There are a few problems with value based pricing: 1. Scope (on the client side) is either not defined or changing. Waterfall approach to projects are long time dead, and for a reason. Phase approach will mitigate this problem. 2. Unknown unknowns. You must estimate scope creep on your side . Things are much more complicated than they seem to be. You must include "unknown unknowns" into your pricing. 3. Usually, clients have no idea what the value for the future product will be. They have high hopes, for sure, but that's about it. 4. Even if client have some idea how much profit they will generate, they are not willing to share this information with contractors. 5. Most of the clients will never tell you their budget. It's up to you to guess it.
These are the questions I want Chris to answer. Specifically mitigating the scope creep problem and billing for that. Also, I would want to know how to deal with clients who don't have a clear understanding of the value and how to pitch them fixed price model.
Most of the problems you raised go away if A) the service provider is a true expert in their field and industry with a proven formula/process/method, and B) the client has a firm grasp of their business model and business strategy. So, all the points you raised are true in the event that the person providing the services does not have experience designing a deliverable that produces a business outcome for a client, and/or a client that is clueless about what results they actually want and don’t have a grasp of what kind of work would be meaningful for their business or company. If you have a mindset of a technician that delivers the work, then everything you said is true. If you have the mindset of an expert entrepreneur with a deep knowledge of your industry and experience drawing on decades of projects and campaigns with clients, then you should have a fairly good grasp of general answers or solutions to all the “problems” you raised.
I struggle to express how much this video has positively influenced my way of thinking and my professional life. In a moment of difficulty, when I am buried in time sheets, this suggestion for a new paradigm has been incredibly useful. Thank you from the bottom of my heart for producing these videos, the impact on my life and that of my loved ones is incredible.
29:23 "Sellers do not generally disclose their cost to the buyer. Somehow in our business it's become normalized where we've allowed buyers and most specifically professional buyers... too ask what are your actual costs here... Not only hours, salaries, overhead, bonuses, 401k. We cave and say oh well if that's what's going to take to get the business."
This podcast is really thought-provoking! It's fascinating to hear how the traditional agency model is becoming outdated, and how pricing based on outputs rather than inputs is a game-changer. The idea of agencies developing their own products and going into joint ventures with clients seems like the future of the industry. I'm definitely going to check out Tim's website and book to learn more!
Time is a resource .. not a cost , but if staff salaries are constant there is a cost attached to that resource and that resource is finite unless more staff are added .. obviously ! The faster a product can be produced to the appropriate quality , the more capacity to generate revenue with the same resource . Price to the client based on value indeed .. but capacity to produce and when to increase that is crucial
Thank you for this video and all your content. In the last 15 years I have been working in veterinary medicine academia and privet sector as an employee and I have been only experienced the pay per hour process. As a life side quest, I have been educating myself into 3D design, printing, scanning etc. and now I have the opportunity to approach this aspect of my skills in the academic and private sector. With the academic side I am ok-ish, but in the private sector not and this is where your content has helped me a lot to understand this world and language. Actually, this is an understatement as I have used your teachings in every aspect of my life. I am now at the negotiating stage, where I am confronted with a contradiction between what my integration into the business was initially discussed and how I will be remunerated - I look forward to implement your teachings now. Thank you again!
Ah! Perfect! You addressed my doubts precisely. There is something to be said about billing for output, it's not for newbies! you require previous (large) amounts of experience to know how much your price needs to be, because you need to know the amount of work that it requires to a good approximate amount, which requires having done similar work in the past. Well, in a way it depends on the size of the projects, someone dealing with weeks-long projects doesn't require much experience, but if you need to deal with months-long projects, now you need to know a lot more before you can quote a price, just because it is that much harder to predict the amount of work that needs to be done, hence predict the costs.
Thanks Chris & Guest for this info! I build low code apps for businesses and THIS Conversation is a big one! Deliverables at a Firm Fixed Price vs time is the way! I Appreciate You! God Bless! Shawn
I tried to like this twice because I learned something I can use again. I also learned I can’t immediately like a video twice 😊. I will keep this short and just say thanks again I really do appreciate it.
The financialization of everything takes priority over the art. Nothing he said does not apply to every other type of business in the world that's been around for several years. One thing that does surprise me is that hourly billable even still exists.
So Chris said this previously many times the story about when he was a kid he kept testing the waters by asking for a higher price with each new customer seeing how far he could go for some graphic design thing. Started at around $100-$200 and then ended up at $800 where anything above that was disregarded. From this I learn further context which is there are concrete costs already established: cost of materials, cost of shipping, cost of programs, cost of staff, all these things have cost already handled. Time is not a variable to apply a cost because art can take a moment or a long time to make a great idea come to life. So its up to us to make bets on ourselves with each client raising the bar a little bit to see what is possible above the concrete costs. Then you have confidence in your own value with those experiments what you’ve been paid before and what you expect versus what they are offering. Part 2 Input (their budget) output (your actual price) outcome (premium amount that thinks ahead for the client)
How to bill in the case when we provide full-cycle software development services? The service includes product design and development. Do you think billing based on value is relevant to development services too?
Hey guys love the concept, still trying to wrap my head around the idea tho like for instance, if your not gonna use time and the tools and stuff, how are you gonna inflate the price.
Contruction bid contracts work the same way. You know how many hours & materials just add the amount you want for your time. Your experience and education should command a premium.
youtube has done an excellent job at completely hiding your videos. its insane, im subscribed. and not even one video pops up. I often get lost in my lex fridman podcasts, and other interests. and then I think, where are The Futur videos? I so often have to search and I see an extremely active channel. and gems like this video. its a shame your videos are being hidden for whatever stupid reason the algorithm is doing. I hope this changes. thanks for the videos!
@@thefutur oops it wasnt on, thanks! you would think the algorithm would still reccommend me videos considering how much I check in manually. but this has shown to help
Getting your hair cut is a service business that’s sold as a product. They price it out as an average of how long it’s gonna take to do each service plus supplies.
This is what it takes to make this. Everything else above this is criminal. Lmao. So true. They are not your customers if pricing is a problem. Let them find someone cheaper
I like the questions he didn’t really address. One was what about my communist friends who think it’s a rip off that you’re charging more than you’re paying your staff. The answer would be the education experience and future potential of the entrepreneur is worth the cost and that is something that Marx never takes into account. No the entrepreneur is just not that valuable? Yeah it’s a rip off if you’re not really adding value yea. The entrepreneur will put it all together with cash and run it well then it’s worth the up charge isn’t it? Or not. The other question that not really answered is, how do you charge for the first phase when you don’t know the scope. And I think that’s a good case for hourly rate but only for a very limited scope that’s just the first phase until you really know where everything is. Otherwise you lose the ability to sell clients on your value as they will be frightened off by some flat fee going in. Lawyers can have a half an hour free to sell their services fine but what we do is creative as much more extensive and broad and less formatted, so you need to see what can be done and that is actually a huge mother load of the value of any firm is it the context of value. And i font mean our value, i mean the value of the industry as a whole going foreward. Objects in the rear view mirror may appear distorted.
Futur, plsss, help with creating a content on step by step process to make cold dm work. Something like, first message and other relevant stuff. Pls, react to this message if you find it.
"Billing by hour is malpractice... Time is not a cost, time is a constraint."
There are a few problems with value based pricing:
1. Scope (on the client side) is either not defined or changing. Waterfall approach to projects are long time dead, and for a reason. Phase approach will mitigate this problem.
2. Unknown unknowns. You must estimate scope creep on your side . Things are much more complicated than they seem to be. You must include "unknown unknowns" into your pricing.
3. Usually, clients have no idea what the value for the future product will be. They have high hopes, for sure, but that's about it.
4. Even if client have some idea how much profit they will generate, they are not willing to share this information with contractors.
5. Most of the clients will never tell you their budget. It's up to you to guess it.
These are the questions I want Chris to answer. Specifically mitigating the scope creep problem and billing for that.
Also, I would want to know how to deal with clients who don't have a clear understanding of the value and how to pitch them fixed price model.
@@bhinvkr9625 Check out Alan Weiss and Harry Beckwith books on value based fees.
Most of the problems you raised go away if A) the service provider is a true expert in their field and industry with a proven formula/process/method, and B) the client has a firm grasp of their business model and business strategy.
So, all the points you raised are true in the event that the person providing the services does not have experience designing a deliverable that produces a business outcome for a client, and/or a client that is clueless about what results they actually want and don’t have a grasp of what kind of work would be meaningful for their business or company.
If you have a mindset of a technician that delivers the work, then everything you said is true. If you have the mindset of an expert entrepreneur with a deep knowledge of your industry and experience drawing on decades of projects and campaigns with clients, then you should have a fairly good grasp of general answers or solutions to all the “problems” you raised.
I struggle to express how much this video has positively influenced my way of thinking and my professional life. In a moment of difficulty, when I am buried in time sheets, this suggestion for a new paradigm has been incredibly useful. Thank you from the bottom of my heart for producing these videos, the impact on my life and that of my loved ones is incredible.
Glad to hear this was helpful.
29:23 "Sellers do not generally disclose their cost to the buyer. Somehow in our business it's become normalized where we've allowed buyers and most specifically professional buyers... too ask what are your actual costs here... Not only hours, salaries, overhead, bonuses, 401k. We cave and say oh well if that's what's going to take to get the business."
Tim is the man! Always love listening to his approach to pricing and value creation.
This podcast is really thought-provoking! It's fascinating to hear how the traditional agency model is becoming outdated, and how pricing based on outputs rather than inputs is a game-changer. The idea of agencies developing their own products and going into joint ventures with clients seems like the future of the industry. I'm definitely going to check out Tim's website and book to learn more!
Time is a resource .. not a cost , but if staff salaries are constant there is a cost attached to that resource and that resource is finite unless more staff are added .. obviously ! The faster a product can be produced to the appropriate quality , the more capacity to generate revenue with the same resource . Price to the client based on value indeed .. but capacity to produce and when to increase that is crucial
And the timesheet that some agencies require to be filled out by employees adds to the pressure to produce projects around faster.
"We have an issue with the person who shows up and doesn't solve the problem"🔥🔥🔥
change the paradigm, change the practice - so powerful
Thank you for this video and all your content. In the last 15 years I have been working in veterinary medicine academia and privet sector as an employee and I have been only experienced the pay per hour process.
As a life side quest, I have been educating myself into 3D design, printing, scanning etc. and now I have the opportunity to approach this aspect of my skills in the academic and private sector.
With the academic side I am ok-ish, but in the private sector not and this is where your content has helped me a lot to understand this world and language. Actually, this is an understatement as I have used your teachings in every aspect of my life.
I am now at the negotiating stage, where I am confronted with a contradiction between what my integration into the business was initially discussed and how I will be remunerated - I look forward to implement your teachings now.
Thank you again!
This is great. Drawing while listening to this is a game changer for me...influencing modifications that will take us higher..
Ah! Perfect! You addressed my doubts precisely. There is something to be said about billing for output, it's not for newbies! you require previous (large) amounts of experience to know how much your price needs to be, because you need to know the amount of work that it requires to a good approximate amount, which requires having done similar work in the past. Well, in a way it depends on the size of the projects, someone dealing with weeks-long projects doesn't require much experience, but if you need to deal with months-long projects, now you need to know a lot more before you can quote a price, just because it is that much harder to predict the amount of work that needs to be done, hence predict the costs.
Thanks Chris & Guest for this info! I build low code apps for businesses and THIS Conversation is a big one! Deliverables at a Firm Fixed Price vs time is the way!
I Appreciate You! God Bless!
Shawn
I tried to like this twice because I learned something I can use again. I also learned I can’t immediately like a video twice 😊. I will keep this short and just say thanks again I really do appreciate it.
Thank you
The financialization of everything takes priority over the art. Nothing he said does not apply to every other type of business in the world that's been around for several years. One thing that does surprise me is that hourly billable even still exists.
"You say " time is not a cost but a constraint., which I love. P.s . I hope for your sake that you don't pay your employees hourly...
Employees are paid annually not for the time they work but for the impact they create.
@@thefutur You should make a video on this👍
Really appreciate this video, I’ve been fighting with how to do this for years.
Thank you for the valuable insight guys 👍
Listened to this about 9x to really reinstall the mindset i used to have
This conversation made me order Tim's book
Great talk men. Thank you again!
So Chris said this previously many times the story about when he was a kid he kept testing the waters by asking for a higher price with each new customer seeing how far he could go for some graphic design thing. Started at around $100-$200 and then ended up at $800 where anything above that was disregarded.
From this I learn further context which is there are concrete costs already established: cost of materials, cost of shipping, cost of programs, cost of staff, all these things have cost already handled. Time is not a variable to apply a cost because art can take a moment or a long time to make a great idea come to life.
So its up to us to make bets on ourselves with each client raising the bar a little bit to see what is possible above the concrete costs. Then you have confidence in your own value with those experiments what you’ve been paid before and what you expect versus what they are offering.
Part 2
Input (their budget) output (your actual price) outcome (premium amount that thinks ahead for the client)
Yep
How to bill in the case when we provide full-cycle software development services? The service includes product design and development.
Do you think billing based on value is relevant to development services too?
Hey guys love the concept, still trying to wrap my head around the idea tho like for instance, if your not gonna use time and the tools and stuff, how are you gonna inflate the price.
Thanks again!
Any time!
Hit that 100th like button...so satisfying to be this early....(also commenting for the algorithm..this message needs to get to everyone)
Contruction bid contracts work the same way. You know how many hours & materials just add the amount you want for your time. Your experience and education should command a premium.
this is amazing. Thank you!
For a second, I thought this was James Cameron
Kind of carries a resemblance
youtube has done an excellent job at completely hiding your videos. its insane, im subscribed. and not even one video pops up. I often get lost in my lex fridman podcasts, and other interests. and then I think, where are The Futur videos? I so often have to search and I see an extremely active channel. and gems like this video.
its a shame your videos are being hidden for whatever stupid reason the algorithm is doing. I hope this changes. thanks for the videos!
Turn the bell on. It’ll help.
@@thefutur oops it wasnt on, thanks! you would think the algorithm would still reccommend me videos considering how much I check in manually. but this has shown to help
Getting your hair cut is a service business that’s sold as a product. They price it out as an average of how long it’s gonna take to do each service plus supplies.
"The greater the pain, the greater the budget"
Sounds a lot like "the greater the suffering the greater the peace"
goats
And the saga to end hourly billing continues...
Hourly billing has its place. When scope is not defined, when your services are extremely comoditized, when all risks are taken by client.
Second view
This is what it takes to make this. Everything else above this is criminal. Lmao. So true. They are not your customers if pricing is a problem. Let them find someone cheaper
I see these AI assistants eventually turning into virtual salespeople. Selling products and services to you as virtual influences but more insidious.
I like the questions he didn’t really address.
One was what about my communist friends who think it’s a rip off that you’re charging more than you’re paying your staff. The answer would be the education experience and future potential of the entrepreneur is worth the cost and that is something that Marx never takes into account.
No the entrepreneur is just not that valuable? Yeah it’s a rip off if you’re not really adding value yea. The entrepreneur will put it all together with cash and run it well then it’s worth the up charge isn’t it? Or not.
The other question that not really answered is, how do you charge for the first phase when you don’t know the scope. And I think that’s a good case for hourly rate but only for a very limited scope that’s just the first phase until you really know where everything is. Otherwise you lose the ability to sell clients on your value as they will be frightened off by some flat fee going in. Lawyers can have a half an hour free to sell their services fine but what we do is creative as much more extensive and broad and less formatted, so you need to see what can be done and that is actually a huge mother load of the value of any firm is it the context of value.
And i font mean our value, i mean the value of the industry as a whole going foreward. Objects in the rear view mirror may appear distorted.
Futur, plsss, help with creating a content on step by step process to make cold dm work. Something like, first message and other relevant stuff. Pls, react to this message if you find it.
Bronze
First time, I‘m the first to like your amazing content 😉🙌🫶
Exactly the timely conversation needed today. Outcome-based pricing.