Hourly rates or packaged pricing, which is right for your business?

People often start off with time-based rates (hourly or daily), it seems relatively simple and straight forward – at first glance. But when you look closer time-based rates can be difficult to work with and they don’t actually serve you or your clients well in the long run. Trading time for money does not focus on value you bring or the quality of your expertise. Which is one reason why most service-based businesses, at some point in time, will shift to packaged pricing.

But is packaged pricing right for your business?

What does it take to create those packages?

What are the advantages and disadvantages of shifting away from time-based prices?

These are some of questions to be explored if you’re trying to make the decision whether or not to make the shift from hourly rates to packaged prices – i.e. bundled value. It can feel like a daunting decision. It requires a mindset shift on your side but also a different way of looking at how you serve your clients. And it will require you to let go of time as a measure of price and use it as a measure of efficiency instead.

In This Episode

In this episode we take a closer look at the downsides of time-based rates and the upside or power of packaged pricing. Be sure to listen in and consider what’s the best move for your business.

Favorite Quotes

“If you move away from time-based pricing to time-based pricing, you take yourself out of this commoditized space.” Janene

“A lot of times customers don’t necessarily know what they want. They know what they don’t want. They may have an idea of the few things that they want, but they’re looking for you to help as the expert, to help give them more guidance about what they need and what’s going to help solve their problem.” Janene

“When you have standard packages, as long as you don’t have 27 of them, but you show them all at one time, then by giving them or showing them these options, you actually help, but make it easier for them to make decisions.” Janene

Episode Links

Want to learn how to set your prices? Join The Fair Price Formula group program and learn how to set prices for your business with more confidence.

• Youtube Episode: Time is just the wrapper your services come in
• Solocast Episode: 5 Pricing tips for coaches to building a stronger business.
• Guest Episode: Why I quickly shifted away from time-based pricing – with Sandy Kaufmann.

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Episode Transcript

In the past few weeks, I’ve given like three or four workshops, and I’ve delivered two webinars. There’s been a lot of Q&A sessions and a lot of people have been asking me about time-based pricing and or about going to packaged pricing. Let’s have a conversation about moving from time-based pricing to offering packages in your service based business.

Now, this is a great topic for any business who offers services of any kind. So even if you’re a product-based business, but eventually, or even right now, if you’re offering services, this is good for you. It is especially important for those of you who are doing coaching, consulting, and freelancing.

Why it is important for you to shift at some point in time away from time-based pricing. Now I have another podcast episode where I talk about the fact that Time is just the wrapper your services are delivered in and that is so very true. That has to do with the value that you bring.

Not Linked to the Value

Time based pricing isn’t actually linked to the value. They (your clients) don’t get value just from the time that you spend on things. They get value from your experience, and your know-how, your ability to help them. One of the reasons that you don’t want to use time-based pricing is it’s not actually linked to the value that you deliver. And that’s where I’d like to start this conversation because you know me, I am all about the value.

Funnily enough, in the last cohort of my course, the fair price formula, one of the ladies said, Janene, you should call yourself a value evangelist. It’s very true. Value is important, especially if you’re a purpose driven business. If you’re a business that brings added value compared to the other guy (or gal), if you want to be able to differentiate yourself and what you offer, then you have to look at the value.

It is so important. If you’re going to say, I bring more value than others, then you’re going to want to know how to charge for that value. A lot of times when we’re talking about pricing, we’re talking about capturing value. And that’s just a fancy schmancy way to say, get better prices, but value capture is actually you are being able to say, yeah, my product or my service delivers this much more and my price reflects that.

Pitfalls of Hourly-Based Pricing

That is the first reason why you want to move away from time-based prices. The second reason is that time-based prices actually make you a commodity. So then, people can just compare one hour to the other, even though they don’t really understand what they’re going to get out of that hour.

By commoditizing yourself into an hour or a day rate, then you make it easier for customers to compare something, but they may actually not be comparing similar services. Then maybe you appear to be more expensive, but they don’t understand that they actually get so much more. They just know that you call yourself a coach just like the other guy or gal, or they know that you just deliver, let’s say, plumbing services, just like someone else delivers plumbing services.

But we all know that there are different levels and different types of service providers out there. If you move away from time-based pricing to packaged pricing, you actually take yourself out of this commoditized space.

TIme-based pricing doesn’t grow with you

The third reason and maybe even the most important reason over the long term. But what is the third reason here that you want to move away from time-based pricing is time-based pricing doesn’t actually grow with you. What do I mean by that? Well, when you start out and you’re early in your business, you may not have all the wisdom and the tools, you may not have created systems, you may still be finding your way a little bit, and so things are going to take you a little bit longer.

If you’re paid by the hour then they’re going to pay more.

Simply because it takes you longer to do things. But, as time goes by, and you develop those systems and tools, and you develop the shortcuts and hacks and the ways of working that help them get results faster, because you work more efficiently and more effectively, then you’re going to be charging them less to get better results. Packaged pricing helps you and the client stay focused on value rather than time.

That’s what I mean by it doesn’t grow with you. These are three reasons why it’s important for you even if you’re not ready right now to think about okay there’s going to be a point in time where I’m going to want to make this shift from time-based prices to packages.

Unlocking the Power packaged pricing

Why packages? Why do you want to consider doing this? We looked at the reasons not to do time-based, but let’s talk about packaged pricing for a moment.  One of the things that packages do for you is they force you to get clear on what you’re offering. Yeah. It forces you to create standard offers, it means that you have to be clear about what you’re going to be offering and what the main group of people that you are going to be working with, so your target customer group, really want.

And having that clarity is a beautiful thing in a business. When you have that clarity, not only do you know what to offer them and how to offer it, how to deliver it, you would know how to price it as well. Clarity really forces you to sit down and get really clear about that.

It also forces you to test out some things as well, but that’s kind of a side note. The second thing packaged pricing does is help you to streamline how you have those first conversations with customers. Right now, if you’re doing time-based pricing only, then that conversation is usually focused around, how much time is it going to take for us to get things done? What is that going to cost me?

You’re focused on these two things that are really commoditizing your offer, which is time and costs. What you want to shift towards is you want to shift towards value and investment. I got off topic here. Let me go back. So streamlining. What happens with a lot of people is when they don’t have customized offers or when they don’t have some standard offers, they spend a lot of time creating customized offers.

Packaged pricing can help you get offers out quicker

I’ve had some clients who have said, it took them two, three, five, even 10 hours to prepare that first offer for that customer. That can be like 10 hours over a week or two, right? It could be that the customer doesn’t actually get that first offer until, seven, 10 days or more down the road.

What you want to be able to do is get them an offer in their hands as quickly as possible so that you can start the conversation from there. When you have some standard offers and you don’t need a lot of them, we’ll come to that in a moment, you don’t need a lot of them, but when you have two or three standard offers, then you can sit down and you say, okay, This is typically what clients, what, how I work with clients, let’s talk about which of these might suit you best and that they say, Oh, well, I really like this middle one, but then, to talk about that more and find out more about what interests them in that offer, right?

Or if they say, well, actually we like offer number three, but we want with this and that, then you can say, oh, well, that’s really great. Now that would be a customized offer. Shall we talk more about that? (package offers) helps you to steer the conversation, but it also helps them to start understanding the value and the investment they’re going to be needing to make based on what they choose as an offer, whether it be one of the standard ones or whether they decide to go with something customized. It actually helps you to navigate those conversations much better.

Simplifying Decision-Making

The last reason I’d like to focus on for creating packages is it makes it easier for your clients and your customers.

We all know that we are overloaded every day with making so many decisions. And a lot of times when I talk to my clients and we talk about, okay, how they’re having these conversations with customers, they kind of go to the customer and say, well, what do you want? And that leads to like confusion because a lot of times customers don’t necessarily know what they want.

They know what they don’t want. They may have an idea of the few things that they want, but they’re looking for you to help as the expert, to help give them more guidance about what they need and what’s going to help solve their problem. So, it makes it easier for them to make a decision.

I always tell people it’s like a child. If you go to a child and you say, what do you want for lunch? They could ask for just about anything that they can name, right? You may not have that in the fridge, or you might be too tired to prepare it. But if you say to them, would you like a sandwich or would you like a soup, right?

Then you narrow down and you make the decision process simpler for them. When you have standard packages, as long as you don’t have 27 of them, but you show them all at one time, then by giving them or showing them these options, you actually help, but make it easier for them to make decisions.

Wrapping It Up

That is what I wanted to share with you today. I want you to start thinking about, in your business, is the time right to start making this shift from time-based prices to packaged pricing? Now you understand time-based pricing, is not tied to the value, how it puts you in the position of being more of a commodity and it doesn’t grow with you as you become more effective and efficient in how you work you’ll be prepared mentally to start making the shift to packaged pricing.

Packages have the advantage of forcing you to be clearer on your customers and what they want and what you’re going to bring them. It helps you to streamline how you’re going to have those conversations, and it makes it easier for them to make the decision. I hope you enjoyed this episode.

Let me remind you before we close this out that the next cohort of the fair price formula my price setting course, The Fair Price Formula, is starting on September 29th, and I would love for you to join me. Have a look and get registered today.

I wish you all the best. Have a wonderful day. And until next time, my friend enjoy pricing.