By Bryan Orr
It happens to us all the time. We give an “all inclusive” quote and spell out everything the customer is getting and all of the amazing benefits and then they ask for an hourly rate, or even worse…
They ask for a detailed BREAKDOWN.
So I give them what they ask for and I break down emotionally and say some version of “It’s not fair, I’m just trying to feed my family.” No, I don’t, but I imagine it comes through in my tone and body language.
I am a fan of project pricing for many reasons in the service industry, but I must admit, sometimes billing hourly is tempting. Here are the pros and cons to consider when making your choice.
Benefits of Hourly Pricing
- It simplifies the conversation. The customer agrees to an hourly rate and you start working (and billing).
- You don’t risk underestimating. If you aren’t experienced at writing quotes or if the scope of work is confusing or complex, you are protected.
- If the customer isn’t clear on exactly what they want and/or they change their mind all the time you don’t need to keep writing new proposals.
Problems with Hourly Pricing
- It can oversimplify the conversation. Your skills and offerings become a commodity that can be compared to the lowest bidder.
- You remove your upside and incentives. Why be more efficient or innovative? The more time it takes you the more you get paid.
- The customer will be watching the clock while you work and asking questions like, “Why did it take so long? My nephew Bertie is a graphic designer and he said it should only take 10 minutes.”
- If the customer has an issue later on they will expect you to fix it for free. Did you build that into your hourly rate?
Benefits of Project Pricing
- You can be artful and unique with your offerings to provide value to the customer and separate you from your competition.
- There are no surprises in your price. The customer pays what they agree to pay, nothing more, nothing less.
- You can take as long as you need to do the job the right way. If you want to have your employee do the work and they are a little slower than you, NO SWEAT; if you get the work done the way you said you would, the customer will have no complaints.
- You are in control of your price, not the customer. You can account for all of you business expenses including future warranty expenses to make sure all the bases are covered.
Problems with Project Pricing
- Some customers feel they are being “ripped off” if you don’t use the same pricing structure as your competitors.
- If you estimate poorly you can lose a lot of money quickly.
- Many corporate customers require detailed breakdowns as part of their purchasing process.
In conclusion, I recommend using project pricing wherever possible and if you MUST quote hourly or perform a breakdown, don’t roll around on the floor and cry like I do. It isn’t professional.