Value Pricing vs Hourly Billing: Why Selling Time Keeps You Underpaid

In this article

• The Two Models in Plain English
• Five Problems With Selling Time
• A True Story About Two and a Half Times the Fee
• What Value Pricing Changes
• "But My Clients Expect a Day Rate"
• The Maths of the Ceiling
• The Honest Comparison
• Your Next Step

There’s a moment I’ve seen play out hundreds of times in my career.

A skilled consultant sits across from a prospective client. The conversation is going beautifully. Then the client asks, "So what’s your day rate?"

And in that single question, the consultant’s income just took a pay cut.

Why? Because the conversation has moved from the value of the outcome to the cost of the time. And time, my friend, is the worst possible thing for you and I to sell.

Let’s compare the two approaches properly, side by side, and you can decide for yourself which one deserves your future.

The Two Models in Plain English

Hourly billing (and its cousin, the day rate) says: "My time is worth X. You buy units of my time."

Value pricing says: "This outcome is worth Y to you. My fee is a fair fraction of Y."

Notice the difference in where the number comes from.

In the first model, the number comes from you, your costs, your confidence, and what everyone else charges.

In the second model, the number comes from the size of the difference you make.

One of those numbers has a ceiling. The other doesn’t.

Five Problems With Selling Time

Hourly billing feels safe. It’s familiar, it’s easy to explain, and clients rarely question the format.

But look at what it quietly costs you:

• Your income has a hard cap. There are only so many hours in a year. Once your diary is full, the only way to earn more is to charge more per hour, and that conversation terrifies most professionals.
• You’re punished for being good. The better you get, the faster you solve problems. Under hourly billing, faster means cheaper. You literally earn less for being more skilled.
• The client watches the clock, not the outcome. Every invoice becomes a debate about hours rather than a celebration of results.
• Low fees weaken client belief. As I explain in paid!, when clients don’t have enough skin in the game, their belief is low, their action is inconsistent, and their results suffer. Then whose reputation takes the hit? Yes. Yours and mine.
• You compare like-for-like with everyone else. When you sell hours, the client can shop your hours against cheaper hours. When you sell a specific outcome, there is nothing to compare you with.

Strong words? Perhaps. But I’ve watched talented people stay stuck for decades because of that little phrase, "my day rate".

A True Story About Two and a Half Times the Fee

Let me tell you what happened to me many years ago at a seminar where I was the MC and a speaker.

After my session, a businessman approached me. He wanted me to train his sales team and he asked my day rate.

Now, I’d been considering raising my fees, and this was my first opportunity to test the new price. So I quoted 2.5 times my normal rate.

He readily accepted.

Of course, my first thought was that I should have quoted even higher!

I went on to do over 300,000 pounds of business with that company. That was 180,000 pounds more than my old rate would have paid me. And because their turnover grew by over 10 million pounds through implementing the ideas we worked on together, everyone received wonderful value for money.

Here’s the lesson. The market didn’t set my old price. My belief did.

Most people reach the limit of their belief well before they reach the limit of their talent.

Jeff Pettitt

What Value Pricing Changes

When you price on value, three things change almost immediately.

First, the conversation changes. Instead of "how long will it take?", the question becomes "what will this be worth?". You diagnose before you prescribe. You put numbers on the problem and numbers on the gain.

Second, the client’s commitment changes. When clients invest at a meaningful level, they have skin in the game. Their belief is firm. When their belief is firm, they take action. And when they take action consistently, they succeed. Result: happiness, for all concerned.

Third, your ceiling disappears. Your fee is now connected to outcomes, and outcomes can be worth ten times, fifty times, a hundred times your old day rate.

"But My Clients Expect a Day Rate"

I hear this one a lot. And there’s some truth in it. Some organisations are set up to buy days.

So here are three gentle ways to move without frightening the horses:

• Quote projects, not days. Clients know the outcome value of their projects, so a project fee sits comfortably alongside that value. The day count becomes your private business, not theirs.
• Use a per-result unit. One of my clients, a presentation skills trainer, moved from a 1,500 pound day rate to a delegate rate of 395 pounds per person with a minimum of ten delegates. That’s 3,950 pounds a day. Same day. Same trainer. 2,450 pounds more.
• Anchor with contrast before any number. Before you quote, establish what the problem is costing. A fee of 20,000 pounds sounds very different next to a 14 million pound problem than it does next to a blank page.

Notice something? None of those require you to say the words "value pricing" to your client. You simply change what the number is attached to.

The Maths of the Ceiling

Let’s do a little arithmetic together, because numbers make this vivid.

Say your day rate is 1,000 pounds. Say you can realistically sell 150 days a year once you allow for marketing, administration, holidays and life itself.

That’s 150,000 pounds. And that is your ceiling. Not your target. Your ceiling. The absolute best case, achieved only in a year where everything goes perfectly and you’re fully booked from January to December.

Want more? Under hourly thinking you have exactly two levers. Work more days (there aren’t any) or raise the day rate (the conversation you’ve been avoiding for years).

Now run the value model over the same year. Suppose you deliver twelve client engagements, each producing outcomes worth 100,000 pounds or more, and each priced as a project at, say, 20,000 pounds.

That’s 240,000 pounds. Fewer clients. Deeper work. Better results for each of them, because each has real skin in the game. And, in my experience, considerably fewer grey hairs for you.

Here’s another way to feel the difference. In paid! I suggest imagining you must raise an invoice for your time at the end of every single day. If you haven’t invoiced a client, you’ve been working for yourself. So how much will you charge yourself for the day?

That little exercise changes how you spend your hours almost immediately. Because once a day of your life has a value, and it must be a substantial one, you become very careful what you trade it for.

The Honest Comparison

Let’s be fair to hourly billing for a moment. It is simple. It is familiar. And for genuinely undefined, open-ended work, it can have a place.

But for you and I, as people who deliver transformation rather than hours of attendance, the comparison isn’t close.

Hourly billing pays you for showing up. Value pricing pays you for the difference you make.

And you didn’t build your expertise over all these years just to show up, did you?

Your Next Step

If you’re ready for the complete method, with all six proven pricing models and the exact words to use, that’s what my book paid! is for.

Get your copy at peterthomson.com/paid-book.

One final thought.

And if a small voice is whispering that your clients would never accept the change, remember that mine whispered exactly the same thing, right up until the moment a client accepted 2.5 times my old rate without blinking. The voice was wrong. It usually is. The market has a habit of being far kinder to well-presented value than our fears ever predict, and there is only one way you will ever prove that to yourself. Quote the better number, once, and watch what actually happens.

Every day you sell time, you’re giving your clients a discount on your talent. Isn’t it time the discount ended?

Until next time

Peter

Peter Thomson

'The UK's Most Prolific Business Development Author'