When you're trying to figure out your prices, most of us start with some variant of "cost-plus pricing".
You've probably heard of it in terms of restaurants - they source their ingredients, then multiply the cost by three - once for the ingredients, once of the staff and once for the rest.
I recently wrote about cost-plus pricing so I won't retread that ground too hard. Have a quick read of it; I'll wait for you.
The key problem with cost-plus is, for businesses like ours, our major cost is time.
Cost plus is designed to take that cost, then add a markup on the top of it.
But time is the most valuable thing we have. Not only that, but it's finite. We can't manufacture more of it, we borrow it from elsewhere, we can't go back and change how we used it.
It's a cost like no other.
So how can you value it, how can you charge for it, how can you add a markup to it?
Hourly billing (indeed any type of swapping time for money) relies on you treating this priceless resource as a commodity, the same as any other. It puts an upper bound on what you can earn, no matter how skilled you are. It takes no account of your clients ability to pay, no matter if they're a part-time freelancer or a huge multi-national. And it gives you no incentive to work faster and get better - because the faster you work, the less you earn (unless you increase your markup, which makes you look uncompetitive).
So Cost-Plus, while it seems simple, just isn't the right model for businesses like ours.
Tomorrow, I'll talk about what is probably the right model for us. But it takes real balls to pursue it.