Do you feel stuck in an hourly pricing model? Are you ready to scale, but are unsure how to price strategically?
Since creating the Director of Operations (DOO) certification program, and leading and mentoring 140 women, I’ve learned exactly what types of pain points operators experience.
Today is dedicated to a pain point that occurs over and over again: “How do I switch from an hourly pricing model to an outcomes based pricing model?” Once you figure this out, it will align you to serve a higher level of client.
Hourly vs. Outcomes Based Pricing
It’s totally normal to begin the pricing structure in your business by thinking about how many hours a task is going to take. But I want you to know that there are many risks with that mentality.
- Scope creep: It happens so quickly. You may have done what the client is paying for a hundred times, but each client is unique and some will take a lot more time than anticipated. In that case, there are only a few things you can do:
- You eat it, which reduces your hourly compensation.
- You reach out to the leadership and ask for an adjustment in the pricing. In most cases you have already priced the project and that price is what they are expecting to pay. To go back and ask for additional compensation can be challenging.
Most often contractors don’t address this issue, and chalk it up to another lesson… getting paid less for the same outcome.
- Speed over quality: A business owner who looks for this type of pricing favors speed over quality. As the person who is delivering the work, it’s advantageous for you to do the work faster. You will attempt to find efficiencies so you can be in search of a greater profit margin.
“Most of us want to be proud of the product we are delivering, and speed is not always the winner.”
With hourly pricing, you can also cap yourself because you can only work so many hours. The logistics of managing this pricing structure is really laborious. If they are paying you for hourly work, they will expect hourly tracking, which takes additional time.
“When clients pay you per hour, they tend to obsess over what you are doing every hour instead of focusing on the net effect you are providing.”
As a mentor to hundreds of women in this space, I’ve looked at the way we price, and compare it to the level of impact you are making in that organization. I’m a proponent of educating the DOO community about outcomes based pricing.
Outcomes based pricing is easier when you are contributing at a strategic level of the business, and I encourage you to listen to Episode 70 of The Ops Authority Podcast which details the four different layers of business functions: implementation, management, strategy, and vision.
The higher level you are delivering on, the more aligned you will be to creating outcomes for the business you are supporting. DOOs are taught to price this way because we are always working on that strategic level.
So how do you shift from charging hourly to outcomes based pricing?
Agree on the Outcome
Understand and agree on the outcome that the client is asking for. When you do this, the dynamic between you and the client becomes much less scrutinized and much more relational. You are seen more for the relationship effects you have in the business rather than what it is that you are doing. This opens up two-way communication, where both parties feel welcome to stand up and speak up, and to communicate differences and praise. When you do this you establish yourself as a leader, and create that “all-in” feeling that is coveted by your clients.
“If you want someone to be all-in on your business, you will never get that type of person with an hourly mentality.”
What is the Outcome Worth?
Evaluate what the outcome is worth to the client. Determine what your good/better/best is in your revenue goal, then set the price. Be bold and look at this from the next level. What is going to allow you to get there? This is going to be a sliding scale that you revisit often to make sure you are feeling good about the income you are getting for the level of effort you are putting out.
Build and Communicate Your Authority
You do this by showing off your skill, education, experience, and expertise. You can show your authority in your social media, website, testimonials, and also by highlighting and quantifying the outcomes you’ve been responsible for over your career. A really creative way to do this is case studies. When you do visibility planning, don’t forget to create a mechanism or process for making sure you show off how you are an authority in this area.
Another place to highlight your authority is during the discovery call. When you are on that call, I want you to listen intently to their pain points. Even if you have a script, the most important thing is to listen to what they are saying. They will tell you where their gaps are and if they don’t you will want to continuously dig and ask good questions.
As they are telling you their pain points, you are assessing if you are the right person to join them. If you are, I encourage you to give them some value in the call. Show up, and show off your value. This gives them a taste of the strategic level they will see when they partner with you. If they can see that you are going to be a strategic partner, shifting from hourly to outcomes pricing is going to be natural.
Educate About Pricing
Be prepared to educate the client on why you charge this way, because you may receive some pushback when you propose it. Most business owners are used to being changed per hour, especially if they have been hiring entry level talent and resources that focus on the implementation level. The more immature the business is, the greater the resistance is to shifting this mindset. This is your time to educate the client about how this is benefiting them, and how they are assuming less risk and getting greater outcomes. If your client shifts the way they are thinking about this, their businesses will reap greater benefits and it will allow them to scale even faster.
If you initiate this outcomes based pricing, you will differentiate yourself from the competition who is most likely charging hourly. When you do this in an outcomes based model you are already propelling yourself to the strategic level.
“If you are charging hourly the mentality of the person paying you is that you are an implementer level.”
If you want to get closer to working at a strategic level as a DOO, I want you to set up your systems in a way you can trust yourself and feel confident in charging for outcomes.
This will make you irreplaceable in the market and will set you apart, as well as saving you from scope creep. Are you willing to go all in to change your pricing structure from hourly to outcomes based?
Weekly Ops Activity
Identify the outcome that you are most equipped to provide for your client. Think about the clients you are currently serving; what outcome are you getting them, and what is that worth? Let us know in The Ops Insiders Facebook Group!
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