When I do most of my design work, I bill clients by the hour. That hourly rate varies. When I do estimates, I base it on hours, but I do give an estimated total cost. But there are people who suggest changing from billing hours to a pricing method known as value-based. That’s a new one for me.
Though I bill by hours and try to keep track of my minutes and hours (I literally use a timer), I know it isn’t always an accurate count. In many cases, I reduce my hours from that total. For example, if I work for two hours to add a new feature that I’m unfamiliar with on a particular platform, I don’t bill for two hours because I know that time was mostly spent in my own “learning.” On the opposite side, other designers have advised me to not bill for fractions of an hour. “20 minutes is an hour,” is something a lawyer’s office might do. I use half-hours. 19 minutes and 37 minutes both equal a half hour.
So what is value-based pricing? It’s rather complicated and requires some information that I can imagine clients not wanting to divulge.
On webdesignerdepot.com they give this example:
“A business sells agricultural drones via their website. They ask you to create a website focused on getting more sales. After you ask a few basic questions, your 2 main questions should be:
How many sales do you currently get each month?
What is the average sales value of a drone?
They answer with: 10 sales per month and $8,500 each.
You then do simple math to figure out how much income they generate each month ($8,500 x 10 = $85,000).
You look at their current site and see how they can improve their sales and you work on a low estimate of what you expect sales could increase by after you make a conversion-centered website. In this scenario, let’s say you are confident it would at least be 2 sales extra per month. This would mean the business would make an additional $16,000 per month and almost $200,000 in one year. After informing the client of this in the proposal and why you feel this is a low and realistic estimate, you then give your website cost based on the potential annual return. For this example, your price could be $10,000 – $15,000.
Would you, ‘as the business owner’ be willing to pay around 5% of what you could potentially make after one year?”
What do you think of that approach?