We should charge and pay for value, not time

Time is one of our most valuable commodities, and that it’s a non-renewable resource makes it even more precious. But knowledge is also a valuable commodity. If you offer a service, are you balancing time and knowledge when you determine your fees?

We’ve all heard the story of the plumber who charged $500 for spending five minutes to analyze a problem, then fixing it with a few taps on a pipe. When the indignant customer questioned paying $500 for such a quick and simple solution, the plumber explained, “You paid $50 for me to come out and tap the pipe—you paid $450 because I know where to tap.”

The value of a service isn’t in how long it takes you to do it, it’s in the benefit to your customer.

Technology in general and artificial intelligence (AI) in particular have made it possible to do in minutes what used to take hours and even days. Of course, this doesn’t apply to everything—I don’t think technology could have helped the handyman who recently replaced a toilet in my house do it any faster. And when I book an hour with my massage therapist, I want him to work for an hour.

But if I started listing everything that we can do more quickly thanks to technology, you’d stop reading.

The point is: Just because it doesn’t take you as long to do something as it used to doesn’t mean you should charge less for it. You can, of course, if it makes sense in your market. But don’t let time be the primary factor in how you calculate your rates.

If your business is knowledge-based and built on an hourly model, it’s time to pivot to billing for value, not time. Certainly you’ll factor in the cost of labor (and other costs) as you set your rates, but the primary consideration should be the worth you’re bringing to the customer.

For example, when clients come to us because they want to publish a book, they don’t care how much time it’s going to take us to write, edit, design, and do the other necessary tasks involved in the process. They care that we take the time to understand what they want and that we can create a book that accomplishes their goals. They’re paying for the value that we provide from our years of experience and our investment in education and technology.

Similarly, I don’t care how long it takes our CPA to prepare our tax returns. I don’t care if he’s doing it by hand or using a tax preparation program. I do care that he understands our business and knows how to keep our tax liability as low as legally possible, and it’s helpful to know how much he’s going to charge us before we send him our information each year. There’s tremendous value in the trust we have in him.

When you shift to value-based billing (and even if you don’t), you need to adopt AI everywhere you can in your operation. Let AI reduce your costs by doing the work you don’t need humans to do, then bring your human talent in only when it’s necessary to create the unique value that you provide.

Companies that cling to the hourly model are going to find themselves clinging to life—and ultimately dying. The bottom line is all about value, not time.