Software developer, agency consultant and trainer Jonathan Stark has been in the game for 15 years. He’s worked on projects with Staples, T-Mobile and Intel, among others, and authored five books as well.
Once he started out as a solo consultant, however, he found his personal calling: wiping hourly billing off the face of the earth. As he puts it, by replacing hourly billing with value pricing, Jonathan was able to double his income in his first year of solo consulting. In the decade that followed, he was able to apply value-based pricing to his clients as well as his own consulting work.
On this installment of Agency Gurus, Jonathan chats with us about value-based pricing, his value pricing Bootcamp, and strategies to snag high-ticket clients.
Cloudways: Great to have you with us, Jonathan! Can you start by telling us about your professional experience so far?
Jonathan: My professional experience roughly breaks down in decades: In my 20s, I was a performing musician. In my 30s, I was a software developer. In my 40s, I was a mobile consultant. And now in my 50s, I’m a business coach.
Cloudways: So let’s jump in; just why do you hate hourly billing so dang much?
Jonathan: There are dozens of reasons, but here are three big ones: Hourly billing puts an artificial ceiling on your income, increases the odds of scope creep, and decreases the likelihood of delighting your clients.
Cloudways: Hourly billing is the most popular pricing model there is for agencies and freelancers that are just starting out. After all, it helps you manage resources in those early days. Can a value-based performance model override those limitations and help new agencies grow just as fast and sustainably?
Jonathan: That’s like asking, “Can you use a chainsaw without starting it?”
Sure, I guess you COULD cut through a limb without starting your chainsaw, but it sure isn’t optimal. And just because everyone else is doing it doesn’t mean it’s a good idea.
“But isn’t leaving the chainsaw off a safer/easier/better way to learn how to use it?”
No. You’ll build lots of bad habits that you’ll have to unlearn later.
Cloudways: What do you find are the main roadblocks in convincing agencies to move away from hourly billing?
Jonathan: The main problem is fear. Agency owners don’t want to take the risk of presenting a price. But you know what they say, “No risk, no reward.” 🙂
Transitioning from hourly billing to value pricing can be done in a way that mitigates the risk, but it’s typically not obvious to firm owners how to do so.
Cloudways: Do you think agencies should spend more time and effort focusing on high-ticket clients? How can they go about securing such clients in a sustainable way?
Jonathan: It depends on the agency owner’s objective and what strategy they have selected to reach it.
Assuming the goal is to increase profitability, one strategy might be to attract a small number of big clients who have urgent “bet the business” projects, and value price the engagements.
Another strategy might be to systemize the agency and offer a fixed price, fixed scope productized services to a steady stream of medium-sized clients.
Yet another strategy might be to convert to a subscription model and attract loads of small clients who pay monthly for access to your expertise or IP.
Cloudways: In your opinion, what’s the biggest mistake agencies make when dealing with cashflow problems?
Jonathan: Taking on clients who they KNOW are going to be a nightmare just because they need the money to make payroll.
Cloudways: Tell us about your Value Pricing Bootcamp. What are some of the key takeaways you hope participants will leave the course with?
Jonathan: I hope people leave VPB with a clear understanding of:
- How hourly billing damages your business
- What value pricing is and how it works
- How to begin the transition from hourly billing to value pricing
Cloudways: After all your years of experience, what is your go-to strategy when it comes to lead generation? And what metrics do you track carefully to measure the success of your lead generation tactics?
Jonathan: My objective is to rid the world of hourly billing. My strategy to reach that goal is to share as much as humanly possible for free.
The tactics that come out of my strategy are things like:
- Sending a daily email to my list
- Producing lots of podcast episodes
- Presentations to communities who typically bill by the hour
The metrics I track closely are mailing list numbers and business profits.
Cloudways: What’s your client management secret sauce?
Jonathan: I do my best to keep them focused on the desired outcome of the engagement, and then delight them by reaching it.
Thank you for your time and insights, Jonathan!
You can find Jonathan on his LinkedIn and Twitter, or on his website.
Arsalan Sajid
Arsalan, a Digital Marketer by profession, works as a Startups and Digital Agencies Community Manager at Cloudways. He loves all things entrepreneurial and wakes up every day with the desire to enable the dreams of aspiring entrepreneurs through his work!
