Beyond the hourglass: A Value-Based approach to billing
We only need to understand three things: A thing desired is high in value, and when that thing is acquired it loses value, and should that thing be lost, it regains its value — Value, Cost, and Price.
A thing desired is an unsolved problem, that thing has an existing value. To solve that problem we need to know the cost, and the price is what it's worth doing. You now have a tangible perception of what it will take to acquire the solution. However, because the fear and risk of losing it exists, the value is sustained and most likely will increase. Efforts will be made to prevent losing it because its worth is known both while having it and what it would be worth if it were lost.
Therefore, we do not bill valuable and meaningful work by time, that metric compromises the process and value.
Traditional time-based billing often falls short in capturing the true value of professional services. This approach can lead to inefficiencies, underutilization of skills, and a disconnect between the client’s perceived value and the actual cost.
To address these shortcomings, I propose a paradigm shift: value-based billing. This approach recognizes that the true worth of a service lies not in the hours spent but in the tangible outcomes achieved.
Key concepts
Desired outcome: The desired outcome is the solution to a client’s specific problem.
Value: The value of a desired outcome is determined by its potential impact on the client’s business or personal life.
Cost: The cost represents the resources, expertise, and time required to achieve the desired outcome.
Price: The price is the amount the client is willing to pay for the desired outcome, considering its perceived value and the cost of alternative solutions. Or perhaps what you are willing to accept to help the client achieve the desired result.
The value proposition
Sustained Value: When a client perceives a solution as valuable, they are more likely to invest in its maintenance and protection. This sustained value can lead to increased investment and long-term relationships.
Risk mitigation: By focusing on outcomes rather than hours, we can better mitigate risks associated with project delays or unforeseen challenges.
The benefits of Value-based billing
Alignment with Client Goals: Value-based billing ensures that our efforts are directly aligned with the client’s objectives.
Enhanced client satisfaction: By delivering tangible results, we can foster stronger client relationships and increase satisfaction.
Increased efficiency: By focusing on outcomes, we can identify more efficient and effective ways to achieve goals and reduce unnecessary costs.
To conclude, by transitioning from time-based billing to a value-based approach, we can provide greater value to our clients, improve our business efficiency, and effectiveness, and build stronger partnerships.
