On ditching hourly and productizing my services

This post was published on December 5, 2024

In the last couple of weeks, I’ve spent much more time commuting than normal. I mostly work remotely these days, for clients both in the Netherlands and abroad. And I like it that way. Don’t get me wrong, I like to drive, but commuting takes up a lot of time, time I would rather spend in another way. Reading. Running. Sleeping. Finally getting back into chess.

Sometimes, spending time in the same room with the people you are working with is just much more fun and more efficient, though. Especially when I’m running a workshop or training session, or when I’m doing a talk, I strongly prefer to be in the same room as the participants / the audience. As I have been doing a lot of that in the last few weeks, spending more time on the road was inevitable.

A benefit of spending a lot of time in the car is finally having the time to catch up on some podcasts, and that’s what I did this time as well. One podcast I heard a lot of good things about, but didn’t really listen to yet was Jonathan Stark’s Ditching Hourly podcast. I was familiar with his work and some of his thoughts on moving away from hourly billing as an independent consultant, but again, I hadn’t found the time yet to really listen to what he and his guests have to say.

However, as I said, recently I did have the time to do so, and some of the things that were discussed on the podcast really struck a chord with me. I have been an independent consultant for 10 years now, and during those years pretty much all my work, except my training courses, has been compensated on an hourly basis. Why? Because it is what every company is used to when they’re hiring someone. Especially over here in the Netherlands.

So, why move away from that? If it works, it works, right?

There are a few problems I’ve got with hourly billing:

• First of all, hourly billing disincentivizes me to work efficiently. Why finish something in 20 hours when I can do it in 40 and bill twice as much?
• Second, I think dragging on the work and spending hours doing nothing much just to maximize billing is not fair towards my clients
• Third, I don’t like getting into conversations that turn into a haggle… ‘But another consultant said they could do it for EUR 10 per hour less…’
• Finally, the whole having to explain the hours I did and did not spend with a certain client through time sheets is annoying, even when I haven’t really had a problem getting my time sheets signed off.

So, from today on, I’m going to work on moving away from purely hourly billing and towards what is commonly known as value-based pricing. How? Well, I haven’t figured out every detail, but here are some thoughts and ideas:

• Focusing more on selling my training courses. While the pricing my training services is still technically time-based, as I use a more or less fixed half day / full day rate for doing training, the problems with hourly billing I outlined above are pretty much non-existent for this type of work.
• Improve my negotiation skills and get to the bottom of what clients and prospects are looking for when they approach me with a request. What’s the result they have in mind? What is the added value of that result? And then base my price off that. This is something I definitely still need to learn.
• Sell my services in packages. I’ve done this with one client this year, and that worked really well. They told me their budget, I outlined what I could do for that price, we agreed, did the paperwork and moved on to the interesting stuff. Really refreshing.
• Work on a retainer basis. As in: ‘for EUR XYZ per month, I will be available to do A, B and C for you’. Typically, this is consulting or being available for questions, but they could be other things, too. Helping organizations set up their test automation, for example. Contrary to hourly billing, this would incentivize me to work efficiently.

Again, I don’t expect to completely get rid of hourly billing soon. This transition will take time, and I will likely make mistakes along the way. But I’m ready to take that time and learn from those mistakes, because I see how this would be a much better and more fulfilling way of working.

Oh, and the fact that when I work this way, it is much less likely to be seen as pseudo-employment, which as I recently wrote about is a pretty hot topic here in the Netherlands at the moment.

To be continued.

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