An Interview With Jonathan Stark-Bye Bye Hourly Billing! - Freelancer Masterclass
An Interview With Jonathan Stark-Bye Bye Hourly Billing!

Show Notes:
Jonathan Stark is a former software developer who is now 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.
Questions

1.So you’ve written 5 books, you’ve given talks on 3 continents and you were a software consultant for major brands like Staples, Time, T-Mobile and more. By that time, anyone might see that you were a success. But then, you decided to go out on your own and on the very first year, doubled your income. Tell us about the high-level points on how you made that happen.
2.You have a course called Hourly Billing is Nuts, which I agree with. Tell me a bit about when you realized you didn’t want to trade your time for money.
3.Youre effective hourly rate is $2,000 per hour, can you explain what an effective hourly rate is and how someone can calculate theirs.
4.Tell us about your famous Jonathans Card experiment.
5.How can our audience follow you online?


RAW TRANSCRIPT:

Get ready for freelancing strategies, hacks and tactics to help you skyrocket your success brought to you by Freelancer masterclass calm. You’re listening to freelancing school with your instructor Mike Volkin

Alright everybody thank you for joining me this is Mike Bolton with freelancers school and the lead instructor Freelancer masterclass. I have a special guest with us today. JOHN Stark, a former software developer who is now on a mission to rid the world of hourly billing something I rave rant and rave about in the master class. So he is the actually the author of hourly billing is nuts. The host of ditching hourly and writes a daily newsletter on pricing for independent professionals. Welcome to the show. Thanks for having me. So you’ve written five books, right? You have three talks on three continents, you’ve given you a software consultant for major brands like staples and in time and T Mobile

And other brands. And by that time, anyone might see that your success but then you decided to go out on your own and do the very first year, double your income once you go out on your own. Can you tell us about the high level points of how you work for major brands and then went out on your own and actually doubled your income? Oh, yeah, sure. I don’t want to misrepresent the timeline though. All of that stuff in the books and everything happened after I went out on my own. Okay, before that I was working in house at a software consulting, like a dev shop, was a firm that had about 10 employees. I was the vice president, by the time I worked my way up at the end, and that’s where we’re doing hourly billing. And that’s when the light bulb went on for me where I was like, wow, hourly billing is causing all of our problems, literally all of them. And, you know, I ended up leaving to start my own shop, I immediately went to value pricing, I immediately doubled my income. And then those things that you listed all happens starting in 2006 2007. Okay, so it took a couple of years right

from from the timeline

Were How long were you at the the agency for with the woman? 10 people? I think it’s about three years. Okay. So you spent three years just realizing that that hourly billing was the issue. And then you went off on your own and a long time to realize, yeah, that’s the crazy thing about hourly billing, it seems like the defect, it seems like the only way that’s the only option, it seems like so you don’t even question it. And then it creates all all sorts of problems. Almost all the problems that freelancers complain about. Yeah, absolutely. From hourly billing. I couldn’t agree more. I very rarely, if ever bill hourly now, just because of that, and some other reasons, which I’m sure we’ll talk about soon. So you have a course called hourly billing is not great. Great course, by the way. And he tell me a little bit about when you realize you didn’t want to trade your time for money. Was it when you’re at the agency or was it just after that when you went out on your own? It was at the end of the agency stint? So I was

like, my whole life there was ours. I was the vice president. So I was in charge of like, making hours you know, estimates based on hours for customers and clients. I was in charge of chasing

Developers for hours I you know, with them to get their timesheets in and create systems to track hours feed the hours into into the invoicing system that the hours weren’t in. We couldn’t invoice there’s all these things is hours, hours, hours all the time. Yes. And eventually, it occurred to me that our best developer, who we paid the most, we were probably losing money on. And because he’s really fast, he just nailed everything really quick, US fat, he was great. He was amazing. He could have worked anywhere. We were lucky to have them. And then we had this person who was a junior developer, basically an intern, who we were printing money with, because he was really slow. He had to do things three and four times to get it right. He had a great bedside manner and his clients were perfectly happy. And it just there was like something unfair about that it didn’t seem right. And you can do all these gymnastics in your mind to say like, Yeah, well, the really good developer attracts other developers and trains people and stuff. But as soon as you as soon as the light bulb went on for me, and it took a while, a couple of weeks of like really thinking about it. Finally, I questioned

bailing. And I thought, well, if we, if we use fixed prices, our best developer would be like the golden goose immediately, like, instantly. And we would want more awesome developers and we would be able to invest in training the juniors and making them really good. And all of a sudden, everything was in alignment. So I said, you know, I’m, you know, I was really good friends with the owner, I am still to this day. And I said, we should really switch over to a different model. And he was like, Okay, I get that logically. But I don’t know how we would make the change. Because hourly billing infects your entire firm. You’ve got systems built up around it, you’ve got incentives built up around it, the clients are incentivized to expect it. It’s very, very hard to switch. And to be fair, I don’t know if I would have been able to do it with a whole firm and all the systems so I said, All right, I’m going to see if I can do this on my own. I went solo. And immediately immediately was, I mean, not only would was my income higher, but my quality of life was dramatically improved. I mean, it is night and day, especially if you do repeatable work.

Right. So if you, for example, have a content marketing strategy that’s that is very similar, you’re about to create one that’s very similar for a client, you know, you would normally only take, I don’t know, five to 10 hours to build, one that just modify an existing one, rather than build one from scratch, which could take 30 or 40 hours, right. So what so your approach is basically get a really good scope of work up front, get a flat rate agreed upon, okay, what is, you know, the way that I, what you’re describing is fixed pricing based on time materials, or cost plus value pricing? Where is where you talk to the client, and you find out what is the value of the business outcome that they’re trying to achieve? And before I don’t talk about scope at all in a sales meeting, so when I, you know, when a prospect comes in, I set up a sales interview, I said, hey, let’s talk might be a good fit, but let’s make sure and I basically try and talk them out of working with me. I asked them, Why would you even want to do this, this is going to be a big project. This is going to be a big investment. This is going to take time away.

From your employees to have to collaborate with me, when I just not do this, what’s really so bad about not doing it? And they’ll tell you why. They’ll say, Well, you know, that’d be great. But our competitors are breathing down their neck or Amazon is entering our market, or we’ve got this new product. We’ve invested all this r&d, we need to launch it, you know, we don’t want to launch to crickets. So they have some good reason. Then you say, Well, why do we have to do it now? Is this really urgent? You just go through this list? I call it the why conversation, you ask all these questions about why, why, why. And once you have a sense of that, once you go through those questions, if you really do it, and you’re not thinking about scope, you’re not thinking about anything like that. You’re not thinking about how long it’s going to take you to do anything, you haven’t even decided what you’re going to do. Then at the end, you’re like, you’ve got a sense of whether or not you’ve got a sense of what needle they want moved. And you’ve got a sense of what your contribution to moving that needle might be. And you can say, Okay, I’m going to take all this information. I’m going to put together a proposal. I’ll get back to you

Wednesday, they say okay, then I sit down with a proposal. And I say, all right, back in the napkin, this is probably worth to them. Maybe not bottom line, maybe not tangible, but worth to them based on our conversation for round numbers, let’s say $100,000.

So then I would say, All right, I’m going to come up with three options for them based on $100,000 of annual worth, maybe not revenue, but worth and say, okay, that’s what it’s probably worth to them to the buyer, I’m going to come up with a $10,000 option, a $22,000 option and a $50,000 option. And then I’m going to think, what can I do for $10,000? If they give me a budget of $10,000? What could I do to move this needle that they want moved?

And then same thing with 22. And same thing with 50. So it’s backwards what most freelancers think most freelancers in a sales interview, are basically pitching themselves. They’re trying to convince the client that they should hire them. They’re trying to differentiate themselves from the next copywriter next developer down the road, right?

And it’s a very desperate approach, it gives you no leverage. And you don’t understand the value of what you’re selling all you all you understand or what they want. All you all you’re thinking about is like, how much time is it going to take me? And if and then you try and come up with an estimate, and then you hope that’s right, because if you go over the estimate, they’re going to start to get angry. So this approach of doing the value first allows you to optimize your delivery, it allows you to,

as you were alluding to, it allows you to do things in less time, they’re just as effective or more effective. Instead of if I sell an hour, how long is it going to take me to do it an hour? I can never optimize by selling time because that’s what you sold in your you have to do that. You have to honor it. Now, does this work across all verticals? Because, you know, as a marketing strategist, I can see how this would work for someone like me and I love providing options to people when I present them with a proposal. But let’s say a writer for example, who charges per word

Or they’re using charging per hour. And they have like 30 other writers competing for the same job? How does someone like them adopt this value based model? If possible? Yep. Yeah, it’s the exact same thing. So I have a student in my private coaching program who was exactly that a writer. And she had a client come to her who asked for a white paper, they said, We want a white paper. And she went into the meeting was like, Well, why do you want a white paper? Like I yes, I’m happy to write a white paper for you. But I want it to be effective. I want you to be glad you spent the money with me, I want you to have 100% customer satisfaction. So can you share with me why you want it so that I can be sure that when I write it, it achieves the outcomes that you’re looking for? So they have a conversation? It’s a business conversation. And she’s not she’s thinking, maybe I’ll do a white paper, maybe I won’t. Depends like it’s like the patient coming to the doctor and say, Hey, I need a triple bypass. Doctor doesn’t just do it. They say okay, maybe that’s something I’m going to do but you know, I’m going to diagnose the situation first. So she diagnosis that you have

And it’s a big situation, I don’t want to go into details because it’s not my place to do so. But, you know, client comes to her and asked for a white paper, and we’re sending out a proposal. The top option is $150,000.

Would anybody here charge $150,000? For a white paper? No, but that’s not what we’re that’s not what she’s describing in her, you know, deliverables or what the outcome is that she’s going to provide to them. Instead of saying, Here’s your white paper, thanks, bye, take my 1500 bucks or something or like, whatever, 25 cents a word. And you know, what, if those words are awful, like hourly or by the word or any other measure like that, it doesn’t take quality or effectiveness into consideration really, it’s like implied that it’s automatically going to be good. So when you start to actually talk about the difference between

you know, let’s, you know, why might someone want a white paper they probably want to generate leads, they probably want to increase awareness in the marketplace about their product or service. So

What metrics could you look at and discuss with them in a sales interview? Like, what’s this white paper for? What’s this new website for? What’s this? I don’t know, style guide for old for something, you know, we want to improve morale or we want our brand to be more consistent, or we want our partners to be able to download their invoices without having to call customer service. Well, why? Well, because the customers are complaining about it, they’re going to go to another another provider. So if you start talking about business things in the meeting, and not just how many words do you want it to be? Then you can start to speak the language of business, which is numbers and say, all right, how do we measure the success here, more leads, better Net Promoter Score something because businesses measure things, so you just need to figure out what they’re going to measure after you deliver this white paper or whatever. And say, like, Can I move that needle? can i improve that metric, and if you can, that will be worth money to them. And you just set your prices based on that. And that is a budget that you can then use to deliver whatever you think is

Going to move that needle for them. Yeah. What I like about that approach is you’re asking questions that maybe your competitors aren’t. Yeah. Because the way that you’re thinking about your pricing, they’re not. So you’re asking very detailed question, they’re automatically going to be impressed with you that you’re trying to get to the bare bones of why you’re doing that project in the first place. You know, what, a lot of times, clients don’t even know why they’re doing it. They just know it needs to be done. And they don’t know the scope of it. Although that’s that’s also something to as you can tell them, you know, hey, there’s a lot more behind this, the more business implications for not doing this, and you might realize, then you can start talking about it. They’re like, Oh, wow, yeah, this guy really knows what he’s talking about. So yeah, you have to you have to work with them to uncover Yes, core motivation. They don’t, they almost never know it unless you’re talking to the CEO and the CEO is extremely self aware. It’s extremely unusual. You need they just, they just jump to tactics. And they, they have a gut instinct or something and they haven’t thought it through. And then exactly like you said, you will differentiate yourself from virtually

everyone out there who might be a competitor of yours by simply asking questions about why would you want to do this yet? Because all of a sudden the client that and the power frameshift Well, you’re not desperate for this work. Why aren’t you begging me to just like close this deal? Why aren’t we why why aren’t I just trying to chisel down your hourly rate? Why not? Why aren’t I like saying, Oh, this is going to be great exposure for you because we’re a big brand. Reason is like all the sudden as the freelancer you flip the frame, where you’re like, you kind of acting like you don’t need the job. Maybe you do. Maybe you don’t. The fact of the matter is you shouldn’t be taking on jobs, where without confirming for yourself, or at least feeling confident that you can improve their business somehow. Like if you’re just gonna like, yeah, sure, you know, I’ll do 10 hours for you. And like not even care if it helps them. That’s, that’s not great. That’s not a fun way. Unfortunately, that’s the reason why freelancing is by and large, a part time gig because that’s the reason why freelancers a lot of freelance

Just think like that right? And they don’t they don’t have to shift the what you’re doing in that case is you’re actually turning the the conversation to where you’re dictating it as opposed to the clients, which is very powerful. But you’re, you’re effectively, your hourly rate, your effective hourly rate is $2,000. an hour. Right. So well, can you explain what that that is? Yeah, I mean, that I know that’s on my website. And what what that is, is,

that’s reverse engineering. Like, let’s say I do a one hour talk, and I get $2,000 for it. That was my effective hourly rate would be $2,000. And I do things all the time would way higher than $2,000, where I’ll put in some amount of time. And it’s just, it’s ridiculous. I mean, the profitability is insane. But the client is sorry. The client is super happy, because they got more out of it than the $2,000 for the one hour. Yes. So I do these, like $500 phone calls with people and just they get off the phone and they’re just like, you just transformed my business in like 30 minutes. And that’s, you know, and I’ll say to them, and it’s 100% money.

guarantee, I’ll say like, if you get to this phone call and you don’t feel like it was worth it, I’ll give you your money back. Because I’m sure I can blow their mind. Like, I know I’m going to do it because I have confidence in a very, very specific niche, very specific thing with a very specific kind of customer. So I’m really confident that I can help them. And when they jump on, and they say, I’ve never had to give anybody their money back ever, because every time we find something that’s like a mind blowing path forward for them. That is, well well worth the money. Yeah. Would they be happier if I took two weeks to do the same thing? No, that would be worse. I had a client that hired me many years ago to create a content marketing strategy. It took me about three months because just the amount of detail that this person wanted in revisions was just insane. I charge them a very hefty fee for it, and they gladly pay for it as a great result. But now I have this guideline that whenever anybody hires me for a content marketing strategy, now I use it as the base. It’s 80% done, I just use the last 20

To customize it, and I charge the same amount, it takes me one 20th of the time it did when I created it, but I charge the same amount. So you know, it’s something common there too. So if you use this, if you do some work that’s repeatable and predictable, then you can do that as well. Right? This is really true in the software world. I don’t know how true it is. In the copywriting world, I imagine it’s fairly common. But in the software world, there’s this concept of like using open source repos or creating your own starter library. Why would you do that? Why would you even buy a faster computer if you’re a billing by the hour, you should have the slowest possible computer. It doesn’t make any sense to spend $4,000 on a top of the line Mac Book, if you’re charging by the hour, but and yet people do it. Because they there’s this weird like, like, the normal way. I think the the normal way that you’re almost like your biology exists is that you want to be more efficient. Maybe it’s just software developers, but nobody likes doing busy work. Like I don’t think anybody likes that. The only time you like it is when it makes you money. If it wasn’t making you money,

You wouldn’t do it. So when you switch over to a value pricing model or really any kind of fixed model, however you calculate the price. All of a sudden every minute you work you’re losing money instead of every minute you work in making money and guess what? You get really efficient really fast. Yep. Yeah, it’s so competitive out there. I just hired two copywriters last month to write a blog post very similar. And their hourly rates were vastly different. One was three times higher than the other. They both delivered pretty much the same work product but one charged me three times as much because it took them three times as long to do I’m like why does take you so much longer than this other writers pretty much the same assignment. So you when you’re

when you’re charging hourly, or when you’re hiring hourly, you really don’t know what you’re getting you don’t how fast people work or how slow they work, how many revisions you’re going to need. It’s super frustrating from his nuts perspective. Yeah, nuts. It says people again, what’s the question they ask a client comes in, they say the first thing they want to know is what’s your hourly rate. And that’s only half the equation. I know how fast I can work.

You know, right? It’s not and it’s not even half the work because it’s not even half the equation because there’s no conversation about quality at all. It’s just assume that it’s going to it’s going to achieve this metric that’s buried in the clients mind that they never reveal to the freelancer unless press don’t even know. Yeah, yeah, you have to work to get it out. And if you don’t, what are the odds that you’re going to like, sink a three point shot in a completely darkened basketball court? Yeah. Like zero, close to zero. That’s what you’re doing. You’re shooting baskets in the dark? Yeah, if you don’t know what they’re trying to achieve. Yep. So it’s actually

mean to not figure that out. It’s it’s not theft. But it’s, it’s not unethical because everybody’s eyes are wide open about the deal. Like I’m going to pay you 100 bucks an hour or I’m going to pay you 25 cents a word or whatever the going rate is, and you’re going to do this thing and I believe that you’re going to spend the time but there everybody’s talking about the wrong thing.

nobody’s talking about how we’re going to make the client’s business better. Yeah, better than the thousand dollars they pay me. So if if I give you five bucks, and you give me a Starbucks coffee back, that’s a fair trade like, I’m happy. I’m happier than the five bucks. I’m happier without the five bucks. But the coffee. Yes, it’s a mutually profitable exchange. Starbucks is happier with the five bucks because the coffee only cost them $1. Probably if that. So everybody’s happy. It’s mutually profitable. That’s why both people say thank you when you buy something and as a little store, they both say thanks, because both people just profited. So if you’re if you’re working with clients, and you don’t figure out how to deliver more value to them, then they gave to you, you’re going to constantly be operating at razor thin margins with grumpy clients. Yes, you guys what happens trying to compete with everyone else out there? So yeah, I love the approach. Tell me about the the Jonathan’s card experiment or tell our audience about though it’s very interesting. Yeah, it’s a long time.

I’ll just I’ll try and summarize it. It’s unrelated to any of this. It was just a weird thing that happened to me. Okay. Yeah, it was like I was doing mobile work after when the iPhone came out, I switched from, you know, my specialty was mobile web development, mobile web consulting. And I was doing a test for a big client in mobile payments. And Starbucks was the only one doing it at the time. And this barcode, you could show on your iOS app. And I was like, I want to try this on my Android phone too. But they don’t have an Android app. So I just took a screenshot of the iOS app. And then I was like, I wonder if I can pay with this photo, which I did, which blew my mind at the time. It seems normal now. But at the time, it was mind blowing that I bought a coffee with a picture. And I blogged about it, and I put the picture on my blog, so anybody could download it and go buy a coffee. And like 20 people immediately got up from their desks and used up the 50 bucks I had on my card. So and they started tweeting at me like, Oh, you tricked me. There’s no money on the card. And I was like, oh, what happened?

And then I realized that it got used up and put 50 more bucks on it immediately disappeared. I put 100 bucks on it immediately disappeared. So then I blogged about it. And I could talk about this for an hour. The bottom line is, within a couple of days, it was on the front page of cnn.com. And I was getting phone calls from like Al Roker and like, like syndicated radio talk shows, to talk about this sort of experiment social giving. Wow, that’s, that’s really interesting how everything, something like that goes viral. Right? So tell me about I’m really interested in your coaching program and learning how freelancers can benefit from it. Can you tell me a little about that and how our audience can follow you online? Sure. My private coaching program is for its it’s probably not for freelancers. It’s more it’s, it’s kind of expensive, honestly. And it’s for people, usually who are running firms and already writing proposals and need help value pricing the proposals instead of doing just, you know, time and materials or hourly estimates. What is the one you’re working with a writer you mentioned earlier? Was that part of your coaching program? Is that Yeah, okay. Right. So

That really it’s that that program pays for itself. People are already sending, you know, a proposal proposal a month. I mean, I’ve students who credit me with buying their house with one proposal. So you know, it needs to be needs to be, you need to be getting leads already, if you want to really benefit from private code, or Ideally, you want to be getting leads. And then I have the pricing seminar, which is actually my course, where it’s a group thing online, people can sign up and sort of talk about topics like this for it’s 50 videos over 100 days. And we go through all these topics with a group, you know, so it’s a bunch of would be a bunch of freelancers, and we all sort of work through step by step by step understanding each of these concepts. And it’s all about the value based pricing. It’s all on this map. It’s it’s, it focuses quite a bit on that, but we also get into product or services, writing sales pages, nurture campaigns, opt in forms, sales, funnels, all everything. It’s fun. Yeah, it’s really what is that called? The pricing seminar, the pricing seminar and what webinar or what website can they find that as Oh, that’s it, the pricing seminar calm, but

The best place but I don’t want to sell my junk on this podcast, like the place where people should go for free stuff is the value pricing is value pricing, boot camp calm. And if you’re interested in any of these things for free, you can go there and download this download sign up for and get an email course. And I if you reply to any of the messages with questions or anything like that immediate, you know, go straight to my inbox or reply to you get you unstuck. And then after that you can opt to go on my regular daily mailing list that I’ve been doing for I don’t know, four years without you know, I haven’t missed a day and three and a half, four years. Wow. So yeah, that’s that’s a commitment right there. That’s good. I love it. I’m going in the next 10 minutes to sign up for that value. I’m sorry, value priced seminar, calm value pricing bootcamp. Value pricing, boot camp calm. Excellent. Well, thanks so much for joining me today. I’m hoping to talk to you more in the future. You get a lot of great advice I’m sure we didn’t even be talked about yet. My pleasure. Thanks. Bye.

Thank you for joining us.

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