In the fall of 2009, I participated in a panel discussion on estimating and billing practices for software developers. I took the position that hourly billing is the only way to charge the customer for custom development. At the same time, another panelist said that billing by the hour places an arbitrary limit on your income. That planted the seed to change my business model forever.
- If you want to set a fair price, you first need to understand the value to the customer. Then based on that value, you can set a price that creates outstanding ROI for the customer and a high profit for you.
- If you bill by the hour, there's an artificial limit on your income.
- With hourly billing, it's in the customer's best interest to take as few hours as possible to get a lower price. It's in your best interest to take as many hours as possible to get higher revenue. That creates a conflict of interest.
- The video of my first presentation on value pricing is available, Value-Based Pricing from Pause OnError.
- During the first 12 months, our gross revenue increase by 56% over the previous year. The next year, it increased by 79%.
- If I learn to do something faster and better, I should be paid more, not less because I'm creating more value.
- It's the Art of Value. Like any type of art, there are principles and concepts that you can learn and then apply in particular situations.
About Kirk Bowman
Kirk Bowman is the founder and Visionary of Value at MightyData, a custom software company in Dallas, Texas. After successfully switching from hourly billing to value pricing at MightyData, Kirk started Art of Value to help other professionals learn to price by value. He is a Practicing Fellow at VeraSage Institute.
- @MightyData (Twitter)