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Jonathan Stark, author and consultant at Jonathan Stark Consulting, makes the case that time-based pricing is costing agencies real money and explains how to transition to value pricing without losing clients.
Agency Forward explores the future of agencies as tech and AI drive down the cost of tactical deliverables. Topics include building competent teams, developing strategic offers, systemizing your business, and more.
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Chris DuBois 0:00
Hey everyone, today I'm joined by Jonathan Stark. Jonathan is an author, speaker, and consultant who has spent over 20 years helping agencies and consultants escape the trap of hourly billing. He hosts the Ditching Hourly podcast, has published over 500 episodes on the subject, and runs the Ditcherville community. I wanted to have Jonathan on because pricing is probably one of the most under-levered moves in any agency owner's toolkit. Most people, like, know that hourly billing isn't ideal, but very few know how to actually make the switch without, like, panicking, I guess. In this episode, we discuss why fixed price quotes feel risky and how to price them correctly. The real source of scope creep in value-priced engagements. The first product I service every agency should build, and more. No one was asking for another community, but I made one anyway. So, what's different? The dynamic agency community is designed around access rather than content, access to peers who've done it before, access to experts who've designed solutions, access to resources that have been battle tested, and right now the price for founding members is only $97 a year. Join today, so your agency has immediate access to everything you need to grow. You can join at Dynamic Agency dot community, and now Jonathan Stark. It's easier than ever to start an agency, but it's only getting harder to stand out and keep it alive. Join me as we explore the strategies agencies are using today to secure a better tomorrow. This is Agency Forward, you What do you say to the agency owner that's terrified to quote a fixed price?
Speaker 1 1:49
Yeah, I'd say I understand that is scary. You've probably tried it before, and, and got killed, felt like you lost money on it, and you would have made a lot more money if you were billing by the hour. I had the same experience back in 2000 and 345, Around there, I was managing a dev shop, and we had about 10 developers. We did FileMaker development. There were some other, you know, admin-based employees, and we billed everybody out at $150 an hour, and every once in a while the boss would get to a fixed price quote for somebody, and it just like it just never went well. It was like we ended up making probably felt like $75 an hour from it. It's just like, oh, wow, we're never going to do that again. So I totally get it. You don't want to lose money, you got to pay salaries, you got to make payroll. The problem is that, or one of the problems is that if you're billing by the hour, you're not really taking any risk, so you don't really get any reward, so there is some risk to giving fixed prices. I think the real unlock for people is understanding a fine or learning a better way to calculate a fixed price than just estimating how many hours you think it's going to take, multiplying it by your hourly rate, and then tacking on some, you know, padding like 15% for admin or something like that. So, if you do it like that, then you're, you're automatically going to end up getting killed on any decent sized project, because you can't uncover all of the scope in, you know, a one hour sales meeting, or even maybe a couple of meetings, and you don't want to have a ton of meetings to uncover scope, or you're not even getting paid, and don't know if you're going to land the project, so you don't want to put in a ton of time to uncover scope up front, so you don't have all the scope, and you end up miscalculating the hours, you know, probably a lot fewer than you should, and you don't account for the inevitable changes, you know, there's going to be changes, you know, they're going to be surprises, it happens on every project, so why not factor that in at the beginning, so you end up putting a way too low of a multiplier on
Chris DuBois 4:00
it,
Speaker 1 4:00
and there's another way to do it that I think is far superior, which is value-based pricing, and with value-based pricing, you don't start with the hours at all, you work backwards from what the outcome is worth to the client, then you set a price, and then you decide what you're going to do for that amount of money, and you know, I could literally talk the entire episode about this, so I'll stop there. But they're scared because they think they're going to get killed, and they are going to get killed because they're calculating the price in backwards, they're calculating the price wrong.
Chris DuBois 4:37
All right, I got so many different ways that we can, we can get into this first, the risk reward concept for why you should go to, like, set pricing instead of hourly, because, like, I don't know that I've ever heard someone explain it like that, where it's like, if you don't take on the risk of knowing that you might miscalculate this, and you actually have to put a little on. But if you did everything right, you put in the work ahead of time, it's like this could be the best thing for your agency, and so I guess if I was looking at this and saying, okay, well, then knowing that fact, why won't more agencies do it? It, I think, it comes down to like an operations issue, right, where they just don't have, they don't trust themselves to know that they can deliver something in a certain amount of time, because is that where you're seeing the block, or is there something else that contributes to that?
Speaker 1 5:26
It's that's definitely part of it. The I think the part that's the most mysterious for people is how to figure out what it's worth to the client in the first place. So there's a conversation you need to have in the sales interview that I call the why conversation, but it's basically three questions that I originally read about in a book by Alan Weiss, that you know, you ask why you know the client comes to you and they say, "Hey, we heard great stuff from Alice, she said you did a great job on our website or whatever, and we'd like to talk, you know, about working together. What's your hourly rate? Be like, "Well, we don't have an hourly rate, but we.. if would it be okay if we give you a fixed price for the project? Oh, yeah, that'd be great. Be good to know upfront how much is going to cost and not find out when it's way too late. So, in that meeting, you sit down, you ask them, why do you want to do this, why do you need to do it now, and why would you hire someone expensive like me? When there's all these other options, or all these other ways that you could do it, you could put it off for 18 months, or all these reasons that you essentially try and talk them out of hiring you, you talk them out of doing the project at all, and see what they say back, and almost invariably they have waited too long to call you, they've tried a million other things, and it didn't work, and they have tried to do it on their own or with some team in Bangalore, and it hasn't panned out, and now they're like behind the eight ball, and they really need to pony up and get somebody who really knows what they're doing, so they're going to say, yeah, we have to do this for reasons one, two, and three, and we have to do it now because the window of opportunity is closing, or Amazon's coming to our market, or some fear, and then they'll explain why they want to do it with you, why they're talking to you at all, and there's a reason, or they wouldn't be talking to you, you just need to find out what it is, so once you have all of those things, then you can, you can basically do a cold read on them and say, okay, so let me get this straight, you have 500 employees, you're trying to, you know, you tell me, what would.. what's something like a typical agency owner would be doing for these folks, like performance marketing, website development.
Chris DuBois 7:27
Yeah, we could do a webshop.
Speaker 1 7:29
Okay, so web shop. So you know, you want to build this, you need this customer portal. You've got big clients like Home Depot, and you're afraid that they're going to start going to your competitors because they have a better online experience for self-serving their projects and invoices, and all this stuff. Okay, we can definitely do that for you. And for a company that size, you can start, and probably they've already started to give you some numbers. You can start to figure out some numbers about, well, how big of an account is Home Depot, and how many Home Depots do you have, and is this really a big deal, and, and they would have already convinced you and themselves that it is a big deal. They have to do it now, and they need to hire someone good, because they, they can't, they have to stop fooling around with this cheaper options. So, let's say that's worth $100,000 to them, and at that point you can say, all right, I usually, I usually give three prices, I don't give just one price, I don't want to give them an ultimatum. I'd like to give them different ways to work together. So, I'll say, all right, this is probably worth 100,000 ballpark, $100,000 to the business in the first year alone, and I can do something for $10,000 I can do something for $22,000 and I can do something for $50,000 in order to move the needle on the thing that you want to get done, so they probably asked you for something very specific, a punch list of features or something like that initially, and that's fine, and you can, you can take that information down, but for me, when they're giving me scope in the sales meeting, what I'm using that information to drill in deeper and find out what the real business outcome is that they're looking for, so if I say, what would a home run look like for you if you know if this project went perfectly, and it was you just were so happy about the outcome that you wanted to build a statue of me outside of your building, what would that look like? And good clients will sit back and go, oh, it would be like this, and they'd say we'd launch the thing, Home Depot would be raving about it, our other contact, our salespeople would be bragging about it, we'd be bringing in more clients, and all of these sorts of things, business outcomes, not features, so like stuff that is going to make or save them money. All right, great at that. that point I can say for $10,000 This isn't what you asked for, but it is going to move the needle on that thing, and I'll.. and I would just decide, like, I'll scope last. What would I do for $10,000 that I would be super happy to do for 10,000 Probably something I could do. Do in a weekend, or maybe less than a week, and say, like, here you go, this moved the needle, this is going to make Home Depot a little bit happier, and then at 22,000 I, you know, something on top of that, that would be even more likely to move the needle, and then for 50,000 something that's even more likely to move the needle, and those options are a fraction of what it's worth to them. They've already given you all these reasons why they have to do it now with you or someone like you. So, if you have all that information from the from the sales interview, the proposal practically writes itself. It's like Mad Libs. You just fill in what they said, and and then the only real thinking you have to do is like, what am I going to do for each one of these options, and it's kind of a no-brainer, if you, if, if you uncover it all properly from them, and you get numbers, then it's kind of a no-brainer for them to say, yes, they're going to pick one option, you can negotiate, you know, which, which option you can negotiate payment terms, I don't negotiate price, but anyway I feel like I could talk about this nonstop, so you have to interrupt me if you know this
Chris DuBois 11:07
is awesome for the so let's get into the value based pricing around like we'll keep using this example, so I guess one, so one of my concerns for value based pricing would be the more agencies try to productize, the harder it then is to sell something value-based, because we're not. If that person goes and asks for referrals, right, to my clients, and they say, yeah, he did that same thing for me, and it costs us. It's like I just lost credibility in the engagement, so we feel like we have to stay somewhat bespoke in what we're doing for them, and so I think you've pointed out, like, by highlighting, like, well, what would make this the win for you, like, what is the actual outcome that you need, being able to tie to that. It's like, now that's gonna be very different for all of these companies, and so now they can't go to someone else and say, well, what did they do for you? It's like, unless that outcome is the exact same, it's we're comparing apples to oranges,
Speaker 1 12:05
right? So, again, so I'm a big fan of productizing, that's that's not value, it's different though. So, productizing, I'm a fan of value-based pricing for projects, project work, and a project is something that has a beginning, a middle, and an end, the client is going to be heavily involved, whether they're doing QA or they've got input about something, or they need to bring in the client to start testing. There's a lot of client involvement on a project, and there's also a success criteria, like when, when you've met the success criteria, Home Depot has renewed the contract, or whatever, then you know you're done, so you've got a success metric, you probably hopefully have some progress metrics along the way, so you know that you're getting closer to the goal, and it's probably pretty big, I suppose. You know, I would, maybe I wouldn't. It takes a lot of effort and talent to have one of these conversations. It takes practice, I should say it's not talent so much, it's just practice, and it's kind of not worth doing unless the project's pretty big, so like it leaves 50 grand, something like that. I wouldn't be doing this for a $2,000 yeah, you know, whatever, but for smaller things, and for cookie cutter things, and for deliverable-based things, you know, website in a week, stuff like that. Yeah, product, go ahead, productize it. $5,000 website in a week, five pages, contact form, and you know, blah blah blah blah blah. WordPress template, you're done, and you can still be profitable there, because you're not, you're still not tying your, your time to your money. You can operational, you can improve your operations, make it quicker, use AI, do all sorts of things to make it take less time, increase your profitability, deliver better results faster to your clients. So, productized services to me are very interesting. They're a good first step for some agencies, but you're absolutely right. If you're selling website in a week to customer after customer after customer after customer, and somebody compares notes, they're probably not going to be super happy if you charge them, you know, an extra zero on top of what you charge the first person.
Chris DuBois 14:06
Yeah,
Speaker 1 14:07
you know, so yes. So, if you're focusing on custom projects, are basically never the same, like never, they're never the same, so it makes sense to have a different price for every client. Yeah,
Chris DuBois 14:19
and so I think it just, it's more kind of credence of the idea of like an agency needs to go in and say, all right, for this type of project, here's our process for this, how we're going to sell it, here's how we're pricing it, right, you're like everything, so that they're all kind of set in stone, they know what we're doing with each project, so the bespoke stuff, you can go value based, you can, this is how we're going to run that play,
Speaker 1 14:42
it's a good fit if you have productized services, and someone comes to you, and none of the productized services are a good fit, but you still want to take them on,
Chris DuBois 14:49
right?
Speaker 1 14:49
Okay, custom project, so that immediately you're like, we don't have an off-the-shelf thing for you, but we can talk about, you know, what you're trying to achieve, and then give you a proposal,
Chris DuBois 14:59
right. Yes, yeah, and I think even for those bespoke projects, a lot of times you're able to take the productized services, use those inside them bespoke project, and you just add on the layers of any of the complexity that gets involved, so
Speaker 1 15:12
yeah,
Chris DuBois 15:12
yeah, so one of the, one of the things I wanted to dive into is, then, as we're okay, one of the challenges of doing, like, a fixed, fixed budget for this project, or for whatever we're trying to do, right, is we might miscalculate and write, and so, like, that is the risk aspect of this. What are what are some of the things that you recommend an agency look at in order to ensure they're they're getting that calculation as close as possible? It's like just maintaining the scope, not necessarily looking at the scope creep part of that and stuff, but like to make sure we can do the stuff initially in the scope for a set price.
Speaker 1 15:50
Well, I mean, it doesn't really go without saying, so I'll say it, you need to be good at what you're doing, and none of this will work. Yeah, it's probably yes, your way into like a great outcome, so assuming you've got some experience, and and you convince both yourself and the client that what they want to have you do is going to probably lead, you know, highly likely that it's going to lead to the outcome that they want. Well, then you're pretty confident that it's going to work, and that you know how a way to do it, maybe three different paths to it, but it's all stuff that you've done before, and you're like, okay, they're going to be surprises, and maybe Home Depot is not going to react very well to our first iteration, or whatever, and we might have to redo it, or something like that, but there are two things about this approach that protect you from basically feeling like you're losing money, or feel like your margin is shrinking. The first one is, you know, how to satisfy them, which typically, when people are scoping first, they don't actually know what's going to satisfy the client, they just have the list of things the client asked for, but those might not actually solve the problem the client thinks they're going to solve, so you've never actually defined what the, the, what success looks like for the project, if you're billing by the hour, usually. So, if you, if you have created a value-based proposal, you have to. There's no way to do it unless knowing what their desired outcome is. So, you know how to satisfy them with that. When someone comes to you and says, "Hey, you're working on the website, I know it's that you're doing this customer portal for Home Depot, but the VP of sales was talking about our competitor site, and they've got this carousel on the homepage, and it's wicked cool, and since you're in there anyway, can just throw a throw a carousel on the homepage too. And I would say, what's the business case? So we agreed that what we want is this customer portal, and basically I say no to them. I'd say, like, if you can make a business case, how this is going to make Home Depot want to stay with you, then we'll add it to the list, because that's what I want too. I want Home Depot to stay with you and renew their contract. But if they're like, well, it's just something the sales guy thought would be cool, and you know, I'd say, well, well, let's put it on the back burner. Once we declare victory on the Home Depot thing, then we can revisit anything that we've put on a V list and decide if it's going to produce any business value or if it's just a fun, cool thing that somebody saw, and then you know would never have moved any other needle at
Chris DuBois 18:14
all.
Speaker 1 18:16
Yeah, so you, you, so it's not, it doesn't turn into an argument, it's not like it's not like, no, I'm not going to do that, because either it's beneath my professional standards or it's outside of scope. You say no, it's it's not about me, it's not about you, it's about the project. And I, and I usually tell them this in the sales meeting, I'm going to keep you, it's going to be annoying, I'm going to be so focused on the result that I'm going to have blinders on about everything else, we push off everything to a v that doesn't contribute to this goal, and we're going to be laser focused on the home run, and they love that up front. They love when you say that up front in the project, sometimes it irritates them, but they remember that you said it, and they know they're having shiny object syndrome, and they've probably been distracted by things like this before, and it's just going to get them to the win faster if you do that, so that's one thing that keeps, keeps everything on track, keeps the scope from going crazy.
Chris DuBois 19:12
Yeah,
Speaker 1 19:12
but the other thing is when you decided what you were going to do at each price, you, you do like something you'd be super happy to do for the price, like for $10,000 like I feel it feels like highway robbery. It's going to take me two days, and it's going to be $10,000 and so it's very profitable to you, but it's also very profitable to the client, because the way that you calculated the prices is just going to deliver outsized results. So both parties are doing a making a mutual profit,
Chris DuBois 19:42
right. So, yeah, we used to run this, so we would always do like the three pricing tiers for our website project, and but one of the things that we would include in every, every option was a what we call the say yes budget, where it was just for things. That, like, when the client has that random request, and, like, we, yeah, we have a budget set aside for this. If we get to the end of the project and we don't use it, we're actually going to refund you just for, like, this portion of the budget.
Speaker 1 20:11
Never
Chris DuBois 20:12
got to that, because one, they're always asking for, like, could you mind doing this little thing? It's like, yeah, we can do that, because it has nothing to do with our core outcome, right? But, like,
Speaker 1 20:20
right,
Chris DuBois 20:20
yeah, we can do it, though. Some, a team member will knock it out, and, but they keep track of that budget over time, because we're bringing it up every time they ask for something. So, when it hits zero, it's like, hey, we can't work on that. We only can focus on, like, this core effort that we're, you know, trying to achieve with you, or we can invoice you for a different project, and we can knock that out. But, yeah, that's what
Speaker 1 20:41
I used to do. That's, I used to say, like, if you, if you want to start a different project, we can pause this one, and I'll give you a quote for the other one, and they would, every time, they'd be like, yeah, no, that's not really that important.
Chris DuBois 20:52
Yeah, soon as the money comes back in, it's like, well, but yeah, so one, the expectation management, I think it's one of those core skills for any agency owner. Anyone to work in an agency is like critical to be able to manage that. What I so with, okay, what I'm getting from like the way you're describing the value based pricing itself is that it forces strategic clarity, so that you can do things like this, like because we have to, in order to value-based price, we have to ask the deeper questions for asking that it's all top of mind for everybody now, right? Like, we all know the goal, we're all working towards this together.
Speaker 1 21:32
Exactly, if you don't do that, you're just, you're just doing best practices, which is right, fine, but it doesn't mean you're going to get them any business outcome that they want.
Chris DuBois 21:41
Yep,
Speaker 1 21:41
I mean, I've had projects where you maybe the real big boss is not really involved, and we do this six month, nine month thing, and then okay, it's time to, it's done. We're going to show it to the big boss, and the big boss is like mad. This is what you've been doing for nine months. This isn't this isn't going to achieve the outcome at all, but in fairness to the team, they weren't given an outcome. It was like, go find a web shop that is going to update the website, and it's like, well, nobody said why, so they just ran off and did it, and it's, it's the exact even if you're working directly with the big boss the whole time I can't think of a time when one of them just volunteered the business outcome they were shooting for.
Chris DuBois 22:27
Yeah,
Speaker 1 22:28
you have to ask.
Chris DuBois 22:30
I mean, with that specifically, we had a client who was a, without mentioning names, they were one of the bigger note-taking apps that's out there, like for sales teams, and the CEO was in every meeting as we're going through the web project, and then we get to the end of the project, like, hey, we're here's the website, like we're ready to go live. It's like, I don't like this design, it doesn't actually do x, y, and z for us. You were in every conversation, like, you blessed off on this, so it became a thing, you gotta like, yeah, people won't just give you that information up, yeah, yeah, great. Anyways, that one was so that
Speaker 1 23:11
raises another that raises a point that might as well throw in there, which is about progress metrics, so you've got a success metric that's pretty clear, but I, that exact story, that exact kind of story that you just shared, that's happened to me enough times that I like take steps to never have that happen. I want massive customer satisfaction. I joke, like, my, I don't build software, I build customer satisfaction, that's all I care about, and the way the sort of protective mechanism that I use on a project like that is to say, like, okay, what can we measure along the way before the thing is live? What can we measure along the way that will indicate that we're on the right track? So, it's, you know, it's kind of like the dashboard of a car or something, or, you know, if you're, you're trying to see, like, okay, we're maintaining speed, we're going in the right direction, so we're probably going to end up where we're pointed, you know, by a certain amount of time, let's say, so something, something like that might be, is, you know, for your situation, and I don't, I haven't met anybody that does this, but I would, if the goal was something like the Home Depot example, or in your case, the end users, or whatever the big boss's goal was, I get them involved, like I have the client bring their customers and clients in, you know, get someone from one of the big players, or get a few representative super user power users, or whatever, and how every month show some of this to them, because if you don't, then you have end up in these meetings where, where two, you know, you and the client are debating the color of the logo, or what color should the buttons be, or where should this be, and we're all imagining what the use. Is going to do, we're all imagining what the customer is going to do. It's like, why imagine it? Just get some, and then we don't have to have this three hour meeting where we're thinking through the position of a carousel, or you know, an accordion. Should we use an accordion? Should they be, you know, it's like just show someone. Yeah, yeah. And so I would bring in, yeah, I would get feedback from the ultimate user, and it just, it just derails. It just like short circuits any kind of debate about what the UI should be, that you just like, oh, they hate this, or every single one is confused by this, so let's change
Chris DuBois 25:32
it, right? So I guess, let's, let's assume probably an uncomfortable amount of our listeners are probably still doing hourly billing. So, what is the fastest path for them to move away from it right now?
Speaker 1 25:50
Probably product I service. Yeah, to just, just to start, and have maybe you have, maybe it's something the principal does, maybe it's some kind of a one off strategy call, if they have some real, real, if they're well known for some kind of horizontal specialization, like they're something to do with like Notion API, it's just I'm just trying to think of something super random, but they wrote a book about, I don't know, like Webflow for SAS, you know, they're famous for something, and just start charging for like a one off call, or some kind of strategy workshop, a half day thing. It's really basically all you have to do is write the sales page for it, and it's done, and you can start selling it, or if there's something that the agency already does at the beginning of most big projects, a lot of times, there's some sort of some sort of discovery or road mapping or sort of strategic planning or brand thing that happens at the beginning. You could break off that thing that you do on pretty much every project and productize that, say it's 5000 bucks, we don't work on anything unless we do that first. Well, you're talking about transition, so if you're just dipping your toe in, just break that off and, and try and sell it, and once you do sell it, you're gonna be like, "Wow, this is very different from the way we normally operate, like it almost doesn't make sense to track hours, it's more like track progress, you know, and it really makes sense for the first time ever to do things that will make your team faster. It doesn't make sense to make your team faster. It makes no sense to make your team faster, right? Hire better people, you know, like my whole epiphany about hourly billing came when I recognized that we were making the most money off our worst developer, so if I was going to hire more people, I would want to get a whole bunch of really bad developers and not train them, and just have really good customer service or account service people that kept the customers happy as our bad developers slowly built things, and I couldn't look, I was like, no, no, that can't be right, something's wrong here. Yeah, so if you do, once you first sell something that's not connected to your time, for me it just triggered this new mechanism, this efficiency thing that I thought I always had, but I wasn't even scratching the surface of how quickly I could accomplish things for people once I had switched to a fixed price, because used to be when I was on the clock, every hour I worked, I'd log it in my calendar, and I just made 150 bucks, and then another, I made another 150 bucks.
Chris DuBois 28:32
This is
Speaker 1 28:33
great. And when I switched, every hour I work, I was like, I just lost 150 bucks, and then I work another hour, I had just lost another 150 bucks, you'd be surprised how much more efficient you get in the second model. It is way more efficient than in the first model, when you're paid to be slower,
Chris DuBois 28:52
right? And so, yeah, it's a different piece of, like, it's incentive alignment, right? Like, with hourly billing, we're incentivized to work slower, but as soon as even separate from value-based pricing, just having a project where you're doing like a flat fee for it, it's like now we are both incentivized for this to work, and so yeah, it just makes even from that perspective, right? It just, it makes sense, like if we're both aligned on what we're trying to do here for the direction, like that should be the best case scenario for us now.
Speaker 1 29:22
Yeah, here's the thing, and here's the thing that surprised me. The clients transform when they know that they're not on the on the clock, they know that how much it actually is going to cost. All the clients from hell, they just calm right down because they're not seeing this money fly out of their checking account every week, every month, whatever, whatever the invoicing schedule
Chris DuBois 29:46
is. Yeah,
Speaker 1 29:46
and they're just like, oh, all of a sudden they're not as worried about deadlines, all of a sudden they're not worried about time sheets, all of a sudden they're like, hey, get it when it's done, it's done, you know. There might be some time pressure, because you know, the sooner they get the thing, the. Soon as they get their benefits, so there's opportunity costs, but, but, yeah, they calm right down when they know, because they can feel it, they can feel that you're on the hook, they in with them, you're sitting on the same side of the table. So, I was, it took me by surprise that when that happened, but it happened very first year, like, first time I went solo, started doing these fixed prices, and I was like, wow, I mean, I like my clients before, but they are really relaxed now, freaking out in meetings or anything.
Chris DuBois 30:28
Yeah, not nickel and diming every everything you are working on, even if we agreed it was for the project and necessary. Yeah, well,
Speaker 1 30:35
they stopped micromanaging you,
Chris DuBois 30:36
right? So, I guess one of the last things I want to hit is like it seems that time tracking is one of those critical components for this, because even if we're, we're not billing hourly, it's like we still want to be able to see where our time is going, so that we can improve, do all this, but time tracking is, I think, traditionally one of those things most agencies avoid, because they, they worry they're going to micromanage their team, like all of these different things.
Speaker 1 31:01
Yeah, is
Chris DuBois 31:01
there, I guess, as you, as you've shifted from hourly billing to something more like to project-based pricing and stuff,
Speaker 1 31:10
right?
Chris DuBois 31:10
What, what was that transition like? What were you thinking about with even the time tracking component of this?
Speaker 1 31:16
Right, well, I didn't have employees, I never have had employees since I went solo, and I did. I kind of enjoyed tracking my time. I had it down to a, like, a science. I could do it very without much effort, but after a while it was just ridiculous. I mean, you know, my effective hourly rate was like in the 1000s, so just made no point to do it from a profitability standpoint, if I usually, when I hear that someone's giving fixed prices and they're having their employees keep time sheets, it makes me suspicious that they've, they're actually value pricing and not, you know, time and materials, you know, behind the scenes, like they might be giving fixed prices, but it, it makes me, says it makes me feel like they probably haven't really made the mind shift the whole way, and it took me a while, probably took me 18 months to really like to really understand it in my bones, but I understand that if you know it's like, how, especially if everyone's working remotely, and you know the there's a few layers of management. How do you know which team members are struggling? And I don't see, like, from a theoretical standpoint, it doesn't make any sense to me to track their hours, because it's the wrong thing, if you want to track something, track the customer satisfaction. So, if you, if you're like, I'm not sure which one of my employees is, is needs help or whatever. It's like, well, check in on the customer. How's the project going? Is you know, are you happy with Bob's work? You know, he's sort of new, and this isn't threatening to the client, because they're not paying by the hour for Bob, so it's like, ah, you know, I just go around and I check in to see if I, you know, there's any coaching I do for my clients, for my on my employees, and just find out if they're happy, and if they're not happy, then you need to talk to Bob, and you know, it's like, I don't tracking the profitability, if for some reason someone is listening and they're like this guy's crazy, we have to have our employees track our hours, because how else will we know if we're profitable? It's like, well, that's what your profit and loss statement is for, you can see whether or not you're profitable, but I understand they're like, well, what if individual employees are slacking or need training or something, and I'm like, fine, have people track their hours for three months, because tracking hours is a measurement, and measurements are not free, so, and the more precise the measurement needs to be, the more expensive it is to do the measurement, is across any, any space, science, anything, and if you really think that you need to have somebody's hours in order to measure something. First of all, decide what you're trying to measure. What decision are you trying to make based on this measurement? Once you know what decision you're trying to make based on the measurement, then you can decide how accurate the measurement needs to be, down to the second, down to the hour, down to the day, down to the month, whatever. So it probably doesn't need to be super specific, and then once you've made the decision, you're taking the measurement, taking the measurement, taking measurement, we've got the data now, we make the decision, you can stop measuring, you can stop measuring the board after you cut it, you don't have to keep measuring it,
Chris DuBois 34:36
yeah,
Speaker 1 34:36
so if someone listening is like there's no way we could stop tracking time. I would say, well, why are you tracking time? What decision are you trying to make? And then once you make that decision, maybe you can stop. And then next year, for three months, you can have them track their time, and you know it doesn't need to be. I don't, I've never come across a situation where it needed to be constant,
Chris DuBois 34:58
right? Yeah. Yeah, so I think for me the reason I guess I would be looking at it specifically would be just for the efficiencies to see where are we actually bleeding efficient, like if we keep agreeing to do this in projects, but we're actually getting slower at it for whatever reasons, like that would be the way we identify it.
Speaker 1 35:16
Yeah, I feel like you, that could be a very, that feels like it could be a very coarse measurement. It doesn't need to be every individual.
Chris DuBois 35:23
Yeah, and this is one of the, like, I love - I use even for my personal business, I'm using rise.io for time. Like, you don't actually have to track your time, it just runs on your computer, and it looks at takes a little screen grabs every so often. It looks for keywords, and it's probably 90 plus percent accurate at where I'm spending my time. So now I don't think about it, it's just logging everything for me.
Speaker 1 35:44
Yeah, I mean that's interesting, but it does indicate to me, like, so like a fully value-based agency would not worry about utilization, they would worry about satisfaction. satisfaction, so it would be like, all right, here's what we need to get done. When you're done, you can go home, so it's not, it's not like, okay, now this person finished early, because then if the, if the, if the employees aren't, if the employees are, are, if the business benefits when the employees are more efficient and faster, but the employees don't benefit from being efficient or faster,
Chris DuBois 36:30
right? Then they're
Speaker 1 36:31
not going to be, yeah, the incentives not aligned. So, if you really wanted to align the incentives, it would be, here's what we have to get done this week, and when you're done with it, you can go home, and then everybody's in alignment. I haven't seen many agencies doing that, but it's, but the flip side is, if you don't get the stuff done
Chris DuBois 36:54
here,
Speaker 1 36:54
you're working the weekend,
Chris DuBois 36:55
risk reward, right?
Speaker 1 36:56
Yeah, exactly.
Chris DuBois 36:57
Yeah, I think that's probably the best argument, because if I know that I can finish this task, I can still do the best quality that I can, but I can finish it in five hours, or I can take 10 hours, and it won't, like, I'm still gonna have to be here doing the work, and, like, I clock out at 5pm on Friday. Yeah, there's no reason for me to want to work faster. I'm gonna make the same amount of money. So,
Speaker 1 37:18
exactly. Yeah. Well, awesome, Jonathan. This was a, this is a good conversation. It's insightful. I got two more questions for you as we, we wrap up with the first being, what book do you recommend every agency owner should read? I, if you want to dive into value-based pricing for projects, I would recommend How to measure anything by Douglas Hubbard. Doug Hubbard, yeah, that's right. And it's, it, it was mind blowing to me. How, I mean, the title, how to measure anything, you can measure anything if you're measuring it to make a decision. So, once you know what the decision is, you can measure beauty, love, happiness, right, whatever, and certainly customer satisfaction. Can you quantify it? That's a different thing, but you can measure it for the purposes of making a specific decision. So that book is mind-blowing. Yeah, so that's
Chris DuBois 38:16
awesome.
Speaker 1 38:17
Just one, just one. That's my one.
Chris DuBois 38:19
Yeah, I've never looked at that book, so now it is on my list. Last question is, Where can people find you?
Speaker 1 38:26
Oh, just Google for The Ditching Hourly Guy, I'll pop up.
Chris DuBois 38:30
Awesome. Yeah, all right. Well, thanks for joining.
Speaker 1 38:33
Hey, my pleasure. Great questions, thanks.
Chris DuBois 38:39
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Unknown Speaker 38:55
You
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