How to Calculate a Cost of Knowledge Work?

Jason Swett shares lessons he’s learned in the process of ditching hourly.

Guest Bio

Jason Swett is a web developer from Sand Lake, Michigan, who has been freelancing since 2011. Jason has historically billed by the hour but in the last couple years he has figured out how to start transitioning into value-based pricing."

Links

• Million Dollar Consulting by Alan Weiss
• Better Training Exercises by Reuven Lerner
• Jason’s Book
• Jason’s Consultancy

Transcript

Jonathan Stark:

Hello and welcome to Ditching Hourly. I'm Jonathan Stark. Today I'm joined by a guest Jason Swett. Jason is a web developer from Sand Lake Michigan, who's been freelancing since 2011. He has historically billed by the hour but in the last couple of years he has figured out how to start transitioning into value-based pricing. Jason welcome to show.

Jason Swett:

Thank you.

Jonathan Stark:

Can you tell folks a little about yourself, what you do?

Jason Swett:

Sure. I'm a software developer, I have been for most of the last 15 years. I got started writing code for money in about 2000. My first job was actually working for my dad. We did that for a little bit and then got my serious start in 2005, doing PHP stuff, did that for a while and switched to Rails and been doing that ever since. The vast majority of that time has been either regular employment or hourly contracting but then in recent months, recent years, I've been transitioning into other better types of billing, which I think is what we're going to talk a little bit today.

Jonathan Stark:

That would be great. We've exchanged a few emails leading up to this and you sound like a really big win that you had this year in the training space, which I'd love to talk about. But in the pre show you also mentioned something about ... We were talking about how people will tend to call themselves consultants when really they are just freelancers or contractors and that there is a distinction there. It's not like you can just say, "I'm a consultant now." Even though I think it's good to push in that direction, to move yourself to be perceived or fulfill the role of a consultant because it's higher value. Can you talk a little bit about what you see as the distinction between contracting and consulting.

Jason Swett:

It's a great question. Freelancing 101 is like don't call yourself a freelancer because when you use that word and then prospects or clients hear that, there's something about it that conveys low value. Like you are a tool that's to be used. They tell you what to do, they make the plans and they tell you to implement the plans. So it's much better if you're perceived as a consultant. And the differences there to me is that rather than being an implementer, you're somebody who helps formulate the plans and then somebody else does the implementation. So that's a much better term to use. Consulting is way better than freelancer. But I think a lot of people who call themselves a consultant would really, 100% of their work is contracting.

So the difference between consulting and contracting is again, with contracting you're an implementer. Somebody else is coming up with the plans, they have an understanding of what the reasons are behind what they're doing and they made all the decisions and now it's your job to just do what you're told. Whereas when you're a consultant, you're more being paid ... Let me put it this way. A contractor, they pay you so they can tell you what to do. When you're consulting, they pay you so you can tell them what to do.

Jonathan Stark:

Absolutely and it's not just as simple as labeling yourself that, one or the other because in my experience people who are used to being a freelancer, or a contractor whatever you want to call it, have their entire business and mentality organized in a way that optimizes for being told what to do and for doing things like nailing down really specific scope of work so that they can turn around and blame the client if it goes over budget, while I just did what you told me to do. It's not as simple as just saying, "I'm going to call myself a consultant." You actually have to make that shift.

A big difference for me I think, when you start to feel yourself or if you're a freelancer now or you call yourself a freelancer or a contractor now, on a relatively, regular basis, you push back on clients and say, "Now I can't let you do that. That is a major mistake." The way a doctor would if you said, "Hey, take out my appendix." And they're like, "Your appendix isn't the problem." The doctor is not going to take out your appendix just 'cause you told them to. When you start behaving like that, then it's safe to start calling yourself a consultant, because you're right. The client is looking for someone who has expertise in the space, that they respect, they trust the consultant, they value that honesty and expertise.

Jason Swett:

I don't think it's a binary thing like you kind of alluded to. Just because you're a contractor, doesn't mean you're not going to be doing consulting type stuff some of the time, hopefully you are. Just because they're paying you to tell you what to do doesn't mean that you can't offer opinions and advice and stuff like that.

Jonathan Stark:

It's a good sign when you find yourself doing more of that. Some people listening to this will recognize that they do a lot of that at the beginning of an implementation, they don't charge for it, or they just charge for the hour by it or it's perhaps even part of the scoping of the work and may not even be paid to get the proposal together for the estimate. So if you recognize that you're doing that kind of stuff, then you're a candidate for perhaps orienting your business a little bit more around that, more high value, those more high value activities and less around the labor.

Jason Swett:

And just this is kind of a quick side note. I've found that it can be very difficult to start a relationship in a contracting kind of arrangement and try to move it more toward a consulting type arrangement 'cause you've already sent them the signal that you're a pair of hands. So it's very hard to shake that off once you've sent them that signal. It's much easier to start the relationship off under the understanding that they're paying you for advice and guidance and stuff like that, rather than try to retroactively become that person.

Jonathan Stark:

It's like trying to get out of the friend zone.

Jason Swett:

Exactly.

Jonathan Stark:

It's hard. I see it often that it's probably no more difficult to attract new fresh clients for this new fresh position or maybe a new product or service that you're going to orient around, a more prescriptive or diagnostic offering than it is to try and change the way past clients view you. It can be very tricky. I've seen people do it, but they're usually people who are more mature business wise and have really been sort of straddling the consulting/contractor world with their clients.

Jason Swett:

Here's another really significant thing about that, is there's one thing, which I mentioned which is the perception thing. At the beginning of the relationship, they have a certain perception of who you are and what they're paying you for. The other thing is that, at least I have found, the kinds of buyers who buy contracting work and the kinds of buyers who buy consulting work, don't have a heck of a lot of overlap. Like for...