How I Earned A Lot More on Projects by Changing My Pricing Strategy • Hacker News Board

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#61

Post by StavrosK » Sat, Jul 20, 2013, 5:02 PM UTC

pallandt wrote: post #4

jackschultz wrote: post #3

> If I felt my agency couldn’t deliver the full solution, I saw that as an opportunity to partner with another service provider. I would pay them for the work, developing a lasting business partnership along the way. And in the process, I’d learn about their area of expertise to get better at both selling and delivering it to my clients. This seems a little off to me. Would you tell the client that you're outsourcing…

I would venture into guessing that the client wasn't told about this. If I was in a similar situation and I'd be told the company I'm paying to work on my project is outsourcing it, I'd think they're either a) they're too busy for me/I'm too small of a client for them, b) money is money so they're taking my project, but I shouldn't bet on spectacular results. Also, there'd be some broken trust involved. There would a…

Really? I say "our agency is so busy at the moment that someone else will handle your project, but I will personally oversee and QA it. Our customers not only seem to not mind, but they're extremely happy after the project has completed.

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#62

Post by badclient » Sat, Jul 20, 2013, 6:19 PM UTC

ProblemFactory wrote: post #47

larrys wrote: post #37

Earlier quoted context omitted.

"The one huge assumption they make is that you have good clients who aren't on a budget and won't go shopping. Those clients are much harder to find as a freelancer." Agree. And it's not even so much budget as "not a schmuck" (sorry not a better way to put that). When I saw this, I laughed: "As an example, if I was proposing to build a website capable of creating an additional $100,000 of profit annually, I would ask…

> That said you will have to find the type of customers who will fall for something like this. I don't think customers that who accept (and find value in) this proposal are necessarily fools. Writing code is a cheap commodity. Making business decisions is not, and development cost is inversely proportional to how precisely you know what you want. A business owner who has made all the business and technical decisions,…

What business or marketing strategy am I providing to a client when it's pretty clear he just needs a simple Wordpress set up with a template he's already found? I didn't get the feeling from the post that I was being paid for strategy as much as to wrap my work and call it strategy because it might pay much more.

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#63

Post by larrys » Sat, Jul 20, 2013, 6:29 PM UTC

Silhouette wrote: post #60

mistermann wrote: post #57

Earlier quoted context omitted.

Exactly. The only way I can see this working with a non-naive person is if its accurately measurable, and if you don't achieve the 100k, you don't pay the 40k. THEN, I can see it working. If that isn't how it works, then I can't understand how you think you are righteous in selling these services at a much higher place - put your money where your mouth is.

FWIW, I don't think righteousness is really the issue here. All consultancy is ultimately based on selling valuable information and/or judgement that the client doesn't have but the consultant does, so in a sense it's always based on the consultant charging money because of the client's ignorance. It's hard to find any objective standard for reasonable pricing other than "what the market is willing to pay". Maybe it…

"when a handful of HN celebrities post repeatedly about raising rates"

Exactly. An similar example might be me. While not an HN celebrity I do get referrals for what I do from people who are celebrities (could do an entire post on how that went down actually). I do it because it's a) fun (it's not the main way I make money - very time consuming) and b) I do it to plant seeds for future things (contacts with important people) as well.

Consequently I am able to say "I want $x for a strategy and research fee and $y upon successful completion of the task". So far I've had no kickback from anyone so I just have to evaluate and try to maximize x and y perhaps and raise to make more iic. The "research/strategy" though appears to work even w/o the celebrity connections because of my other obvious qualifications and what I do.

There are lessons to be learned from how I operate but they would probably be more centered around how I got to that place rather than "here is how you can charge what I charge". Otoh if I wanted to become an HN celebrity (I don't at least not now for sure) I could spin this any way I want. I could make anything the "thing" that should be paid attention to.

There are lessons to be learned from all of this of course but I fear that someone just starting out may have a much harder time seeing the 50% they should pay attention to and the 50% they should not.

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#64

Post by edanm » Sat, Jul 20, 2013, 7:14 PM UTC

tocomment wrote: post #28

edanm wrote: post #10

Earlier quoted context omitted.

I'm completely on board with the "bill by the day, not the hour" idea. Having implemented it in our own consultancy, it's done wonders. But it hasn't gotten us to the stage you're talking about - we're definitely making headway in establishing ourselves as (Python) experts, but I don't think we're really at the stage where we can sell based solely on the customer's value - building software is simply too replaceable…

What didn't you like with fixed price billing?

It's not about likes and dislikes, both are workeable systems. But they're very different. Some obvious and not so obvious ways:

1. The obvious way - in one you get paid no matter what, and your entire job is to keep the customer happy enough with you that they'll happily continue paying you. With fixed-price, you have a "semi-conflict-of-interests" as others mentioned.

2. These different incentives cause a lot more work up-front for requirement gathering, a lot more work on contracts that are well specified, etc. Btw, that also means billing at much, much higher margins to cover the uncertainty.

3. Not so obvious - doing fixed-price projects requires a lot of focus around managing multiple projects at the same time. When managing X employees on multiple projects, this gets tricky. Why? Because fixed-price projects tend to have lots of waiting: build some infrastructure, wait for design, build and deliver first milestone, wait for feedback, deliver final project, wait for bugs, fix bugs, wait for final confirmation.

So you're basically learning to juggle multiple projects at the same time. And all projects have points where their schedules shift - I've had clients who are completely desperate to get things off the ground, where I would've put 90% chance of their e.g. graphical designs being ready for us, who suddenly had business emergencies that required them to slow down. This happens ALL THE TIME, as does the converse (10 designs arrive at the same time and now you have 10 clients waiting eagerly for updates).

4. Another non-obvious difference - the kind of clients you can take on tend to be very different for these two methods. You'll tend to get more non-technical clients looking to work project-based, and more technical clients looking for time and material, especially when what you are doing is augmenting their own technical staff with expert knowledge.

To summarise, each style of billing or more correctly each type of project you can take on has its own challenges, they're not better/worse, they're just different.

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#65

Post by tptacek » Sat, Jul 20, 2013, 7:33 PM UTC

sokoloff wrote: post #51

gabemart wrote: post #50

Earlier quoted context omitted.

Isn't it also true that hourly or daily billing creates a conflict of interests from the start, because it's in the customer's interests for you to finish as fast as possible and in your interests to finish as slowly as possible?

Yes, but those are smaller than the converse, where the conversation is about whether something ambiguous/new is in or out of scope (strictly adversarial discussion), rather than whether such ambiguous items are worth it or not to the client (simply a resource allocation discussion).

I have a hard time believing that the potential conflict of interest situation that emerges from a fixed-price engagement, where the customer ultimately can accept or reject the work, would be worse than the elemental conflict of interest that emerges from hourly billing, where customers have little control or even insight into hours billed.

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#66

Post by patkai » Sat, Jul 20, 2013, 7:40 PM UTC

edanm wrote: post #64

tocomment wrote: post #28

Earlier quoted context omitted.

What didn't you like with fixed price billing?

It's not about likes and dislikes, both are workeable systems. But they're very different. Some obvious and not so obvious ways: 1. The obvious way - in one you get paid no matter what, and your entire job is to keep the customer happy enough with you that they'll happily continue paying you. With fixed-price, you have a "semi-conflict-of-interests" as others mentioned. 2. These different incentives cause a lot more…

Very good points. I would add that one's relationship with customers is much more unpleasant when doing project pricing. The "out-of-scope" discussions are difficult and can make collaboration strained.

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#67

Post by oz » Sat, Jul 20, 2013, 7:47 PM UTC

Eliezer wrote: post #58

Whenever I see a page selling anything and it won't tell me the price and I can't find it in a click, I move on. My time is valuable, and someone who plays games to waste it is not someone from whom I want to buy anything.

I used to think like that, and it used to piss me off, until I learned about market segmentation.

If SIAI approaches me to buy $WIDGET and Google approaches me to buy the same $WIDGET, I'm charging Google an order of magnitude more than I'm charging you.

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#68

Post by patkai » Sat, Jul 20, 2013, 8:10 PM UTC

mistermann wrote: post #57

Silhouette wrote: post #56

Earlier quoted context omitted.

When I saw this, I laughed: "As an example, if I was proposing to build a website capable of creating an additional $100,000 of profit annually, I would ask the client to make an investment of $40,000 in their website." Exactly. Leaving aside the sleight of hand of comparing hypothetical/perceived benefit with actual cost, what you've really got here is a consultant offering you $60,000 of benefit this year. If anoth…

Exactly. The only way I can see this working with a non-naive person is if its accurately measurable, and if you don't achieve the 100k, you don't pay the 40k. THEN, I can see it working. If that isn't how it works, then I can't understand how you think you are righteous in selling these services at a much higher place - put your money where your mouth is.

I don't know if you tried it but when I offered pricing on the basis of perfectly measurable metrics everyone rejected. They all said they can't budget for possibly outstanding results. Based on this interlude I got the impression that there is a certain amount they _want_ to pay, and they are looking for an offer similar to their idea of a budget.

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#69

Post by pallandt » Sun, Jul 21, 2013, 12:59 AM UTC

StavrosK wrote: post #61

pallandt wrote: post #4

Earlier quoted context omitted.

I would venture into guessing that the client wasn't told about this. If I was in a similar situation and I'd be told the company I'm paying to work on my project is outsourcing it, I'd think they're either a) they're too busy for me/I'm too small of a client for them, b) money is money so they're taking my project, but I shouldn't bet on spectacular results. Also, there'd be some broken trust involved. There would a…

Really? I say "our agency is so busy at the moment that someone else will handle your project, but I will personally oversee and QA it. Our customers not only seem to not mind, but they're extremely happy after the project has completed.

I think you mentioning that you'll personally oversee and QA their project has a big impact on how positive the news is received. In fact, that's a great approach!

Re: How I Earned A Lot More on Projects by Changing My Pricing Strategy

#70

Post by ProblemFactory » Sun, Jul 21, 2013, 9:14 AM UTC

badclient wrote: post #62

ProblemFactory wrote: post #47

Earlier quoted context omitted.

> That said you will have to find the type of customers who will fall for something like this. I don't think customers that who accept (and find value in) this proposal are necessarily fools. Writing code is a cheap commodity. Making business decisions is not, and development cost is inversely proportional to how precisely you know what you want. A business owner who has made all the business and technical decisions,…

What business or marketing strategy am I providing to a client when it's pretty clear he just needs a simple Wordpress set up with a template he's already found? I didn't get the feeling from the post that I was being paid for strategy as much as to wrap my work and call it strategy because it might pay much more.

I do freelance work for people who want apps built according to their vague vision, and don't have experience with the strategy-level consulting myself. But I assume the step up would be similar to the step up at not needing precise specifications and asking the client about each ambiguity.

An important point not directly mentioned in the article is: as you start doing more expensive consulting, you should also find new clients. Clients who do require the services and are willing to pay a premium for them.

While it's sometimes possible to charge a premium for a simple job, I find more honest to carefully explain the cheaper options (other freelancers, elance) to them first.

Setting up Wordpress could be "strategy" or 2 hours of sysadmin work depending on the involvement of the client. If they know that they just want a Wordpress setup, they could get the service for cheap elsewhere, and it would be appropriate to inform them of this before accepting. If they want a "website that my assistant can update", then choosing a platform for their requirements may be the experience in technical decision-making they are paying for, and actually setting it up Wordpress is a small part of the service.