Countless times, I’ve had people ask me what I charge as an hourly rate. The answer is I’ve no idea because I don’t have one. Flour Design Studio is a single person operation. To think in terms of an hourly rate is to commit to limiting how much my business earns. Why would I do that? It makes no sense.
Hourly makes little sense for small business
Charging an hourly rate is common in large institutional businesses, and larger professional service businesses. Businesses for whom employees are essentially positions, not people. To get that work done you need this or that position. Three of these, and maybe one or two of those. More authority, specialized expertise and/or experience generally means a higher hourly rate. This thinking doesn’t easily translate to small firms where oftentimes, employees take on a wide range of responsibilities out of necessity. Regardless of authority, expertise or experience. In a single person business, basing pricing for services on a hourly rate is likely driven more by ego than anything else. Look at me, I charge X-dollars per hour. I’m a big shot. Or worse, I’m less than the competition.
Still, regardless of what number you can get away with, by basing billing on hours, an owner automatically locks themselves into earnings based on how many hours they can reasonably expect to sell. The number is probably more than eight, but is it sixteen, twelve? Really? For how long can could I reasonably expect to work like that? And even if such a Herculean effort was possible, why would I want to work that hard?
Instead, I advocate working smarter than harder. For me, there are two options available:
Option 1 – Focus on value
I charge for services based on the value I create for my customers. This approach looks like presenting my client with a choice, e.g. how much is it worth to you to get the service you need, in a particular manner, timeline, and level of quality with my unique perspective? Using these, and other performance measures as variables, I’ll propose to complete the project for a given price that represents the value I provide. The number of hours it takes to complete the work is my concern. But for value-based pricing to work, you really need to explore what sets you apart from other options rather than what makes you similar. Value-based pricing isn’t a new concept, but too often small business owners are hesitant to adopt this approach. Or,
Option 2 – Focus on products
I convert as much of my business into products as possible. My goal here is to create something of value once – be it a book, course, experience, tool, anything – and then sell that something as many times as possible. This option, when combined with well-conceived marketing and fulfillment strategies, presents a small business owner like me with almost limitless earning potential. In today’s internet age, this approach has become attractive to many, and more accessible than ever. But there is a caution. An over-reliance on products could cause a small-business owner to chase profit through as many customers as possible. If you’re not careful, you could end up commoditizing your business such that what you offer is the same stuff, from the same product fulfillment companies as everyone else. Your business loses its soul.
Decide what makes sense for you
With careful consideration, these two options are the approach I’ve chosen to take with Flour Design Studio. When developing my pricing, I certainly make sure I’m taking into consideration the market for the various services, and products I offer. Clearly, I need to know where I stand relative to alternatives. But then, where I price is more a recognition of the value I believe I represent as a professional amongst professionals. Or where my product departs from anything else available. There’s only one me in this world. And for the right client or customer, I’m who they’re looking for. My goal is to make sure the folks that purchase my services or products do so because I am the one best-suited to meeting their needs. For this sort of decision making to occur, I as a business owner, need to clearly represent something more. This may be shared experience, values, point of view or other defining characteristics. The things that make me, me. This sort of decision making is about connection, and while cost is a factor, for this client or customer, it’s not the deciding one.
Now, of course, I need to know my operational costs to ensure my business is profitable. But to distill my business or all that I am to a simple calculation of cost per hour of work misses the whole point. And for my business, that point is to ensure that Flour Design Studio is the right fit for the right person.
That’s ultimately about the value my products or services represent, and that’s a question I can answer.