Jonathan Stark is a former software developer who is on a mission to rid the world of hourly billing. He is the author of Hourly Billing Is Nuts, the host of Ditching Hourly, and writes a daily newsletter on pricing for independent professionals.
In this episode, Jonathan highlights the drawbacks of billing hourly which can reduce your value to just a commodity. Instead, he suggests pricing your services based on the outcome you deliver, thereby providing maximum value to your clients.
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Why you have to check out today’s podcast:
- Discover the top reasons behind the shift away from hourly billing
- Find out the advantages of choosing outcome-based pricing over hourly billing
- Uncover why positioning your service effectively can have a significant impact on your pricing strategy
“Positioning is critically important for any kind of upward lift on your fees.”
– Jonathan Stark
Topics Covered:
01:04 – What got him into pricing
03:35 – The problem with having an hourly rate
06:11 – Pricing uncertainty in the case of a car diagnostic
08:45 – What makes it better charging fixed price upfront
10:33 – Why positioning your service is crucial in pricing
12:59 – What hourly rate appears to be on the label
16:15 – Touching on the ‘Experience Economy’ [pricing transformation]
19:06 – Formula for value or the maximum price
21:36 – The best reason to not use hourly prices
24:22 – Solving the scope problem with knowing the desired goal
29:21 – Jonathan’s pricing advice
30:38 – How to connect with Jonathan
Key Takeaways:
“If you sell somebody an hour, you cannot make it more efficient. It takes an hour to deliver it. It artificially limits your income.” – Jonathan Stark
“The way I do it [on the scope problem], I don’t scope first, I scope last.” – Jonathan Stark
People / Resources Mentioned:
- Alan Weiss: https://alanweiss.com/about-alan-weiss/
- Joseph Pines: https://strategichorizons.com/pine-and-gilmore/joe-pine/
- How to Measure Anything: Finding the Value of Intangibles in Business by Douglas Hubbard: https://www.amazon.com/How-Measure-Anything-Intangibles-Business/dp/1118539273
Connect with Jonathan Stark:
- Website: https://jonathanstark.com/
Connect with Mark Stiving:
- LinkedIn: https://www.linkedin.com/in/stiving/
- Email: [email protected]
Full Interview Transcript
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Jonathan Stark
Positioning is critically important for any kind of upward lift on your fees. Because if you can just be compared apples to apples to someone else, and the client sees no meaningful difference between A and B, what are they going to look at – the price! It’s the only thing they understand.
[Intro]
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the important relationship between them. I’m Mark Stiving, and our guest today is Jonathan Stark. Here are three things you want to know about Jonathan before we start. He is the president of Jonathan Stark Consulting, and he has been for 17 years. His life’s mission is to rid the world of hourly billing, and that’s what we’re going to talk about today. And by the way, he has a second degree black belt, and he got his first degree when he was 50. And by the way, he looks 30. So, welcome Jonathan.
Jonathan Stark
Thanks for having me, Mark. I’m super excited.
Mark Stiving
That’s going to be fun. So before we jump into the topic, how did you get into pricing?
Jonathan Stark
My origin story was, I was the vice president of a boutique software development firm, and we had about 10 developers. And when I got promoted to that position, I had access to everyone’s salary. I knew what everybody made. And it occurred to me that since we build everybody out at the same hourly rate, that our best developer, our most expensive developer, were barely breaking even on. And our most junior developer, who was pretty much a glorified intern, we paid half as much, literally half as much, and we’re making a lot of money off of them. So I was like, this can’t be right. And I was kind of like, if we’re going to fire someone going to be our best guy, and we should hire a bunch of people who barely know what they’re doing?
And we were sort of training on the job, and I just couldn’t square that circle. And I thought about it for an embarrassingly long time before it even occurred to me to question the hourly billing model. And once I saw that, it was like the heavens opened. I was like, if we were doing some kind of fixed pricing, then our best developer would instantly be our most profitable. So I couldn’t unsee that, and I didn’t know what I was going to do instead, but I took this information or this insight to the owner, I explained it like I just did to you. And he was like, I see what you’re saying conceptually, but how would we actually shift to something else, and what would we shift to? And I had no idea. So rather than sort of risk the salaries of 10, 12 people, I went solo to figure it out and it went great. Right around right at the right time, I discovered value-based fees by Alan Weiss, and I read that book cover to cover 10 times easily. And I just slowly tried to internalize the lessons in that book. And that was 2006. And my very first year was way better than the previous year when I was billing hourly. And then it just kept getting better over time. So that was my, come to Jesus moment.
Mark Stiving
Nice. What a fabulous story. And we haven’t set up the podcast yet, but what we’re going to do, just for the listener’s sake, somebody told me Jonathan is really trying to rid the world of hourly billing. And I said, well, first off, I agree with him, but it would be way more fun if I took the other side and let him try to convince us all that we really want to do hourly billing. And so my argument in the story that you just told might be, why don’t you just charge a higher rate when that guy does his work?
Jonathan Stark
Have different rates for each person?
Mark Stiving
Yes.
Jonathan Stark
Yeah. Because that would turn into a resource allocation problem because people would be, it would be really hard to switch people around on different projects. I know companies do that, like for the project manager, it’s this per hour, and for the software developer, it’s that per hour. But these people ostensibly had the same role. And it would’ve complicated things somewhat dramatically if we, because what we would’ve done was lowered the price of the junior guy, the hourly rate of the junior guy. We couldn’t raise the price. We were already at the top of the market in terms of our hourly rates. It was like 150 an hour in the early two thousands. And that was pretty high for what we were doing. It was a really well known firm. So if we shifted that up to 250 an hour for our best person, people would’ve just gone to a different place. That’s part one of the problems with hourly billing presenting you as a commodity. Like, here’s my air quotes price. And they shop around for somebody who’s less per hour, and they never ask the question, well, who’s better? Who’s faster? It’s just like, what’s the hourly rate that seems reasonable to me? And 250 would’ve priced us out of the market.
Mark Stiving
So it’d be interesting to have seen a test where you say, I’ve got premier programmers at 250, and I have the, we don’t want to call them the low-end programmers, but the…
Jonathan Stark
Junior developer.
Mark Stiving
Yeah. At 150. I’m happy to sell you whichever ones you want.
Jonathan Stark
It would’ve been really complicated too, we wouldn’t have wanted to do that because we needed to be able to put an open developer, whoever was open, needed to go on the project. So if we gave that option to the customer, they’d say, well, we’ll wait for the cheaper guy or, we want the expensive guy. Well, he’s busy for the next six months. It just would’ve been really complicated to have that, it wasn’t like we had 200 people. Right? It was only about 10, so.
Mark Stiving
Okay. So let’s see, here’s my next argument. When I take my car into the shop and it’s making a funny noise, they don’t say to me, oh, it’ll cost you a thousand dollars. They say, we’ll tear it apart and then we’ll tell you what it’s going to be. And they charge me by the hour to fix my car. But on the other hand, if I want to get a new battery, they give me a price for the battery installed. And that’s because they have enough batteries. They know what the work’s going to be like so they can get the job done. Right. And so it’s the uncertainty that keeps them from being able to give me a real price at a single price.
Jonathan Stark
Well, yes and no. I mean, they could just give you a high price and have it average out what they would consider a high price. If you said to them, is this going to take five hours or 50? They’d be like, well, it’s not going to take 50 because if it takes more than 10, we’re going to tell you that we either can’t figure it out or we can’t fix it. Or there should be some other approach. You should just probably just buy a new car. So they could estimate at the high end, on average for like a car rolls in with a funny noise. It’s definitely not going to take us more than 20 hours. And they could just set, multiply that by their rate and say like, it’s $2,000 for funny noise and whatever the price is, that might not be acceptable to the customers.
They might be expecting something cheaper. But again, that becomes less of a problem if you’re not a commodity. So what you’re talking about it’s presented as a commodity, body shop or whatever, a car repair shop. If it’s not a commodity, then everything changes. You could say, well, it’s guaranteed it’s 1500 bucks to figure out what that is. And then once we do or a hundred or a thousand or whatever makes sense for them, but over the course of all of the cars with a funny noise, they’ll feel very profitable. Maybe some jobs will be harder, some jobs will be easier. They’ll be like, I know what this is. And for that, a thousand dollars diagnostic or whatever it was, they’re happy. And the customers will be more happy because they don’t get into this. Like, they don’t get into this like, oh, well, if I’d had known it was going to be $2,000 for you to diagnose this issue, I wouldn’t have even done it. And it creates an incentive for the mechanics to get really fast at what they do. So, investing in tools, investing in diagnostics, so they could, over time, they could actually lower their price and still make more money. But, I’m probably over answering your question, but, in software, well, go ahead. Yeah. I can see your…
Mark Stiving
No. I think that was a really good answer. And essentially what you said was, if I know an average cost of running a diagnostics and I add a decent sized margin on top of that, and I just know that most of my diagnostics are going to come in less than that. A couple will come in more than that. But over time, on average, I’m going to make quite a bit of money. And I get to say that upfront to the client. Right? So I get to say, look, it’s a thousand dollars, you know, I get it. If you want to pay someone by the hour, go down the street, that’s totally fine. But you know, we’re going to do it for a thousand, may take us more, may take us less. We’re taking the risk with you. Or we’re taking the risk. You don’t have to.
Jonathan Stark
Right? Yeah. So I mean, the thing that is under the surface here, that’s not obvious unless people have had the experiences, when you switch to a fixed price upfront, however you calculate it, when you switch to that fixed price, your quality of life goes through the roof. It’s way better because the clients, you’re not in this tension relationship with the clients, especially when you’re billing hourly and you start to get up to the original estimate, you go over the original estimate, you start to go over what it was worth to them in the first place. In the car example, or in the software project example, which happens, it’s very stressful for everyone. It’s very, I mean, I’ve seen people fired, I’ve seen lawsuits up close and personal. People that have gone so far over budget that they get sued and all of that goes away. You now have a risk of like, is this going to be profitable or not? But that’s on you and you’re the expert, so you’re the one that should be taking that risk. Like, they’re not betting on how good of an estimator you are. That’s on you, I think if you’re an expert.
Mark Stiving
Right. And by the way, you get paid for taking a risk.
Jonathan Stark
So yeah. Risk reward, it’s like cliche, but it’s true.
Mark Stiving
Exactly. Okay, next one. I had a really hard time finding a bookkeeper when I first started my business. And I found this lady, she charged me $500 a month, and I found that so freaking annoying, right? It’s like, there’s no way this is worth 500 bucks a month for you to do my bookkeeping. And, eventually I was lucky she fired me. So thank you for firing me. And, I went and found a per hour bookkeeper, and I now pay about $120 a month for bookkeeping. And so I felt like I was getting ripped off even while I was paying her money, by the way. I felt like I was getting ripped off.
Jonathan Stark
Yeah. Again, commodity service, if anybody can do it at a reasonable level of quality, if anybody can do a good enough job, then why not pick the cheapest? So there needs to be, positioning is a very, wasn’t really what we were going to talk about, but positioning is critically important for any kind of upward lift on your fees. Because if you can just be compared to apples, to apples to someone else, and the client sees no meaningful difference between A and B, what are they going to look at the price? It’s the only thing they understand. So they’re going to pick the cheaper one. And in your case, you don’t care. Like you didn’t, the service level was probably, I mean, if I had an email exchange with my bookkeeper today that was incredibly disappointing.
And I’m like, I could just switch to anybody and you’re not going to do this thing for me then I would pay you to do. And it’s like, oh, I don’t know how to do that. Sorry. You know, you can’t send me a CSV file. So, you know, I literally will probably switch bookkeepers after the email exchange I had today because they’re just, I’ve been with them for a long time, but they never add value. They never predict a question that’s going to come into my mind. They see that I have a crypto, but they never do anything to just like, proactively say like, we ‘ve been sending some money to Coinbase, you probably don’t know, but these are the ramifications of that. Nothing, there’s nothing proactive about it at all. So there’s no switch. I mean, there’s some switching costs for me just finding someone, but I feel bad because, I know that I met the owner, they’re nice and everything, but there’s just no brand loyalty. I can’t imagine it being, well, I can imagine it being worse, but that it would almost be like violating their fiduciary responsibility if it was any worse.
Mark Stiving
Do you pay them by the hour or by the month?
Jonathan Stark
Yeah. Yeah, by the hour. And it’s like, why won’t you? Anyway…
Mark Stiving
So, I was thinking, and I don’t know the answer to this, but there are times where I feel like I want to pay by the hour. And maybe I just came up with the answer by the way, because everything you and I have talked about so far, I had not linked together that said hourly rates really go with commodities. And if you’re going to be a differentiated solution provider, hourly, I mean, sure you could charge a higher hourly rate, but that just feels weird.
Jonathan Stark
Yeah. For me, when in a situation where I feel like I could do the thing, I just don’t want to, and I can get anybody, it’s just like entering my expenses into a spreadsheet, that’s like, I don’t care if it’s hourly or not hourly, but I’m not going to place a high value on it. I’d kind of prefer it if it wasn’t hourly, because then I could just set it and forget it in terms of what I pay them every month. But my value, the value is just too low. So like you just said, sometimes I want hourly. Well, not if it’s a thousand dollars an hour, probably. The reason why you probably want hourly is probably it’s going to be cheaper that way then, or easier to close the deal.
Like maybe you can’t clearly articulate what it is that you want as an outcome. So it’s kind of R and D, it’s kind of exploratory thing, a short-term experiment, or it’s this long-term kind of labor that’s just busy work that you just don’t want to do yourself. So, and again, commoditized, so like maybe you would perceive your effective hourly rate to be a thousand dollars an hour, $1,500 an hour. So in theory, you should be happy to pay anything less than that to someone who could do a job for you to delegate to someone who could do the job just as well. But if it’s commodity stuff, then you’re just not going to, because you’re going to find someone that’s just cheaper than the bookkeeper next door will happily do it for less. And this is part of the reason not to monologue here, but this is part of the reason why people come to me.
I don’t normally try to convince people that hourly billing is a bad thing. It’s like, hey, you’re happy with hourly, great. Call me in three years. Because that’s when you’re going to get to the point where you’re starting to become an expert or more of an expert, and you’re working more and more and more. You’re working so much that you feel like you can’t get ahead. Your lifestyle is outstripping your ability to increase your rates, maybe have a couple kids, all of a sudden you’re like, I’m like, working weekends to afford summer camp, or like baseball practice that I can’t even go to because I’m working all the time. And then all of a sudden the light bulb comes on and they’re like, oh, okay. These junior people who are nowhere near as good at me at what I do are undercutting my hourly rate and they’re getting all the deals because the clients, the prospects can’t tell the difference between them and me. So they’re going to pick the cheaper one. It might not end up being cheaper, but it appears to be cheaper on the label, you know, oh, $35 an hour let’s do that.
Mark Stiving
Yeah. It’s that commodity thing, right? If it’s a commodity, if I can switch out, then there’s competition and it really is its price.
Jonathan Stark
Yeah.
Mark Stiving
I just thought of another one. Okay. I fly airplanes, as I told you. Yeah. And I pay my flight instructors by the hour. And I think a lot of that has to do with the fact that they don’t know that I’m going to continue or not, they don’t know how many hours it’s going to take me to get to the next level, they have to pay for an airplane, or I have to pay for an airplane rental if I wasn’t flying one of my own. So is that bad?
Jonathan Stark
If everyone’s happy, it’s not bad, but let me actually tell a story. Do you know Joe Pine from the Experience Economy?
Mark Stiving
I know the name. Yes.
Jonathan Stark
Yeah, he’s hilarious and super smart. And he told a story on my podcast about his golf pro. So he takes golf lessons, same thing. It’s like whatever, 75 bucks for 45 minutes or something like that. And he had been doing it for a while, and he got to talking with the guy, and the pro was like, oh, what do you do? And he said, oh, I’m writing. I’m writing a book right now about the experience economy and how, what your pricing is like, the experience, not the service. And that he’s in the business of transforming his clients and he prices the transformation and the golf pro did not get it. And he’s like, I don’t understand. He said, well, imagine if instead of me paying you 75 bucks per visit, I paid you some reduced hourly rates, just for sake of argument, like 35 bucks for the appointment, but I’d give you $5,000 if you could get me down to a two handicap.
So like a sort of a bonus. And, he said that the golf pro sort of stood back and looked him up and down and was like, you could see, he was thinking like, can I get this guy to a two handicap? And, he must have said yes in his head. And then the pro started saying, all right, here’s what we would do. If we were going to do that, you’d come five times a week, not two times a week, and we would go out on the course. We wouldn’t be practicing on the putting, or the driving range. I would teach you the logic of the course. There’s a word for it actually, like how to play a specific course, the strategy of the course, and all of this other stuff that he never taught Joe before.
He never thought to teach Joe before. He’s just, I show up for 45 minutes and get my 75 bucks and we hit some balls and all along. And Joe never said, oh, I want to get down to it too. Like, they never talked about the desired outcome. And once they did talk about the desired outcome and aligned to the financial incentives, so the golf pro would want to get, he would’ve been knocking on Joe’s door, pulling him out of bed, like, no, bro, I want that 5,000 buck bonus. You’re not skipping a day. So back to your question, what’s the transformation that you want from the flight instructor and what’s that worth to you? And they could price that, their contribution to that. You’ve got the plane and the fuel and all the other expenses, but if they price the transformation, they, it’d be a completely different ballgame. It might even change the way they deliver the service.
Mark Stiving
Yeah. It’s pretty interesting to think about, but in my mind, I can’t stop thinking, they would say, on average it takes 30 hours to get this rating. So if I cut that in half and I put a big number on top, then maybe I could make more if I could get you there faster and we could be committed to it. So in my head, I’m still thinking, what’s the numbers? How do I make more money in less time?
Jonathan Stark
Well, for this particular example, I’m not sure what the rules, I mean, you have to have a certain number of hours in the air, right? So there’s a certain minimum. But if you talk about…
Mark Stiving
By the way, it took me way more than that to learn how to fly an airplane… Ok, go ahead.
Jonathan Stark
If you price the transformation, so it would be like, hey Mark, how bad do you want to be a pilot? How fast do you want to be a pilot? What’s your buying power? Right? So like, it might be that, and how differentiated is this person? So like, in my mind, the formula for value or maximum price, the maximum price that any buyer would agree to is a pseudo formula of desire times money divided by options. So the desire is how badly the buyer wants the thing, the money is their buying power, how much access to capital they have. And the option is, how many undercutting, right? Who else could do this for me? So if you, Mark, have a tremendously high desire, it’s urgent, it’s important you dreamed that, you’re just dying to be a pilot and you’ve got a ton of money and this flying instructor or whatever they’re called is the one and only for what you want.
Maybe there’s some special, maybe it’s, I don’t know, barrel rolls or trick something, right? Like they’re the one, they’re the expert and you wouldn’t even consider someone else. Then they can set an extremely high price and you will say yes. The case might be that for you specifically your flight instructor is not that well-differentiated. Your desire is medium and your buying power is medium. So there’s a maximum number there that is going to be agreeable to both parties. But if he becomes the only option and you are Jeff Bezos and you’ve been dying to fly since you were a little kid, then that number could be a million dollars for the same amount of time.
Mark Stiving
Makes all the sense in the world.
Jonathan Stark
You might lose your flight instructor though. Don’t let him listen to this episode. Yeah, that’s the problem. I can’t hire people because they listen to my stuff and then they just raise the prices on me.
Mark Stiving
I always tell my friends, I’ll coach you on your pricing, but you can’t raise my price. So, seems fair.
Jonathan Stark
Yeah, Exactly.
Mark Stiving
Okay. What’s the best reason you have on your list for not using hourly prices?
Jonathan Stark
Artificially limits your income? Top answer. That’s the most self-serving answer. So if you sell somebody an hour, you cannot make it more efficient. It takes an hour to deliver it. Let’s assume everyone’s ethical in the equation, which is not the case, right? But often this is not the case. But if you sell an hour, you got to work an hour full stop. How many hours are in a year? And then what’s the maximum hourly rate that you can charge because you’re giving somebody a handle to compare apples to apples against other people. So at a certain point, most people, and there are some exceptions, I’ve talked to some lawyers that can name their rate, they still track their time, but they’re basically just working for people who are so rich, they don’t care that it’s $2,000 an hour or the risks are so high that they want the best and whatever the price is no object, but barring that, my background is in software development.
So if you’re a software developer and you’re charging $300 an hour, no, it’s just highly unlikely. Unless you’re very, very well positioned and you’re the one and only at something. So most people, tons of people, find that there’s a ceiling on the hourly rate that appears acceptable to their buyers. And it’s not logical, it’s not really rational. It’s only half the equation of finding out what the price is. No one ever gets an exact answer on how many hours it’s going to be from an hourly biller. So they haven’t really gotten a price, but they’re forced to make a decision as if they had gotten a price. So, most people in software, when they come to me, they’re in their forties, they’re getting a little gray upstairs, and they maybe got two kids in school and they haven’t increased the amount of money they make per year in like five years because they’re at the top. They’re doing well, they’re doing really well, but they can see that the writing is on the wall. I am stuck here. If I can’t raise my rates anymore, I’m starting to lose jobs to Upwork and the Philippines. And I don’t know if I would hire me anymore, you know? And they’re like, wow, I’m in a ceiling, now what? And the answer is you can just stop billing and start pricing.
Mark Stiving
Yeah. I have two things that I would say about that, but, let’s just do one at a time if I can remember them both. So, the first one is the scope problem, right? One of the things I love about software is it’s pretty easy to say, Hey, this is the outcome you want, but then if you’ve ever been in software development, you know the outcome I want changes. Especially once I’ve had a user try to use it and it’s like, no, it doesn’t work, right? And let’s get that to happen. And so hourly rates, I don’t have to worry about that. Yeah. You want me to keep working, I’ll keep working
Jonathan Stark
As the seller, you don’t have to worry about it. So I would suggest that what you are thinking of as an outcome is probably a scope or feature set or some deliverable. And that’s not the outcome the buyer actually wants. So you need to drill past that. You need to get past that for software developers, I can speak to this very authoritatively. It’s very common for clients to come to you with a picture in their head of what the app is going to look like and the use cases and how users are going to interact with it. And that’s great and you can get all that information in your initial call. But the way I do it, I don’t scope first, I scope last. So if they say, okay, here’s this punch list of things that we want, we understand you’re great at this.
And I’m saying, great, let’s talk about it. They brain dump for 25 minutes or so. I take a bunch of notes and then I say, this is awesome. Can we back up a second? Cause I want to understand the business context that the software is going to be released into because that will inform tons of decisions. Like for example, is the goal to have 10,000 concurrent users per second? Or is there a maximum market of like 300 people in the whole world that’re going to use this? Cause I’m going to build it in a very different way. If I’m building a footbridge over a creek or the Golden Gate bridge, they’re both bridges, but the expense and the time and everything, the risk, the scope, they’re all completely different. So can you tell me what would be a home run here? Like what are you trying to, once I deliver this, let’s say I deliver this to you today, what do you do next?
And they’re going to say something like, we’re going to put it in front of beta users. We want to do a paid beta. And a home run for us would be to have 10 users paying us a hundred dollars a month for this beta version of the software. And then we can iterate from there. That’s an outcome. You know, a button that allows them to log in is not an outcome. That’s just a deliverable. Or like another outcome might be, we don’t want this to be vaporware when we take it to the VCs, we want it to actually be functional. We want them to be able to experience it on their own to get it. Because it’s a complicated concept. We want them to get it. So, okay, so what would that mean? How would you know that VCs get it?
And they would say, well, our sales meetings would be very short. They would understand right away what the benefits of the software are. They would be comparing it to the correct competitors and not the wrong competitors. And, okay, that’s measurable and now I’ve got a target as the developer. It’s not, I don’t get into this fight of like, ah, can you make the logo beggar or can you make the blue a little blur? Instead it’s like, I have proof that we’re moving the needle on either one of those outcomes or whatever outcome they wanted. You know, maybe they want to release a really cool piece of software to attract developer talent because they want to hire, there’s all sorts of different outcomes. And I would build the thing differently every way. It depends on what the desired outcome is. Just like the golf pro example, if Joe’s goal was to have like a zero handicap, the pro would be like, not it’s impossible.
I can’t do it. I’m not your guy. Or if he only wanted to have a 10 handicap, I don’t know, golf, I don’t know if that’s good or bad, but you know, only one, it was an easier lift. He would say, okay, that’s worth X or whatever we can, we’re going to do it differently. We’re actually going to do different things. And it’s the same with software. I’m going to do different things in my area of expertise. I’m going to maintain a massive amount of latitude and be able to have flexibility to get to the desired outcome as quickly as possible without cutting corners or cutting the appropriate corners. Because sometimes they do want you to just hack and slash to get it to market quickly. So you have to drill past the initial request and understand the underlying motivation. You have to uncover it, you have to dig it up.
Cause they’ll never think to volunteer to you why they might be doing this, how urgent it is, why they are talking to you and not a hundred other people. Or maybe they are talking to a hundred other people. So that’s the real outcome. And it doesn’t change. It’s not going to change during the project. They’re not going to change their mind and say, oh, we actually don’t want a hundred users or 10 users paying a hundred bucks a month. That stays the same. Yes, the interface is going to change and it should, but if you price, price the value of the outcome in such a way and then scope it last and say, okay, here’s the minimum viable thing I can do to get you to that outcome. And I’m not a hundred percent positive, so I’m not going to charge you a hundred percent of the value, but I could give you an option at 10% and I can do X, Y, and Z and that should get you closer to that goal. Or I can do a higher option, a middle option that is more involvement. It’s more likely to achieve the desired outcome. And then a third option that is the deluxe model where I really get in there and maximize the likelihood of getting this success. So we partner little, medium or a lot.
Mark Stiving
Nice. Love the answer. We are running out of time, so let me jump to the last question. I was going to ask more because I love this conversation.
Jonathan Stark
Well, we can do it again if you want.
Mark Stiving
Yeah. Last question of the day. What’s one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?
Jonathan Stark
Oh, this is huge. You can measure anything. And this is like a long conversation, so I’ll just direct people to a book by Douglas Hubbard called How to Measure Anything. Something like the subtitles, something like How to Measure the Intangibles in Business. And he explains very clearly the very beginning of the book, this changed my life, this book changed my life. He explains very clearly at the beginning of the book what a measurement is for. And once you understand the definition of what a measurement is for, and spoiler alert, it’s to make a specific decision. And without knowing what the specific decision is, you don’t know how to appropriately measure something. So once you know what the specific decision that’s on the table is, then you can find a way to measure it, not exactly, but good enough to support the decision and it’ll just blow your mind. Like he’s got examples of measuring the beauty of a lake, things like that. And it totally follows. Like, it totally makes sense and I’ve used that in value pricing conversations with myself and my students, and it totally works. So I highly recommend that book. It’s not a pricing book, but I highly recommend that book.
Mark Stiving
Cool. I will have to go listen to that or go read that book. That sounds neat. Awesome. Jonathan, this has just been fun. I really, really have enjoyed it. If anybody wants to contact you, how can they do that?
Jonathan Stark
Go to jonathanstark.com and sign up for my mailing list. I’ve got a value pricing email course. We didn’t really talk about value pricing today, but that’s my favorite project pricing approach. And you can reply to any message and it goes right to my inbox. My email address is probably too long to spell out. You wouldn’t be able to do it, but if you just go to Jonathan, google for the ditching the hourly guy and you’ll find me
Mark Stiving
Perfect. To our listeners, thank you for your time. If you enjoyed this, would you please leave us a rating and a review? You can get instructions by going to ratethispodcast.com/impact pricing. And oh, I just looked, there was a new review on my first book, which is what, now 12 years old, called Impact Pricing. But someone on Spectrum Reader wrote:
“This is the pricing book to buy. If you are pressed for time or only buying one book on product pricing. This is the book for you. It’s short, succinct, understandable, and powerful. You’ll not only learn the importance of value pricing, it will show you why you should embed it in your organization before designing any product. If failure is not an option, start with this book. You and your organization will change and never look back. It’s that good.”
Sadly, I don’t know who Spectrum Reader is, so I get to keep the money I always send to people who leave reviews. And finally, if you have any questions or comments about the podcast or about pricing in general, feel free to send me an email, mark@ impactpricing.com. Now, go make an impact!
