How to Break the Time Barrier So You Can Increase Agency Profit
Is billing a headache for your marketing agency? Do you wish you could quit hour-based pricing and actually get paid what you’re worth? Good news! You can. By removing the time barrier, you will see increased profitability and improve client relationships for your agency.
In this episode, we’ll cover:
- 3 reasons to bill by value instead of time.
- What does it mean to break the time barrier?
Today, I talked with Mike McDerment, co-founder and CEO of FreshBooks — invoicing and accounting software with over 24 million users. Mike talked about his recent free eBook called Breaking the Time Barrier and why agencies need to drop time-based billing and start to use a more value-centric model.
3 Reasons To Bill by Value Instead of Time
Most agencies bill by-the-hour or by-the-project, but, time-based pricing may be doing your agency more harm than good. Mike explains 3 reasons value-based pricing is a better approach.
- It removes incentive-based agency-client friction. You’re incentivized to take longer on a project, while your client is focused on getting it done as fast as possible. This difference of incentives can lead to some friction between you and your clients that can ultimately fracture your relationship with them.
- Value is a better creative metric. Mike brings up a great point here. When you do creative work, every hour isn’t the same. Sometimes we have a 20-hour burst of activity where our brain is firing all the right signals and we produce some insanely good content. But, sometimes we also work for 3 straight hours, and nothing seems to be moving forward. Do you get the same quality of work done every single hour? Of course not.
- You understand your client’s goals better. If you bill by value, you have to really understand what value you’re bringing to your clients. This means that you will have to fully understand why they want that new website. Are they trying to increase conversions? Are they looking to take advantage of a newer and faster CMS? Why do they want what they want? Understanding why a client wants something lets you nurture a more fulfilling goal-based relationship.
Value-based billing allows you to develop deeper relationships with your clients. Not only that, it gives you the ability to bill clients based on your deliverables, which benefits your agency since productivity isn’t always consistent. And actually, with hour-based pricing, the smarter you get the more profit you lose.
What Does it Mean to Remove the Time Barrier?
Let me ask you a question. If you charge based on hours, are you selling a service with value or are you just selling hours?
For example, if your agency designs websites, what are you really doing? It depends on the client. Some clients want a new site so they can increase their conversions, right? Wouldn’t it make more sense to sell them a website that increases conversions? The difference between billing by the hour and billing by the value of your service can seem like they’re the same thing – but they are not!
Let’s say it takes you 5 hours to design that website and it starts increasing the client’s conversions immediately. Great! But, if you billed them at $60 an hour, you’ve only made $300. Is that really enough for improving a clients conversion rate by 4%? At the same time, if it took you 300 hours, your price may seem too high for the client.
Instead, sit the client down and figure out what they need. Once you understand their needs, you can bill them based on what you are delivering, not how many hours you worked.
There’s no confusion at the end of the project, no combatting over hours, and you and the client will feel better about the end product. No one feels like they got the better of the other party. That’s what removing the time barrier is all about.
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