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Invoicely pricing for Finance

welcome to the future we have for the very first time potentially the deepest dive we've ever had about how early based pricing you guys would definitely want to stick around for this because we had the real-life Iron Man the brother to Tony Stark Jonathan Stark is gonna be on the show today guys and he's with Jonathan start consulting he's from Providence Rhode Island and here's a couple things I know about Jonathan one is he's a former software developer and interesting enough he's also an avid martial artist if you check out his Instagram account at Jonathan stark you can see him breaking bricks it's pretty cool pretty cool and he's on this super cool mission you guys do we have a lot in common already who wants to rid the world of hourly billing whoo that's gonna be a good one okay he's already recorded over 500 episodes a podcast so he's a veteran to this so we anticipate great content with him and he's also has an effective rate of billing over $2,000 an hour that is mind-blowing to me and if you guys want to know how you definitely want to stick around for this he's also authored over five books or authored five books I should say and it's been translated into seven languages the one that you may come across first is a book called hourly billing is nuts and he's got another one in eBook called the freelancers roadmap so the agenda for today's call or today's livestream you guys is one we're gonna talk about the hourly billing it's nuts concept we're in a field your questions and I'm gonna throw some objections Jonathan and see how he responds will sum it up and then we'll show you how to get in touch with him and if you're interested in taking this course we'll give you all information at the end we're gonna keep it real we're gonna keep it raw Erica please roll the titles [Music] all right Jonathan welcome to the show noé thanks for having me I have dressed up to kind of meet you in the middle here and I realized everybody got the memo to wear a cool black t-shirt so what I did I did the opposite I set off designers I have to wear black t-shirt the memo so we're all kind of like we're like two ships passing in the night here okay I want to just jump right in because I think a lot of people are going to benefit from tuning into this pot or this live stream today I'm going to just ask you straight up what was the catalyst for your mission of ridding the world of hourly billing tell us your story please sure yeah in 2003 or for around there I was managing a boutique firm we did software development for you know work groups and clients we basically built desktop applications for people and we had you know around 10 developers on staff I was the vice president there was you know CEO and my whole life basically was tracking hours I was doing hours estimates I was fighting with clients about estimates that the wheel and over I was arguing about invoices and timesheets and I was always whipping the developers to get their hours and by the end of the week so he could invoice on Monday I was just constantly talking about hours and one day it occurred to me that you know we have all these different employees they made different salaries but we build them all out at the same rate and it occurred to me one day that the best guy that we had our best developer who we were lucky to even have because he was so good he could have worked anywhere we were actually losing money on him because he was so fast and so good that he would he would bang out work before we couldn't even keep busy and the flipside of that was we had a junior developer also a guy who was basically an intern almost who's he was you know making a half the money salary wise he was really slow he needed to do things twice in three times before it would be you know bug free and but he had a great bedside manner with clients clients loved him he kept his clients perfectly happy and his work took two or three times longer than it took our best developer so we were printing money with this guy and for the longest time I mean it took me like weeks just sort of struggling with this before I even considered that hourly billing might have something to do with it which looking back on it was shocking I know that most people when they go freelance you know they leave the comfort of a day job and decide hey I'm gonna go out of my own and one of the first things they ask themselves is what's my hourly rate be most people don't even consider that they might have another option on the table and immediately go into that hourly thing and I was the same way it never even occurred to me that we would build some other way but after thinking about it and researching it I came across this notion of value-based pricing and immediately everything clicked I saw that you know first of all our best developer would be a goldmine if we were doing that kind of a that kind of a business model and pricing that way but more than that it would have transformed the whole way that we ran the firm and it would have it would have removed just a massive amount of administrative work headaches all sorts of things would have improved our client relationships just like a laundry list of improvements that would come from it so I brought that idea to the owner and I suggested that we make this change and to his credit he understood intellectually what I was saying but he couldn't figure out it was not obvious to him and honestly it wasn't that obvious to me either at the time how would we transition from being a firm where hours were break baked into everything about our culture in in software processes how would we make that transition away to some other approach mm-hmm I got a bunch of questions for you already okay let me see if I can do this one in the right order here so you recognize really quickly or whatever took you a couple of weeks to figure this thing out where your highest performing your most efficient and productive person was losing money for the company because he was so fast and your slowest person the most junior person was actually making the most money because he was slow so that there was something lopsided about that right you would think that the most efficient the most seasoned person should be making the most money for the company but this is the downfall of our early based pricing and a lot of people that are listening to this if this resonates with them I'm just curious then what you had to do to kind of figure it out there must be a better way did you did you read something on the internet did you read a book did you take a seminar did you talk to a coach or something like how did you know that this was the right path to go down yeah great question so just almost coincidentally I came across the work of someone named Alan Weis back at the time and he has tons of books he's well known in the consulting space he's sort of amid the the consultants consultant for management consultants and he wrote a book years ago called value-based fees and that became my Bible for I still read it I reread it every year or two it's great there's some things buried in there that that took me years to even understand but the basics of it the fundamentals are there that that is the first place I would send people you know it's from a book from the 80s and it's for management consultants so you know it's not you know some of the examples are out of date or maybe don't apply but still I'd say 80% of that book is pure genius and is widely applicable to anyone who basically does knowledge work design strategy development anything creative there's there's something in there for you it's absolutely like I said it became my Bible for a long time mm-hmm so you dive into the book and then you you see the theories and it kind of affirms what you believe right so there's some confirmation there that's happening how do you even have this conversation with your boss like what did that conversation sound like yeah I mean we were really close we're still friends to this day and that was you know 15 years ago it was it was like just what I said to you I mean it wasn't a long conversation I said look I think hourly billing is destroying this I think it's destroying us and I think we could do a lot better financially profitably for ourselves and for our if we changed the model over to this value-based pricing model mm-hmm and he was like okay I get that but what would we actually do like what would be step one and the problem was at the time and this is true for a lot of firms especially firms it's hard because the assumption that you're going to be selling hours trading time for money is baked into all of your systems nevermind the culture of the company you know you probably give bonuses based on how billable somebody is or you have an hours tracking system that goes straight into your invoicing and it's just assumed that you're gonna be charging or billing yourself out by the hour so so doing something different is a massive undertaking it's is really it is hard to change and honestly that's what I help people do I help people walk through that change making that transition in a way that isn't gonna throw their existing business out the window but still transition them to something new mm-hmm and what I did was I I said he said well I don't know how to do that I'm not he was he made a good decision I think to not make that move at that time but I couldn't I couldn't unsee what I had seen so we you know in a friendly way parted ways and I went solo and out since I was starting from scratch it was really easy for me to immediately hit the ground running and you know price my very first project and a value basis I see so even though he was open to the idea it made sense to just the the thinking the culture of so ingrained that we're gonna do hourly based pricing that then he couldn't he couldn't make that jump and then you guys parted ways right yep I went solo and there's a there's a something I'd like to call attention to because everybody does it even I used to do it hourly billing is not pricing our billing is not pricing is billing for time most freelancers I work with have literally never priced anything mm-hmm it's a and it's important distinction it's not I don't mean to I hope it doesn't sound like a semantic difference it's not important okay so billing for your time in arrears you end up you know when you have a project by the time it's over a certain amount of money has changed hands that is the price that's how much money changed hands but no one ever set it it's it's something that you back into in arrears and by the time you're done the buyer finds out what the price actually was but all along they've been operating based on an estimate which is a very different thing very different psychology for the the relationship I'm glad that you're making the clarification and cleaning up my language there so hourly billing is different than hourly pricing yes that's that's naughty that's kind of like it's our docks yeah okay an oxymoron or something like that right okay okay cool all right so you were still friends with this person your former boss what has become of the way that he's run his company my you know honestly I don't know the answer I mean that's still going going along fine I don't know honestly I don't know if he's changed the way that he prices things we're just mostly in touch about personal stuff I don't it's a good question I should find out okay so you part ways you start your own company and what was the the first year two years like for you it was a huge win immediately I doubled my income it was the clients were very happy all of a sudden no one was watching the clock it took me probably six months to stop tracking my time because it was such an ingrained habit and I there's a part of me that was like well I want to make sure I'm you know this project is profitable or something like that and what over time it just became ridiculous because the amount of time it was taking me to execute whatever the project was and deliver it would deliver the outcome that they were looking for was dramatically disconnected compared to like an hourly billing type of thing from what I'm saying is I was able to deliver bigger results faster than I was able to before so the tracking my time became comical it didn't make it just became irrelevant so I stopped doing it so how did you price clients if you weren't going to do hourly billing so there's a the next gap where I'm trying to figure out mm-hmm well the way that value-based pricing works is that you you know a client comes to you and they need something that's why they came to you so oh you know we need for me would always be like a website a responsive you know mobile responsive website so they come to me and they need that you know they heard that I do that and then say what's your hourly rate and I'd say I don't have an hourly rate and then I just let the silent stretch out and they'd say well how do you feel for your work and I'd say well I'll price the project for you so you'll know in advance how much it's gonna be is that acceptable and they would always say yes because everybody everybody wants a price nobody wants to make a big purchasing decision based on an estimate everyone would much prefer to have a price you know be like you know like how much of these shoes well I'll tell you later why don't you wear them for a few months and then I'll you know say oh it's gonna thousand dollars for those shoes right so that's that's basically the way it'll work so I would say to them at first I would get their approval that yes they they are allowed to take on projects with a fixed price instead of an hour because some some you know government agencies or whatever they're required to get an hourly rate so I just wouldn't work with them and at that point I'd say okay tell me about the project and they'll brain dump to me about you know everything that they're thinking they're going to have me do they might have a list of features that they want me to build they might have all these sort of tasks and in activities that they believe will get them towards some unstated goal so I'll you know take notes on that for you know maybe 15 20 minutes and then once they've kind of exhausted their their sort of brain dump about what they think the project is going to look like I'll thank them for that and I'll say could we back up for a second so I can understand the context of this project in your overall business and I'll go through what I call the why conversation where I asked them why this why now and why me and I have a series of questions underneath each of those depending on how the conversation is going that basically it basically amount to me kind of trying to talk them out of hiring me so I'll sort of say things like you know why do you guys think this is the thing to do what what is it that you why not you know why do X instead of why wouldn't might be easier wouldn't Y be less risky or maybe we could try Z why not do Z instead and so I'll sort of throw these other options at them typically they've thought through them all because anything that's gonna occur to me in a you know you know thirty minute meeting will have already occurred to them let's say well no we can't do x and y and z because of these particular reasons and I'll sort of be convinced they will convince me that okay maybe there is maybe this is the right thing to do for this business and then I'll start thinking about well why do it now you know I'll say dear client you just told me that you've been thinking about this for 12 months what changed why is it suddenly urgent or I'll say couldn't you do this couldn't you study this a little bit longer and push this off it's gonna be a really risky undertaking it's gonna cost a lot of money I'll tell you right now so in the you know could you push it off maybe six more months and they'll explain to me why that's not possible or they'll explain what has changed you know they'll say a big competitor just released a responsive website it's amazing and and our clients are complaining about our desktop website and you know we're starting to get nervous that we're gonna lose a client oh really like what kind of client well Home Depot is one of our clients or staples is one of our clients like oh that sounds like a big contract you know and I'm starting to get a sense of you know the size of their clients the size of the contracts why it's urgent how high the risk is all that sort of all the motivating factors that are based on business reasons not because somebody said oh our website is kind of ugly maybe we should hire someone to redesign it like these are actual business reasons that are urgent that are the kind of things that business people think about risk cost churn those sorts of things so once I'm convinced that this is an urgent project I will ask why would you hire someone expensive like me I mean you know that I'm gonna be probably the highest priced option that you're considering why don't you guys do this in-house you mentioned that you have a design team or you mentioned that you have your web developers why not do it in-house and they'll tell me why like we tried that it didn't work okay what about outsourcing it to Eastern Europe we tried that it didn't work or we want someone in the same time zone though will explain to me why all the cheaper options are not alternatives that they want to choose so by the time they get to that if I'm convinced that there's a good fit here that the project do they want to do is is a good one that the that it is urgent and needs to be done now and that they're willing to go with an expensive option for some good reason then I'll say alright this seems like a good fit what would a home run look like what if we if I knock this out of the park what what is that how how will we know because my goal is to deliver a hundred percent customer satisfaction so I want to know how to satisfy you a hundred percent so what does that homerun look like and they'll almost always have an answer for this if the if they don't I might turn around and say okay what would be a complete disaster what would be the worst possible thing that could happen here and I can kind of extrapolate what the what the homerun would be from the disaster and from there I'm ready to write a proposal they've given me everything I need to put together like a three or four page maybe five page proposal that I'll present three options to them someone medium and large and here are the prices for each and I would base the prices on the the desired outcome not on how much work is gonna take me to deliver the outcome in fact I probably won't even have thought really that much about what I'm going to do or how I'm gonna tackle it until once until I have the value from which I can derive a price as a fraction of the value and I'll say all right if I had a $100,000 to help this company with this problem how would I budget that like would I hire people contractors would I buy some tool wouldn't you know how would I take that money if I had a hundred grand to help this company move the needle on this customer churn problem they have what would I do what could I do for that money that would be profitable to me and to them so I'm not even thinking about scope or anything like that I'm barely thinking about scope in the sales meeting I'm almost completely thinking about the value to them and then I sort of back up and say well alright if I give myself a budget of a hundred grand or 1.5 million dollars or five thousand dollars if I have those as a budget what can I do to help these people and then that's what I'll present to them okay I got so many questions and and since you covered I'm scrambling to figure it out what questions I need to ask you but sorry about that you you work as a consultant a coach a teacher you have products and courses we'll get into a little bit later I'm just curious if any of your current or past clients have been like more traditional graphic designers who make logos or identity systems and how they're able to have a value based conversation sure most my backgrounds in software development so most of the people that I work with you know in group coaching and one-on-one coaching it's mostly software related but I do talk to a lot of designers because and I feel for designers because the it feels more because it seems like clients typically have more of an opinion about the output that the designer is gonna create than they do about the output that a developer is going to create there's some some crossover they are fewer than front-end design as a developer you get a lot of opinions from the client but mostly you know you're building an API you're doing some back-end stuff no one's gonna look at your code no one really cares the clients not gonna say hmm this could have been a little more elegant you know in this subroutine but with design something that they feel like they can get their head around it gets a little bit more delicate so what I advise people to do and I have had to deal with this is to sort of set the boundaries early on you need to you need to and even in the sales process you need to push back on the client to position yourself as a partner not a pair of hands to be ordered around you're not a mouse that you know voice response Mouse that is meant to you know go make the logo bigger make that black a little blacker you are you're an expert at what you do they're an expert of what they do maybe they sell pizza or sneakers they're not a designer they're not a logo designer they might have an opinion about a design but I make it clear early on that I am NOT going to I'm just not going I'm not gonna let them do my job for me because that's bad for the project so I always force them back into business goals so anytime they're giving me an opinion about some interface design of it like why do you think that how is this going to meet our goal so let me back up one second I'll I have a defined business goal for the project and I would say that designers can do that too designers can have a defined goal for a project I want to increase conversions on the sales page I want more people to buy my sneakers I want to win an award at a design competition whatever the goal is it's something measurable even if it's intangible and in the project you can always push back on the client if you have that defined outcome in mind because you can they can they can say oh make the logo bigger and you can say thanks for that input how will that help us achieve this goal of selling more sneakers and they won't have an answer for you they say well you know I don't know it just seems like it's a little too small to me and it's like well you know our customers your customers are the ones that that really matter here so that's what we need to stay focused on not like that somebody you know in the locker room at the Country Club said wow that logo seems a little small maybe you should change it so it's the kind of thing that I think starts in the sales process you need to get comfortable pushing back on the client let them be the expert at what they do which is their business their product they are customers and you do not accept them jeopardizing the project by telling you how to do your job so you know I don't know if I've answered the question but it's it's something you just have to do it otherwise this scope goes out the window and your work suffers and the client ultimately suffers I thought that was a great answer I'm gonna follow up with some things because as much as you've spent time talking to software developers we've spent just as much time talking to graphic designers and creatives and so there's this mentality what you're saying to me first of all Jonathan makes perfect sense to me right but there's a larger community out there that needs help with this if we're going to rid the world of hourly billing so their mindset tends to be the roadblock because even though you've laid out the recipe this is what you do this is how you do it we often find when we're coaching people that they can't get over this idea that they're going to jeopardize a job and they must do everything they can to secure the job and how do you help people who have that mentality because saying some of the things that you're saying pushing back refocusing the conversation onto goals and outcomes as opposed to subjective things like color and scale how do you help somebody who's stuck in that mindset or I gotta just bring in this client and I'm willing to even lower my price to get it I'm gonna let them dictate the terms how do you help those kinds of people yeah I see it every day you know it's the race to zero and as as you know up working fiber and and other things like that continue to exist and thrive there's gonna be that race to zero if you don't differentiate yourself from what else is going on so there's a lot there's a lot of things going on here but the main main thing that you're bringing up is that people are in a desperate cash flow position and that's a really hard place to value price from because you're operating on razor thin margins you might even be operating at a loss and it's really hard when a lead comes through the door and it's the only one that's come through the door in six months it's really hard to push back on them and you know when your desk when you don't know how you're gonna pay your rent so the first thing I do with people is just to secure what I call keep the lights on money so if somebody is billing by the hour and they are but they want to make this transition I say okay you I'm gonna let you keep billing by the hour for as long as it takes but you can only build 20 hours a week and in the in the extra twenty hours a week so I don't want people working around the clock I want you working on your business so you know that might mean taking a revenue hit in the near term but it is and if they can't do that but I'm like look you got to save some money or cut expenses or do something you're never going to be able to get ahead if you're operating up razor-thin margins and once you can get a little bit of breathing room in there and start you just land one of these really high profit engagements where your time is not being traded for money it's your your profits are not tied to the calendar or the clock all the sudden you're like whoa this is what profit feels like because Multan if you're billing by the hour you probably have no profits people don't even freelancers tend to not even understand the concept of profits they think oh like I got $100 you know for working this hour that's $100 a profit right no it's not the profit that you made in that hour is what's left over after you would have paid someone else to do it you just happen to be the one you paid to do it so if you you know imagine how much profit you would have left over you know dear listener if you paid someone to do all of the work the actual work that you do and all you did was bring in the clients you'd have no profit you'd probably be broke you know you probably make no money at all so what you have to do is start working some profit into your income stream so that you can start to be more confident and push back more and it's a cycle it builds up you get better at it and better at it as your profits increase and as your your sort of facility with having these kinds of conversations improves it's a cycle but it's a virtuous cycle so instead of the race to zero you're acting more like a partner and more like a peer you're delivering measurable business results even if they're intangible they're still measurable and then your confidence increases and you're like wow this is actually worthwhile like I wouldn't I wouldn't you know you start turning away leads you attract more leads and you see like oh well I need to I can't take all of these so that's a long answer but basically it's a slow build into more profitability to increase your confidence now I have to say you are smooth this guy's smooth there's not even one it's almost as if he's had this conversation a thousand times before I'm a little suspicious right now okay guys I'm gonna direct some of you guys right now you're digging on what Jonathan is saying if you want to share the Ironman go to Jonathan stark comm check them out there and we'll give you more information some visual stuff so you can already start to look into some of the course materials coaching the different plans he adds Matthew do we you have a question or is anything coming up from YouTube that we need to respond to from our livestream audience yeah I think there's there's some lively chat first of all a lot of people are saying Jonathan that the information is great everybody's definitely complimenting you on that so thank you for that I'm thinking in terms I have two questions here first thing is you're talking about value-based pricing so that you don't even have to consider what your costs are you're making so much profit that that's irrelevant but I know you mentioned on your podcast at some point but how do you determine your bottom like how do you know that you're spending too much do you have any kind of formula or way to gauge that where yes let's say you charge an excess of a hundred thousand dollars on this client engagement how do you know how much you could spend of that mmm okay that's an interesting question so when people are first starting out with this I do have a little bit of a formula well it is a formula but it's a little bit controversial in the value pricing community but nonetheless I think it's important for people are just starting out I tell people to when they're starting s t'me the cost for the thing that they think they're gonna do you know for the project for the client and go ahead and estimate your cost that's your floor you cannot go below that number or you will almost certainly be losing money the other number you need to calculate is the value the one-year annualized value to the client and that number you know whatever that number is divide that by ten so you've got like a no-brainer type price for the client I'm gonna make you a million dollars this year or or I'm gonna the thing that I'm gonna deliver to you is gonna be worth a million dollars to you this year so I can price that at a hundred thousand dollars for sure and it's a it's like a no-brainer for the client so then you've got a hundred thousand dollar price on the value and then you've got your cost so if you think that the scope of this project is such that you know if you were gonna hire freelancers to do it on your behalf it would cost you more than a hundred thousand dollars then you can't you know you need to price it higher so you got to take the greater of the two numbers the greater of your cost versus versus the 10% of the value to the client and what this does is and I understand why value purists argue with this it's and it's a valid argument but the thing that they don't remember is when people are first doing this they're bad at it and if you price a really big project out of the gate you probably gonna price it too low because people are just used to these low numbers they get sticker shock of their own like I can't believe I'm gonna put a six-figure price tag on this project I can't believe it so they they can't believe anyone would ever pay for it and they do what's called selling to their own wallet where they can't imagine someone who has a lot of money to spend on investing in their business they can't get there mentally so they can't imagine that somebody would ready to check that big for little old me and they tend to talk themselves down into lower and lower fixed prices and for folks who have experimented with fixed pricing before they've probably you know you probably had a bad experience felt like you lost money felt like you got killed felt like you're effective hourly rate was lower than your regular hourly rate and it's because you're you're making a time and materials calculation you're thinking about how hard will this be for me and then you mark it up for project management or some random number that you just pull out of the air and then you give a fixed price for it but you haven't done any of the hard work of establishing yourself as a partner and a peer and an expert and an authority someone who's not gonna be pushed around is not gonna jeopardize the project so you end up with tons of scope creep it seems like the project's never gonna end and you're just you just like I can't believe I only you know charged this amount of money and I'm getting killed so to answer to bring it back to your question calculate your cost when you're first starting out calculate your cost and calculate what you believe to be 10% of the annual value to the client what it's worth to the client and deliver the higher of the two numbers and this is a baby step and like I said purists will be I'll get angry email from purists when they say that but but I've seen plenty of people think there value pricing but really they're just fooling themselves and they put a number on a quote that's way too low and they get burned and it's a bad experience and then hourly billing lives another day because they go back to it yeah oh that's a fantastic answer I like that so if I understood properly in this initial meeting when you're talking to the clients and you're getting all the information you need for your proposal you're trying to establish in one year what is this engagement worth to you what is this project worth to you if that's $1,000,000 and I should be able to capture at least 10% of that does that sound fair client because we should invest at least that much towards this project for it to fulfill its destiny yeah absolutely and that honestly that right there is the that's the tricky part that's really hard for people to do because they feel like they need to measure something that's unmeasurable you know if you if you ask the client what's this worth to you in the first year they probably couldn't even answer a lot of a lot of clients wouldn't even be able to answer mm-hmm but if you if you work with them to uncover the underlying business motive of the project you can usually get to something that's at least estimate of all so you can get in the ballpark of what it's worth to them even if it's an intangible like improved morale something like that that doesn't it doesn't show up on a balance sheet but it's you can measure it all day long you can measure you can measure how happy a dog is by looking at its tail I mean it's it's not the dollars associated with it but you can measure that it's changing you know oh it's this dog is getting happier I can see it you know it's the same with morale or any other intangible benefit that you're delivering to your client but you do want to uncover why they would bother investing in this these activities that they want you to undertake on their behalf you kind of like I kind of think of it as saying to the client why would you give me this money I just don't see how you're gonna get any return-on-investment here why is why are you not gonna have buyer's remorse and I even come out and say that like if I really can't figure out the value I'll say to someone like I just don't see why you would hire me to do this you know and then and then finally they'll say they'll reveal that oh well I'm gonna get divorced if I keep working this late at night and if we could get this system in-house you know there's suddenly it get it will sometime get revealed like oh this is a big deal to this person or to this business this is a bet the business project that they're gonna base the next 10 years of the company on that's a great thing to value price high risk urgent projects it's the perfect thing to value price smaller things are can still value price you know but the bigger things are really really where the huge profits are right that's a fantastic answer and I'm still trying to play devil's advocate in my head if you know I'm doing this with a client trying to establish the value of the intangible if I'm talking to a client and say you know this is gonna cause a lot less friction internally because now your sales teams are not doing these redundant tasks or whatever that may be we're reducing the friction there how do we get to a number how can we assign a number because do you have any questions or prompts that you say that where you can ground the intangible thing into something that is a little bit more measurable that you can put down in a proposal and calculate all of these costs mm-hmm yeah I mean it's it's you just have to ask questions they have to give it to you they have to give you some kind of you just keep asking why that's what I call it the why conversation you just keep asking why until it clicks with you you'll you'll almost feel it click you'll just be like this this doesn't make it because in your mind you're like I'm presenting myself as an expensive option I've said repeatedly that this is going to be expensive they're still talking to me and I can say to them I've set myself up to be able to say you know like Columbo I'm probably everybody's too young probably know what Columbo is but he's like that I'm not so he was always like I'm confused can you help me understand why would you give me all this money it's basically it you know it's like I don't get why this is because value is completely subjective everybody here on this call and everybody watching values things differently you know maybe a Starbucks Coffee is worth the five bucks or whatever it is to me but maybe it's not worth five bucks to somebody else who actually likes good coffee sorry sorry start like to love it so they're not sponsors we're good so there's you everybody's gonna value things differently you mentioned efficiency earlier yeah if you build software to so that sales people don't have to manually enter enter whatever their sales and so it speeds up the process and somebody said that to me I say well why would you spend all this money on that well if we if you build this for us then you know salespeople won't have to enter all this information repeatedly and then that'll that that'll be great it's more efficient but I don't let them I don't let them stay at just more efficient like well why does that matter hmm you know are they you know is that keeping them from closing deals you know are they putting our the inputting the information in correctly and you're billing the wrong clients you know what kind of problem are we trying to solve here because I might attack the problem in a different way depending on the thing that actually matters like why does more efficiency matter like yes it sounds like a good thing in general but why does it matter to you mr. client so you know you find that out and with design I mean I do feel like it's a little harder but that is part of your job as a professional to figure out how to ask those questions you know why do you need a redesign why do you feel like you need a logo redesign I mean I can see the existing logo you've got ten years of brand recognition on that logo why would you change that why would you go to the trouble of doing that and they might give you a terrible reason oh because my brother-in-law thinks it's ugly that's a terrible reason I mean even if you objectively or subjectively I guess but even if you agree that it's a terrible logo there's still a lot of brand recognition built up into it was used the King Arthur lobe it was a great example of what I personally think is a horrible logo and it's not even represented consistently across their products the horse has a different number of legs and it's it's terrible but would it would they change it would that actually be a smart business move to change that probably not and they wouldn't I don't know how they would even do that so if I was a designer I would say to them and they come to me oh we want to redesign our logo it's terrible like well how is it how do you know that it's terrible like what what information has come to you that's telling you that it's Sara but well my brother-in-law said it's ugly well okay what about your customers you know is there some or they might say they might have a good reason they might say well we're going public and we're gonna change x y&z we're gonna launch new product lines we want to we need that brand consistency we're gonna take things to the you know we're gonna 10x the business the plan is to 10x the business and we can't even just that just the notion of maintaining all of these different kinds of logos across all these different packaging all these packages it's too much work we need to just have one that we can go to oh really like how many different product lines do you have oh really how many of those go out every year oh that's interesting and even though design you know people's opinion about design and the effect that it has on people you know it's it's more intangible than building an API you know for a node application for sure but still we're talking about a business-to-business transaction here and they are not paying you money for fun they're paying you money to achieve an outcome sometimes they're not sure what that outcome is and by working with them to figure it out you will increase the perceived value of you and the likelihood of the success of the project because then you can laser focus in on the thing that they really need inside of all of the generic best practices types of things mm-hmm I need to jump in here there's a lot of questions coming in off the internet off of YouTube and on this livestream Jonathan because you're so eloquent because you're mr. smooth I'm just gonna have to ask you to actually do do your give us a quicker answer so I can get through as many of their questions are okay yes no yes no need fantastic cuz I'm busy like typing up notes I can't even manage the livestream chat that's going on right now okay so Jessica Hannon is asking you I think I already know the answer to is is there any way you could work with clients in value-based pricing on a retainer level oh I love this question it's gonna I'll try really hard to make it short the word retainer here is a landmine because people think of it in different ways when I sell retainers that's been the core of my business for ten years I but they are advisory retainers they are not people paying me in advance for a chunk of hours that's not a retainer that's what lawyers call a retainer that's not a retainer and we can talk about selling a chunk of ours but that's not a retainer if you're talking about an advisory retainer then yeah you can value price of like anything else I find that it's easier to just put a price for it on your website like a you know like a hamburger how much is the hamburger you know it's it's five dollars okay how much is the advice monthly advisory retainer oh it's twenty thousand dollars and here's what it includes so it's so I'm not having a value-based conversation with people who hire me on retainer usually because they see the price they make a value decision based on the price we never have a conversation about it and then they just sort of buy or don't buy mm-hmm so what does it mean to be what is it called an advisor retainer are they buying access to you or what does that mean yes exactly so you know it's basically they're they're paying you or my my retainer clients pay me to answer their email basically mm-hmm so that you know and there's sometimes there are other things like you know maybe once every quarter I'll fly to their offices or something like that but yet basically they are paying for access to my expertise so they've got some something that is a risky ongoing proposition there's some and they want to basically buy insurance they've got some project under way that they need to nail the first time it needs to be right so they're nervous that it's not going to be right so they're gonna hedge their bets they're going to base by insurance by hiring someone who's well known as an expert at a particular thing and they're gonna pay that person in this case me to pay attention to what's going on pay attention to them their marketplace pay attention to the decisions that they're making and as a fork in the road appears they're gonna ask me which way to go and I'm gonna I might have to ask a few questions I might have to do a little bit of research but usually I can just I just it's very little work very little time commitment and I can say based on the marketplace your goals and your say your resources and the timing of this I would take option A or option B for these reasons here are the pros and cons of each but I would say go with option A mhm and since you're operating so far upstream on such a high-risk situation I mean I mean that the amount of money that that can save downstream is astronomical you ever run into a situation where somebody's on an adviser retainer with you where they just call you non-stop and it didn't becomes like oh my god I am now selling time because I'm upside down on this yeah good question so no the answer is no good and the reason why is because first I'm choosy about who I work with and I can tell immediately if I'm working with a time vampire mm-hm and I'm not I'm just not gonna work them but generally anybody that's in a position to pay you five figures per month to call you occasionally is a very busy person mhm and they've got a lot of people underneath them that are demanding their time and they are not gonna bug you for no reason it just doesn't it's just not when you think about it like that why would they they just need their answer quickly okay thanks bye so that's really what it boils down to so sounds to me like you're using the the price and the way you phrase that is twenty thousand dollars a month or whatever the price is as a filter to weed out the time vampires yes okay now I I love that term tamped time vampire you said you can spot them right away what are the characteristics of a time vampire can you can you tell me herbs are yeah there's some red flags one of one of the big red flags is if in their in your initial communications you're talking past each other would be you know someone sins you can email you reply to the email and then they send back another email that makes it clear that they didn't read what you wrote that's that's a big red flag because a communication lag is just gonna be torture another one is that hey you know could we just jump on a call to brainstorm I just want to pick your brain like people who have the time to sit around picking someone's brain are not busy people and usually usually that's a broad stroke I'm making there but usually that's a sign that what they really want to do is get validation from an expert someone they perceive to be an expert that that they are so smart and that they have such a great plan and they're not really looking for your advice they're really looking for validation so you know another thing is if if you push back on someone and they just ignore it or reject it and they're not not responsive they're not they're not an active listener if they're a bad listener so all of it you can discover all of these things even in an email you can discover those things very quickly on a sales phone call you'll know but at the end of a half an hour if you're in trouble you know if it's a bad fit so yeah I think you can tell you could tell I mean I boil all this down to I only work with people I'd like to have dinner with right because you know and if if you have that level of even an early relationship with someone you're like I think I can hang out with this person then your community means your communications clicking you're laughing each other's jokes there's a mutual trust you understand each other and they're not gonna bug you perfect to that go ahead regarding people you want to work with do you have any guidelines for when it's appropriate to do value-based pricing on a client like what are the factors that are involved when you look at a potential client how do I know that I could use value-based pricing on them or what are the some of the key signs of that engagement I look for high-risk projects when I see a high-risk project come through the door it's like a no-brainer so it's like one of those times when you know some some industry you know years ago it would have been someone like blockbuster and I've got more recent examples but I don't know if I can talk about them but blockbuster was a video chain when you know when Netflix came out it was like wow this is a dangerous situation that was that would have I wasn't doing it back then but that would have been a perfect time to value price a project for blockbuster because they were facing an existential crisis very high risk and they didn't have a lot of time to screw up so that's a perfect examples things things that are high value high risk so you're automatically gonna be looking at bigger and bigger clients it doesn't have to be fortune 500 but you know I'd rather work with a regional chain of pizza restaurants than a mom-and-pop because by definition value pricing cuts both ways I can't just say like Oh mom and pop beats a place I want to charge you a hundred thousand dollars for you know a mobile website but I can say that's Domino's I can say that to some regional chain because they stand to benefit they can capture the investment back they're gonna get a positive ROI if mom-and-pop pizza place comes to me and I talked to them and the value to them for a mobile website as you know we have a conversation well we get this mini mobile orders blah blah the value to them might only be $30,000 a year so I can only charge them $3,000 so what can I do for them for $3,000 I can't build a mobile website but I might be able to set them up with you know or something like that great so I heard high value high risk projects and scale also determines the the cost that you could obviously charge them in the end what about the level of clients if you're talking because there's some questions in here about can you do this in-house can you do this with a certain level of client who do you need to be talking to in the organization where this type of conversation will actually have some kind of impact and you could actually break through oh that's good question right yeah so you do need to be talking to people pretty far up the food chain generally so if you're talking to a gatekeeper who has basically been tasked to go out and find find me a designer finally go find me a good designer that knows how to do logos and that person goes out and do it they send out an RFP and you know you're responding to that that person is not in a position to answer the questions that you have to get answered the why questions so the you have to get past that person and if you don't you're not you're almost certainly not going to get the job in and you're probably lucky if you don't because it would not be a profitable job if you getting past the gatekeeper is a huge subject unto itself but basically you have to insist that you get the answers to the questions and if the person doesn't have the answers then you have to say well who does have the answers so could we set up a meeting with them and you might get to know but you there's again this is turning this will turn into a long answer we can go there if you want but you need to get past the gatekeeper to someone who actually is thinking about the business isn't and isn't just like doing what they're told you need to think of you need to find the person whose money it is basically right that's that's a great short answer so in in your case and I won't speak for everybody if you are not able to get past the gatekeeper if they're not giving you the keys to the kingdom and the answers you need do you usually just pass on that project probably you can but I would probably pass on it just because I hate writing proposals if you you could still write the proposal and just you could say before you you know up if I was going to still propose the job and I was talking to a gatekeeper and they wouldn't you know we can't get the CEO she's travelling or whatever we need to get this done I would say something like okay I've got all the information that I think I can gather here I can I'm going to go and put a proposal together I can think of three different ways that we could engage on this and at the high end we're talking like 250 thousand dollars and at the low end is probably fifty thousand is that fit into what you're picturing and get some kind of reaction from them to that they're proud you know maybe they'll get sticker shock at the high number but maybe they don't get sticker shock at the low number maybe the whole thing is just way way over budget for them or maybe they say yeah that's what we were expecting so at least you get some guidance but also you planted the seed that there's gonna be a quarter of a million dollar option on that proposal so you're already getting them to think about the about that hopefully you've had some way to talk about value perhaps even throwing those numbers out there we'll give you the opening was like two hundred fifty thousand dollars for what like well if I understand you correctly this is a very important project for saying you know if we save one client and each contract you know you've got a Home Depot I'm sure they're paying you a lot of money and you you know keep one client be well worth two hundred fifty thousand dollars so you can you know start to talk about money there a little bit and then go write the proposal the odds of landing a deal like that are a lot lower than if you're not talking to a gatekeeper so you know if you've got time to do it okay it's probably good practice but generally I would just not not bid on it right now you're saying something Jonathan that I'm gonna follow up on because I'm seeing this in the chat and I'm gonna try and summarize it like this when you say well if we do do this project it saves you from losing one client that's worth $250,000 to you then inside the designers head they're thinking well how can I guarantee those results so how can I even say that how would you respond to that sure so if you could guarantee it you could charge the million if you can't guarantee it you charge one hundred thousand so you say well you know who's guaranteed you could probably charge more than a million because they're gonna reap the benefits for years and years so you're basically as Blair ins would say discounting for uncertainty mmm-hmm so I'm not sure that I I know I can't control this so I'm gonna give you a big discount on it like and you can roll the dice basically but I will say that I think offering guarantees is a really good thing to do but that scares people you might not be able to guarantee the outcome of not losing Home Depot but if you're talking to a mature business it's likely that there are leading indicators that you believe that you can control mmm so let's say that you're in this conversation with this person at the client you know prospective client and they say L we're nervous about losing our biggest clients you say all right why are you nervous about that and they give you any any indication that they're thinking about leaving or that they're looking well yeah there people are always complaining to our customer service that they can't download the reports they need or the reports aren't you know can't get them in a timely basis or the reports are formatted poorly they can't read them or you know something I'm trying to think of a design thing but you know there's some reason that that the client your prospective client knows that their customers are perhaps getting ready to leave if you believe that you can control some leading indicator so to that outcome that the client agrees with then you can guarantee that piece so let's say oh so okay so if we decrease the number of complaints about the unreadable 'ti of the annual report there's something like that that's a terrible example but you know maybe you could give me a better example but if we could decrease this thing that I do have confidence that I can control because I'm really good at my job and I changed this number for people all the time and and if we all believe and agree that that is gonna lead to a decrease chance of losing customers then maybe that's worth 10% you know investing 10% and keeping those big clients but you do and you can even offer a guarantee about that thing that you can control I guarantee I can guarantee that your customers employees will enjoy this user interface more than the one that they currently are using guaranteed and I think any UX designer would be happy to guarantee something like that as long as everybody believes that's a leading indicator to keeping clients long term then guarantee the peace that you can control mm-hmm whoo Matthew I mean I'm exhausted 17 pages of notes right now you guys think I'm kidding wait for the summary you will see okay well that was good all right Matthew what have we not answered yet Oh mark has a question okay fire away mark so you talked a little bit about offering three pricing options I just wanted to know you know what's sort of the process into going into those three tiers and what you know how you offer your different kind of level of service okay good question so here's a here's how I think about it when I have a vague idea it'll never be an exact number but when I have a vague idea of what the project is worth to the client what risks are involved all that and I think okay let me I'm gonna create three prices underneath this haven't yet decided what I'm gonna do I say all right so let's say start at the bottom the bottom price $10,000 the middle price 22,000 top price 50,000 so it's sort of increasing order of magnitude as you go up and then I'm like alright what can I do for $50,000 that's gonna move the needle what's what can I do that I could guarantee for this client for $50,000 how can I maximize the likelihood of this being a success 100% customer service that was customer satisfaction and then I'll start thinking about scope what could I do what could I do what could I do usually what's gonna happen is that the the top option is gonna be require the most attention from me not necessarily the most labor but the most attention the middle option is going to be sort of it's gonna be less attention for me and the lowest options gonna be the least amount of attention for me the lowest so again the top is the top option I'm probably gonna be requiring less from the client in other words I'm gonna be taking more ownership of the project I might staff it I might do all sorts of things I might bring in outside people I might buy tools specific to this project but I'm gonna minimize the amount of effort that the client amount of people effort people resources they need to apply to the project I'm gonna take over as much control of the project as I can and that's probably gonna take the most of my attention the middle piece is going to be a more of a collaboration there's a lot of shared accountabilities probably more joint meetings probably more people from the client working on the project in tandem with me perhaps offering oversight but not any implementation and then the the lowest option would be the total DIY option where perhaps I come in diagnose the situation a course of action and I give them a road map or a report or some sort of strategy or design document or you know well look a typical a designer typical designer II thing would be like a brand guide and that would be the lowest option so it's kind of like as you go up its you're you're increasing the likelihood that the project will be a success in taking on more ownership and you know it's taking up more of your attention but not necessarily more labor you probably could easily outsource the labor piece it's interesting it's more based on your attention versus the amount of work that you&#39