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Moving Beyond the Time Sheet: Making Efficiency Part of Your Pricing

02 Sep

mowing lawnSeveral months ago I wrote about how to be smart and fair when pricing your services. This is a critical area for any business and also one which can be the most challenging. It’s hard to put a price on passion. We risk either under valuing our services or becoming too-consumed with our work and pricing ourselves too high. Even after we have developed a consistent method for setting an hourly rate and accurately predicting the hours involved for any given project, we’re still faced with the double-edge sword of efficiency. To better illustrate my points, let me offer this analogy:

Say you want to pay someone to mow your grass. Your yard provides a well-defined scope and size for a project, yet several mowing companies provide you with very different pricing. Why? The difference between each company’s tools, experience and efficiency all play a role in the variables of their rate. One mowing company may only have access to a push mower and so they have to account for an employee taking 4-6 hours to complete the work. Another company may have equipment with all the bells and whistles requiring just 20 minutes to complete the project, but they must recoup the cost of the capital for this equipment. The second mowing company may spend far less time on your yard, but they can’t (and likely won’t) charge you just for 20 minutes of work. There’s the factor of efficiency which also has a price.

As business owners we should strive to become efficient with our work, but we shouldn’t then penalize ourselves for this skill. Although our ability to complete a project in less time means technically less billing hours, we need to keep in mind that there’s much more to pricing services than just our time. Take a look at the following three pillars of pricing that move beyond the time sheet and are worth considering when pricing your services. These may also help you understand why other companies price their services the way they do:

Scope of project

The size (or scope) of a project plays a large role in pricing, but not the only role. Businesses shouldn’t price a project based upon time alone. There should always be built-in motivation to be efficient with both time and resources and to not take advantage of a time sheet. I’ve moved as far from time sheets as I can because it penalizes my efficiency while leaving clients with an unknown variable of cost for my work. I prefer to quote a project in full based upon its scope and then I stick to this price, regardless of hours spent on the project, unless the scope should substantially change. Whether this works out to be my client’s benefit or my own, it ensures I work efficiently which most often results in completing projects well before deadline.

Cost of capital

A business invests a great deal of capital into their tools, resources and talent that allow them to provide optimum service. While a particular project may take an efficient business less time to complete because of these tools, there’s a cost to that investment that also must be taken into account when pricing services. Most commonly I see this in printing services. The cost of professional printing equipment is expensive! So while it may take mere minutes to print off a 5,000 piece mailer, when before it would take hours, the bigger and better copier required an initial investment from the company. I wouldn’t expect this printing company to charge for just 20 minutes of work when resources, much more than time, were the real expense.

Paying for professionalism

Finally, there is the cost of professionalism. If you want a service done right the first time, it’s worth paying a higher price to work with a business with a great reputation and track record for producing results. Sure, it can be tempting to go for the lowest price possible, but most of us have also experienced the repercussions of such temptation. In the long-term it’s often worth investing a little more to get exactly what you want the first time. Your time is also valuable and so the less time you spend fixing errors, or micro-managing projects the more time you can invest back into growing your business. When pricing your services, the point is very similar – don’t compete on price alone. Offer clients value, professionalism and high-quality service along with a price you feel is fair.

How do you currently price your services? Do you reward yourself for efficiency or penalize yourself? This is a critical question worth giving some thought – especially because it could save you hours of work and a lot of profit in the long-term. Weigh in on this topic by leaving your comments below!

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8 responses to “Moving Beyond the Time Sheet: Making Efficiency Part of Your Pricing

  1. DSmiley

    September 2, 2013 at 8:32 am

    It’s a great shift in mind-set to realize that using an hourly rate is a penalty…I’m a speedy worker, and always found it frustrating that I was able to deliver so much value – and yet my rates weren’t truly reflective of that. Am moving towards a project based structure now, so that I’m able to capture the benefits of my own efficiency –
    Thanks for the post –
    Devon

     
    • Stephanie Shirley

      October 7, 2013 at 9:40 am

      It sounds like you’re on the right track – and realizing you can be more efficient and fair with pricing when working on a project-basis is half the battle. I still have a few times when time sheets make the most sense, but those are become few and far between.

       
  2. boblongwordsguy

    September 2, 2013 at 10:05 am

    Stephanie, this is another very informative and useful post. Your writing style is succinct and to the point. Thank you!

     
  3. John L Webster

    September 6, 2013 at 4:53 pm

    Stephanie,

    I enjoy the way you presented your argument. I am in 100% agreement on more project based pricing vs. hourly. However, in my industry there are times where the scope is not as well defined as mowing a yard. It is in these instances where our firm is faced with hourly pricing for a task. Even in this case your presentation holds true – we find that those who undercut the market are typically less experience or have less invested than us.

    Thanks for sharing.

     
    • Stephanie Shirley

      September 9, 2013 at 9:05 am

      Thanks for commenting, John! Very good point–I’ve found that defining the scope of work is often the most challenging and critical component to new business. I try and convey to clients that it’s in BOTH of our best interests to understand the scope of the project we’re about to begin. Clear communication is key! Coincidentally, since writing this post I have several clients who I do keep on a time sheet because their need for services is so variable from month to month. In some instances, a time sheet still remains the most fair solution.

       
  4. ramakrishnan6002

    November 17, 2014 at 6:15 am

    Reblogged this on Gr8fullsoul.

     

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