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T3CON24 Recap – Hourly vs. Value-Based Pricing for Agencies

Hourly vs. Value-Based Pricing for Agencies

Many web agencies and freelancers face a problem: despite delivering excellent work for clients, profitability remains elusive. At T3CON24, pricing expert Markus Hartmann addressed this challenge head-on in his session “Pricing Without Hourly Rates and Cost Accounting,” offering a transformative approach to agency pricing models.

Hartmann tackled the limitations of traditional hourly-based pricing and time tracking — approaches that cap potential profits and fail to capture the true value agencies create for their clients. Instead, he presented a comprehensive framework for implementing value-based pricing that aligns agency compensation with client outcomes.

Markus Hartmann

Preisfindung für Agenturen

Markus Hartmann is an entrepreneur and teacher of entrepreneurial action. Since 2016, he has been raising awareness about the shortcomings of cost accounting, hourly rates, and time tracking in agencies, offering a path to value- and profit-oriented pricing. He is also a consultant for effective collaboration and organization.

The Limitations of Cost-Based Pricing

To understand why many agencies struggle with profitability, we must first examine the fundamental flaws in traditional pricing models. Hartmann began his session by asking attendees about their current pricing practices:

“How many of you use hourly rates, use time estimation for pricing? And how many of you use a time-tracking tool to check the pricing afterwards? And how many of you feel, after finishing the project, a little dissatisfied with the hours spent and the profitability of some projects running out of budget?”

The raised hands throughout the audience confirmed what Hartmann already knew – most agencies rely on cost-based pricing models that consistently underdeliver on profitability.

According to Hartmann, there are only two fundamental approaches to pricing: cost-based and value-based. Cost-based pricing, which includes hourly rates and time estimates, seems intuitive but creates significant limitations for service businesses.

“The first thing is that this puts a ceiling on our profit,” Hartmann explained, “Because we cannot sell more hours than we actually have. If all hours are sold, then it’s over, or we have to get more projects, more employees — but this adds a layer of complexity, which reduces profitability.”

Even more problematic is that cost-based pricing focuses entirely on the agency’s perspective rather than the client’s: “It’s just about me as the seller, as an agency. It’s all about my costs, myself, my problem making money. It’s not – and that’s the biggest problem – about the client.”

This agency-centric approach means the same price is charged for the same amount of hours regardless of what the work is worth to individual clients. A small company pays the same as a large one, despite vastly different scales of value received. 

Value-Based Pricing: A Client-Centered Approach

If cost-based pricing is fundamentally flawed, what’s the alternative? Hartmann advocated for a paradigm shift toward value-based pricing – an approach centered on the client’s perspective rather than the agency’s costs.

At its core, value-based pricing recognizes that the true definition of pricing is about capturing “willingness to pay” – how much a client believes a solution is worth to them in their specific circumstances. This shifts the focus from internal agency metrics to external client outcomes.

A crucial insight that underpins value-based pricing is that value itself is inherently subjective. Hartmann illustrated this with a powerful example:

“Water in the desert after five days of not drinking anything, it’s worth anything to you – you would pay, I guess, almost everything you have for this water. But when you use this water for washing your dog or washing your car, then it’s probably not worth that.”

This subjective nature of value explains why identical services can be worth drastically different amounts to different clients. By putting the client’s valuation at the center of pricing decisions, agencies can craft pricing that better reflects the true impact of their work:

“It’s putting our client in the center to learn what the client values, what the client wants, what the client needs, what the problem of the client is, and then, based on the solution of the problem the client faces, we find a price based on the value we create for the client, and based on the profit we create for the client.”

This client-centered approach doesn’t just lead to better pricing – it fundamentally improves the agency-client relationship by aligning the agency’s compensation with the client’s success.

The Appreciative Client Conversation Framework

Transitioning to value-based pricing requires more than just changing your rate card – it demands a fundamentally different approach to client conversations. Hartmann introduces what he calls the “appreciative client conversation,” a structured framework designed to uncover the true value a client places on solving their problem.

Before diving into the specific steps of this framework, Hartmann emphasized two critical principles that set the stage for effective value discovery:

“The first principle I want to give you is don’t think about money. Don’t think about cost,” he advised, acknowledging how counterintuitive this seems when discussing pricing. “But it helps in this conversation, because at this point you have to first get an understanding of the problem the client is in.”

The second principle shifts focus away from solutions – a difficult task for technically-minded professionals: “Move off the solution. We are experts. We know our stuff. That’s our home base. We like to talk about solutions. We like to be problem-solving as soon as possible. But at this time in the appreciative client conversation, you don’t want to talk about solutions. You have to understand the real problem of the client.”

With these principles in mind, Hartmann outlined seven steps involved in an appreciative client conversation and some key questions to pose:

  1. Understand the current situation: Ask “What’s the situation you’re in right now?” Then listen, ask, and listen more.
  2. Identify expectations: “What are the client’s expectations in this concrete situation?”
  3. Define success criteria: “Where, when, and how would you recognize that this project is a success for you?” This reveals what Hartmann calls “value signals” – indicators of what truly matters to the client.
  4. Uncover deeper meaning: “What would all this mean to you? Maybe after three months, after finishing this project, when we meet again, what would this mean to you?” This question reveals the client’s true motivation and the significance of the project.
  5. Create multiple options: “Figure out the best option for the client. There’s not only one option. There should always be three options.” Like planning a wedding, clients appreciate having good, better, and best scenarios to choose from.
  6. Set pricing: While there’s no magic formula, Hartmann suggests starting with tiered pricing where each option represents a significant step up in value.
  7. Craft a proposal: Summarize the conversation, visualize the options, and present a clear value scope with exact delivery dates and pricing.

“Take your time for those conversations,” Hartmann advised. “And after this, you will see much clearer. In the end, not only will the price become better, the relationship will become much better.”

Hartmann expanded on the final three points in significant detail.

Creating and Pricing Multiple Options

After a thorough appreciative client conversation, Hartmann emphasized that presenting multiple options is essential for effective value-based pricing. The multiple-option approach works because it gives clients the autonomy to choose based on their own valuation of the service. Importantly, Hartmann recommends that “every option, even the smallest option, should help the client solve all their problems, meet all their needs, and make them feel good.”

To illustrate how effectively tiered pricing works even in everyday scenarios, Hartmann shared an example: “You probably have been to a gas station, and you probably clean your car with a car wash. And over the cash desk, there are always options: washing the car without drying, washing the car with drying and washing from underneath, waxing, and sometimes even a fourth option with stuff you put on the windshield.”

According to Hartmann, car wash companies have “more sophisticated pricing than almost every agency all over the world,” because they understand the power of options in testing each customer’s willingness to pay.

For agencies unsure about how to price their tiers, Hartmann offered a straightforward starting point: “Just start with a price you felt yesterday was good. Option A is the price for the service, website, the task — whatever you’re offering. For example, 10,000 euros. But the second option should be something like 20,000. And the third option, this should be something like 50,000.”

This approach gives clients the ability to choose based on their own valuation of the service, with many naturally gravitating toward the middle option. More importantly, over time, some clients will choose the higher-priced options, significantly boosting overall profitability.

Crafting Value-Based Proposals

After conducting an appreciative client conversation and developing multiple pricing options, the final step is creating a proposal that effectively communicates the value you’ll deliver. Hartmann emphasized that this document should look quite different from traditional feature-focused proposals.

Rather than positioning the proposal as a sales document, Hartmann suggests framing it as a confirmation of everything discussed in your previous conversations. This starts with a summary of the client’s situation and goals before presenting the various options you’ve developed together, including a clear “value scope.”

The concept of “value scope” represents a significant shift from traditional proposals. Instead of listing deliverables or features, the value scope focuses on the outcomes and benefits the client will receive. This is accompanied by “a clear and exact delivery date, or a time frame” and, of course, the three price options.

The process doesn’t end when the project is complete. Hartmann advocates for what he calls a “retrospective” – a post-project evaluation that’s quite different from traditional agency reviews that focus on comparing estimated versus actual hours:

“Have a retrospective with each client. With your team, ask yourself whether the options were successful, could have been done better, and maybe, in the end, was the price right? And ask the same questions to the client. I bet a client will tell you something like, ‘We were highly satisfied. We made lots of money, and it was a pleasure working with you’.”

These retrospectives create a virtuous cycle, helping agencies refine their value perception and pricing over time, leading to continually improving profitability and client relationships.

Conclusion: Moving Forward with Value-Based Pricing

The transition from hourly rates to value-based pricing represents a fundamental shift in how agencies approach client relationships and business profitability. The value-based pricing model not only helps agencies escape the ceiling imposed by hourly rates but also creates a more client-centered business approach. By focusing on the outcomes clients truly value, agencies position themselves as strategic partners rather than simply service providers.

Perhaps most compelling is the cumulative financial advantage: when agencies consistently test clients’ willingness to pay through multiple options, the higher-value choices some clients make can significantly increase overall profitability. Meanwhile, as agencies develop expertise and become more efficient, their profitability increases — the exact opposite of hourly pricing models where increased efficiency can actually reduce revenue.

For TYPO3 agencies and freelancers looking to enhance their profitability and client relationships, Hartmann’s appreciative client conversation framework offers a practical pathway forward. By investing time in deeper client discussions, creating meaningful options, and focusing on value rather than hours, agencies can transform their pricing approach — and with it, their business success.

Did you enjoy this recap? If you would like to relive all the exciting moments from T3CON24, be sure to check our our recap of the entire conference! 

Official T3CON24 Recap