Price
April 29th, 2010The Great Recession (or little depression) has made economists of all of us. I have spent a substantial amount of time - particularly when there was little work becoming expert in economics. It has not helped run my business any better, but it has provided a philosophical framework for the way I have chosen to do it.
Economists like Mises and Hayek, allow me to explain my prices. I try to take the majority of my work on a fixed or contingent fee basis. Like Cable and Cell phone companies, I have found that clients want to know what they are paying for up front, and that the administrative costs of tracking hours, miles, paper clips etc. often greatly exceed any additional revenue they might bring in. I have managed businesses for more than three decades. At one time just one part of my job was all the billing, accounting job costing, etc for a professional business with more than $4M in revenue. That is a lot of hours, copies, paper clips and miles to bill. When I can I try to avoid that entirely. When it is possible to price a project my clients know exactly what it will cost them. It does not matter to them whether I make $500/hour or less than minimum wage so long as what they are paying is worth it. So long as I can maintain the life style and working environment I choose it does not matter alot to me either. If I am as good as I claim that I am maybe I will be making $500/hour, and if a project goes completely to hell or I make a seriously wrong choice in direction I may end up all too close to minimum wage. These are my problems and I can deal with them. Ultimately I am far more concerned about whether my revenue will cover my expenses and whether I can accomplish the projects I have committed to than what my effective hourly rate is.
For many clients this approach seems unusual or odd. But this is usually how they have to price their work. I make or lose money the same way they do. I am fortunate in that my survival expenses are far lower - if I can take care of my family and meet my mortgage I am solvent, and that does not take much.
I do take projects at hourly rates. Some work just can not be priced otherwise. Some clients can not cope with any other arrangement. Sometimes either when I am very busy or when I am suspicious that there is a deep black hole hiding in a project I will not take it on any other basis. When I take work on an hourly basis the rates are all over the place. regardless of the fee basis for a project the cost varies based on how great the clients need is for my services and how badly I need the work. Today I am cheap tomorrow I could be very expensive. It is even happens that if a client is persistent enough and I really want the project but I am too busy to take it one, that I will hire staff. When you hire me you are buying my commitment to deliver on your project. Exactly how I deliver is my problem. I am a business, not an employee. You hire me to solve problems not create an impression on a seat cushion.
My self taught Phd in economics reveals that my approach follows the pricing theory marginal utility. Nice to know that my business model has the blessing of economic philosophers from Smith through Hayek. By the way the economic theory that the price of something should be based on the materials and labor used to produce it is called the Labor theory of value - which has another name - Marxism.
So it turns out I am a good capitolist.