Charge Based On Value, Not Time

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Charge Based On Value, Not Time

It only takes a few pennies for a pharmaceutical company to manufacture and package a pill that may cost $150 retail per pill.

Some consultants like Jay Abraham charge over $5000 for one 30-minute phone call.

I know a guy who charges almost $100,000 for an annual subscription to an email newsletter.

How is any of this stuff possible?

Whenever you charge for a service, you don’t want to charge based on how long it takes you, or how long it costs you. Instead you want to charge for the value you’re rendering to the customer.

Let’s say you own a company, and I have advice that will allow you to literally double your revenue in 90 days, and it only takes me 15 minutes to fully explain it.

Should I charge you some arbitrary hourly fee and bill you one-fourth of that?

No!

Instead, I should charge you $70,000 for those 15 minutes. Sound crazy? Nope, because I just helped you double your revenue. Even if you “only” increased your company-wide revenue by 20%, you still got a great deal from my $75,000.

If I were really smart, I would ask you what your current revenue is and then base my fees on that. If you told me that your annual company net profit was $4 million, and my 15 minutes could easily double that to $8 million, then I should charge you at least $500,000 for my 15-minute consultation.

$500,000 for 15 minutes of work sounds crazy, but I’m not charging you for my time or my work. I’m charging you for the result you are gaining from my work.

I realize that I’m exaggerating the numbers, but you get the point. Charging for time is often a losing game for both the customer and the provider, since the provider is encouraged to take longer (and thus bill more time/hours) which is bad for the customer, and the provider isn’t getting a payment which is commensurate with the value it is rendering.

Never base your fees on how long it takes you to accomplish a task, or how much that task costs you. Base it only on the actual value that you’re providing to the customer.

This article was originally published on May 26, 2015