If you want to build a more valuable business, stop selling your time…
Your business strategy lacks power if you charge by the hour or the day since customers are renting your time rather than purchasing a product. Either put in more effort or recruit additional staff if you want to advance. Fast growth is practically impossible because onboarding new personnel can take months.
Your company's Growth Potential is one of the eight criteria that acquirers examine when making investments in a company. Simply put, they are interested in how quickly your company could expand, and selling your time has the most negative impact on your Growth Potential.
Customers don't appreciate feeling like they are being unfairly charged, thus billing by the hour can also make them less satisfied with your service. They are aware that you have a financial incentive to prolong a project whereas they are more interested in a quick fix. Customers who are upset because of this misalignment will not appreciate your company as much.
Selling time also invites competition. When you sell your time, customers can compare you to others who provide the same service. As you become commoditized, this can lead to downward pricing pressure and lower margins.
How Likeable Media Stopped Selling Time
In 2006, Carrie and Dave Kerpen founded Likeable Media, a social media agency. Facebook was becoming a dominant platform, and marketers were attempting to figure out how to monetize their platform's users.
The Kerpens began selling their time, but quickly discovered the limitations of an hourly billing model. Customers did not want to buy their time, they realised. Instead, Likeable Media customers were interested in purchasing social media content. Marketers preferred a video that could be shared on Facebook or a blog post that could be published on their website.
The Kerpens chose the Content Credit System over an hourly billing model. They gave each piece of content multiple credits. A tweet, for example, could be worth one credit, a written blog post ten, and a video twenty. Customers signed up for an annual credit allocation that could be rolled over from month to month.
The Likeable Media industry has improved thanks to the Content Credit System. Customers were initially no longer purchasing time. Instead of trying to analyse an hourly charge, they were content to pay for concrete results. The credits also made it simpler for the account managers at Likeable Media to upsell clients. They were no longer required to explain why a specific project would take longer. Instead, they advised users to purchase more credits if they wanted access to more content.
Because The Content Credit System was dependent on annual contracts that were extended each year, The Kerpens' creative billing strategy also generated recurrent income.
Likeable's cash flow was further altered by the Content Credit System because clients had to pay for their credits upfront.
The Kerpens were able to stop selling their time and start forming a team thanks to the Content Credit System, which was essential. By 2020, Likeable Media had grown to more than 50 full-time staff members. 10Pearls, a digital strategy firm, noticed them and purchased Likeable Media for 8.5 times EBITDA, a respectable premium over a standard marketing agency.
The final word? Stop selling your time and start selling your clients' results if you want to build a more valued business.
- Robin Olivier (ActionCURVE NZ)