I price my services?”
This can be one of the most difficult tasks for the new or early-stage business owner. First, we’re not sure how much to charge for our time, and second, it can be difficult to estimate how much time it will take us to perform the work. Notice both of these questions revolve around time. Our first instinct is to price based on time, so many business owners will come up with an hourly rate, perhaps based on research of competitors, and then bill clients according to this rate.
Advantages Of Time-Based Pricing
There are advantages to doing this in the early stages of your business. Since you are starting out with little experience, you really don’t know how much time is involved, making it difficult to come up with a flat fee. Flat fees are scary when you don’t know what to expect because you fear you will underestimate the time it will take you, and will wind up working for free. Billing on time gives you the experience to know how long a job or project will take, making it easier to estimate time in the future.
Another benefit of time-based pricing in the beginning is it helps build your client base. In the early stages of your business, before you have testimonials or referrals, potential clients need to know they can trust you. Time-based pricing is non-committal, and allows the client to ease into working with you.
Disadvantages of Time-Based Pricing
However, time-based pricing has many disadvantages, and once you start getting your business off the ground, it is smart to move away from time-based pricing and move over to either project-based or value-based pricing. The problem with time-based pricing is that it requires you to work more hours in order to make more money. Not only is this not sustainable, but it doesn’t allow you to expand or scale your business.
When Is The Right Time To Move Away From Time-Based Pricing?
Once you have had some time to build experience in your business and feel more comfortable with the work you do, the services you provide, and how long the work takes to complete, the easier it becomes to move from time-based to fee or value-based pricing. There’s no need to wait until your client load is full, but you should wait until you at least have worked with a few clients who will give you solid testimonials. This will show potential clients that you have experience, and that your clients see results.
