One of the blind spots I have had in my business is how much value I bring to my customers.
I’ve been instrumental in helping a number of my clients build multi-million dollar a year businesses.
However, many times, I have discounted the role I’ve played in their successes.
Part of the reason why I’ve struggled with the value of my services is based on the historical manner that professional services bill for their work.
I believe law firms were the first businesses to implement time plus cost method of pricing their services.
Under this method of pricing, a firm assigns a billable hourly rate to their time.
Then when someone from the firm does work for the person, they bill the customer for the hours that were spent on the work.
For example, if I had a hourly billable rate of $300/hour and I spend 10 hours doing work, I would bill my client $3,000.
The biggest problem with this method of pricing is the amount of time I spend on a project has no relation to the value of the work that I perform for the client.
Many years ago, I was working for a company that was doing very well. When I started working for them, they had annual revenues of around $5 million.
A few months into working with the company, I was able to discover some areas where I could help improve their business.
I met with the business owner to share my insights with him.
One of the things that I had learned was that it had been several years since the company had raised its prices.
Over those years, the company had doubled its revenue.
The larger a company becomes, the more expensive it is to operate the company.
Most times, when a company starts it is one person, the business owner, that does all the work.
In the beginning, the business owner has all the time in the world and can do all the work associated with the business.
The business owner wears many hats in the early days.
In the early days, the business owner is a janitor, secretary, bookkeeper, salesperson, web designer, receptionist, marketer, and technician.
In the early days, before the company makes a lot of money, the business owner must be careful with spending money because it is a scares resource.
As the company grows, money becomes more abundant, and time becomes scarce.
At a certain point, the business owner begins to run out of time.
If the business owner wants to grow, he/she must start to trade his money for time.
The business owner does this by hiring employees and vendors to remove from his plate to the employee’s or vendors’ plate.
By paying someone else to do the work, the business owner frees up his time to focus on the more critical tasks in the business.
Even if the work is easy to do, the business owner must free up his time, or the business owner will burn out and become overwhelmed.
As the business owner transitions work from his/her plate to other people’s plates, the business incurs more expenses.
When a business incurs more expenses, it becomes less profitable.
In the beginning stages of business, the business owner could be taking 80-95% of the income earned by the business.
This makes sense as the business owner is doing 80-95% of the work related to the money earned by the business.
However, as the business grows, more people are responsible for the income earned by the business.
Everyone that helps the business earn money must be paid fairly for the contribution they make to the income earned by the company.
There have been a few times in my business career where I’ve lost sight of the fact that I wasn’t the only person doing work in the business.
One of the largest expenses I incur every month is the money I spend on the software I use to do my work.
The software I use was built by computer programmers.
The software I use helps me deliver the services to my customers.
If I didn’t use the software, it would probably take me ten times longer to do the work.
As I’ve grown my business, I’ve invested in many things to make my job easier and buy back my time.
Each of those solutions I invested in enabled me to provide better solutions to my clients.
At this point in my business, my operating expenses are around 30% of revenues.
My percentage of operating expenses is a lot higher than it was when I started my business eleven years ago.
However, overall, I make more money because the volume and value of work I do is greater than it was in the early years.