Pricing Fuck Ups. Ep29. Charging hourly makes you profitable by protecting you from scope creep. [part 2] Lessons from the wrong side of pricing.

“We have to protect ourselves from scope creep. Charge hourly.”

Approach

It’s not about your client. It’s about you. Scope → Cost → Markup → Estimate.
It’s an estimated quote. Not a price.

What does happen

• Make the client take a financial decision every time they come to you.
• Keeps the client hostage. There comes a point where the sunk costs are too high and risky to fire you. So they have to keep you.
• Keeps you in scope-first mode. You have to think of what the work will be, how much it might cost you, how to mark it up and then guess the time it might take you. And we know it’ll always be longer than estimated.
• Makes you be aware of every project, because you take everyone. First, you take any client. Then you have to keep an eye on them in case “they keep changing their mind”. Finally, you build resentment because the budget blows up.
• You leave money on the table. Since you’re only focus on your costs, the aim is to keep them low to make a profit.

What doesn’t happen

1. Nurture a real, equal (or at least balanced) relationship.
2. Focus on the big thing that will make a difference.
3. Get selective. Anyone is welcome.
4. Start with what the client is after. There’s no focus on what’s a home run, rather on what’s the thing to hand off.
5. Question every self-diagnosis. This, in the medical industry, is called mal-praxis.

Do different

1. Uncover what the project is supposed to achieve. What’s the business case for it. What’s the outcome desired.
2. If it doesn’t feel like a good fit. Walk away. Recommend somebody else or simply say you’re not a match made in heaven.
3. Help your prospective client define what it’s worth to them.
4. Talk a price range for them. Try 10%, 22% and 55% of the value.
5. From those options, think what could you do for that money. Scope last.
6. Present your 3 options.

Lesson

Start with what the client is trying to get achieved. Help them define the value of it. Think of a price. Say the price. Think of scope for that said price. Build 3 options. Show the price.

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