#225: Mike McDerment on Changing the Way You Think About Pricing Your Work

Welcome to the High Income Business Writing Podcast, helping you propel your writing business to a whole new level. And now, here's your host, Ed Gandia. Hey there. Welcome to the High Income Business Writing Podcast. I am your host, Ed Gandia, and this is the podcast for business writers and copywriters who want to earn more and less time doing work they love for better clients. You can find detailed show notes for this episode@b2b launcher.com episode 225. Those notes include a summary of our discussion as well as links to resources we mention during the show. Pricing is one of the most important levers in our freelance business. Many of my coaching clients have transformed their writing businesses and their income in a matter of weeks or months simply by changing the way they price their work. Making the right changes almost always has a domino effect. Higher fees translates into higher income, which boosts your confidence, which helps you better see your value, which translates into being bolder with how you price your work, which leads to better results. And so the cycle goes. Today I'm joined by Mike McDermott. Mike is the co founder and CEO of FreshBooks, which is the number two small business accounting software in America. I wanted to bring Mike to the show because he used to be one of us. Before starting FreshBooks, he did freelance work and pricing is a topic he's very passionate about. His ideas on the subject align very well with mine and his message and his advice is one we all need to hear, especially during this difficult time in the world. My hope is that this conversation sparks something in you and that you use that spark to start moving in a better direction with your pricing. As Mike says in the interview, sometimes, especially right now, you have to do things to keep the lights on. Okay, so that's fine. But the key is not to get everything perfect. The key is to start moving in the right direction, no matter what's going on in the world. One last quick thing. I highly encourage you to Download Mike's free PDF eBook. You'll find it. It's free. Just Google it. We'll have links for it here in the show notes. And I think it's going to just start opening up your mind to the possibilities in how to shift the way you think about pricing. Anyway, I hope you enjoy this conversation with Mike McDermott. Mike, welcome. Great to have you here at the show.

Yeah, thank you for having me. Good to reconnect after all these years.

It has been great all these years and it feels like it's yesterday, but you and I first connected about 10 years ago in our first International Freelancers Day online conference before online summits were a thing. And man, after all these years, we get to talk again. So it's awesome. Yeah. I'd like to start with the freshbook story just because I love how you got started. I love the story behind it. I love just kind of the grit and resourcefulness of you and your team. So maybe walk us back to how this company got founded.

Oh, that's great. You know, I can do the story, a 90 minute version, you know, sort of five minute version, a, you know, 10 second version. I think for the purposes of, you know, this call, I'm going to go, you know, probably closer to the 5 minute version. I'll keep it a little shorter than that, but I think it'll set the table and hopefully give people some perspective on where I'm coming from and also open the door to a whole bunch of things we can talk about. So let's go there. So before FreshBooks, there was Mike. Mike is me. And what I was doing was I started building websites for myself. I had been running an annual event and I taught myself how to build websites. And I use that website to market my event and get people to come out and provide information for them. Funnily enough, my caterer needed a website for that event. So I started building websites for other people. And I quickly realized, what's the point of having a website unless people show up? Hopefully give people some perspective on where I'm coming from and also open the door to a whole bunch of things we can talk about. So let's go there. So before FreshBooks, there was Mike. Mike is me. And what I was doing was I started building websites for myself. I had been running an annual event and I taught myself how to build websites. And I use that website to market my event and get people to come out and provide information for them. You know, funnily enough, my caterer needed a website for that event. So I started building websites for other people. And you know, I quickly realized, what's the point in having a website unless people show up? And so I got into Internet marketing. And then, you know, I started to realize, like, you can use Internet marketing to attract a whole bunch of traffic, but if you don't attract the right traffic, then, you know, what's the point? So I started working on it. Well, how do I get targeted traffic? And then the third stage in my thought process was, geez, I've got the right traffic now. But what really matters is not that I get the volume of traffic or that I get the right traffic. It's that I persuade people to purchase and take an action and do the thing that we set out to do. I got into this called conversion consulting and it was a mix of a bunch of disciplines and I was kind of a student of the folks at Future Now Inc. They were my inspiration in a bunch of ways, the Eisenbergs, if people know them. But the point is a bunch of good sort of science and art and you know, I found like sort of great results for clients with all this stuff. And you know, what I'll go ahead and say is because I know you've got lots of copywriters and things like that, like the hero of this stuff is copy, right? And sort of persuasive copywriting. There's a lot of design elements, there's a lot of other considerations. There's math. The hero is really, you know, copy and content. So that was this. I built up this consultancy doing these kinds of things and I was building my clients with Word and Excel and I'd built up, you know, a team of people I worked with a lot of them sort of, you know, contract and part time, but mostly, you know, increasingly like just dedicated to me. So we about four people going away working on things for clients and then I accidentally saved over an invoice. I was using Word and Excel to build my clients. And you know, a lot of people do, if you're using Google Docs or using Word and Excel, you're just doing it wrong. There's no excuse for it, full stop. Go ahead and you know, you just switch to FreshBooks and we'll talk about that in a second. But I was using Word, Excel saved over to invoice. So there's got to be a better way. And so along with building this conversion consulting practice up and helping people build websites, you know, I'd started getting into programming. And so I built a simple thing to build my clients. And then, you know, I really built it for myself and then realized other people would like it. So that was kind of like the spark, if you will. So the background and then the spark. And then you know what became interesting to me as I'd progressed my practice in those three iterations and this whole building a product thing became very exciting. So I started focusing most of my energy, like 80% of my time on that and moved into my parents basement for three and a half years. After two years we had 10 people paying us about 995 each. So we're making $100 a month. My co founder being a doctorate in computer science and electrical engineer. The three of us so pretty, I don't know, confident group. We're making a hundred bucks a month after two years of our lives. Not very good, but hunkered down to my parents basement and that was kind of the sort of end of the beginning. And since then we're about 400 people. Today we have paying customers in over 100 countries. Over 20 million people use the software. We're number two in America for small business accounting software. And the thing that makes us different is that we don't serve restaurants, we don't serve retail, we just serve service based businesses who get paid for their time and expertise. So I'm still kind of solving the problems that I had back when I was that copywriting, consulting and design agency back in the day. There's just a ton of work for us to do. We love what we're doing and again, if using Word and Excel to do things, you're doing it wrong. Please, please go check out FreshBooks and get started for free if you like. Anyways, that's the. I didn't mean to turn that into an ad, but I think there's a place for it in that arc of the story.

Absolutely. We're going to come back to that because we're going to be talking about pricing. I love this kinds of stories because I think that's the way most of life unfolds. You go after something in the pursuit of that thing, you find this other path and that new path becomes your thing. You would've never discovered that path had you not gone after the first thing. So there's a book called Obliquity which is all about that. And I think that's. Well, it's obvious that that's what happened to you and to fresh books. So let's pivot a little bit in talk about pricing. This is a very hot topic. It's a topic that's filled with emotion among freelancers. And I'm curious, you feel very passionate about this. Why do you feel creative professionals should charge for the value of the services they deliver as opposed to time and other factors?

Yeah, good. Well, let's go there. So one of the things over the years at FreshBook since we got going was we do these things called customer dinners. And I go harder to do in the COVID world, but we go and sit down with customers and literally we take you out to dinner. No agenda. Wanted them mostly to meet each other. But the questions I would get at Those dinners, a lot of them, yeah. The product. But then you start to listen and it's like this topic of pricing comes up again and again. And so again, just for background and context, one of the things I did as we grew FreshBooks up, and it's probably around 2010 or 2013 or 14, something like that, I wrote a book called Breaking the Time Barrier, which is really a book about how to price your services and shift from hourly and things like that to value based. I'll just put a little plug in for it and then I'll go ahead and answer the question. But I think again, speaks to context. So the book is. It'll take you about 45 minutes to read. It's free. Get it online, Just go search Breaking the time barrier, FreshBooks. It's written like a fable. So full disclosure there. But I think the purpose of the book is, is actually to help people transition from whatever pricing scheme they have today to value based. Okay. So it's to help you take you through the mental hurdles that are probably holding you back and help you see the dynamics of the how and the why of getting the value based. And so I encourage you to go ahead and read it if it's not worth your 45 minutes. As I like to say, shame on me. We've had people, we made it free and said, you know, donate what you think it's worth. And people donated tens of thousands of dollars, which was great because they found value in it in some cases. Some people like lawyers, hundreds of dollars. Thanks for those books. So go check it out. With that as a backdrop, this is a topic I care a lot about. And so the question being why or should they charge for value? I think the way I like to come at that is let's talk about what's wrong with charging by the hour. And there are a bunch of things let's start with first of all, charged by the hour. There's a presumption that every hour is created equal. And the fact is creative work, and I think that's knowledge work, is fundamentally creative work in my opinion. Productivity is nonlinear. It's not consistent. Some get more done in an hour than I get in three weeks. Other times I spend a whole day and I feel like I kind of get nothing of use done. And so this notion that every hour is sort of created equal and you should bill that way is flawed because not all hours are the same. That's one reason. There are a whole bunch of reasons that kind of get debunked in the book. But My favorite one for why to not use time is actually comes down to customers. And I just believe in alignment, shared values. To me, in business and in life, to be successful, you need shared values and alignment. And when you charge by the hour, you are fundamentally pitting yourself against your client. And let me talk about what I mean by that. Your client has an incentive to have you work less hours so things are cheaper. You have incentive to work more hours so you make more money. That is a very broken thing. So amongst other things, what value based pricing does is it kind of shifts the narrative from. Also, here's another reason why to get away from hours, there's just unpredictability. And you can show up at the end with a big bill and your clients are surprised by it. So in a world where you shift a value base, you go ahead and you try and uncover what the goals of the client are. You help align on what the impact is. If we do the project right and then we price the project as a percentage of that kind of upside, that's kind of a simplistic way to think about it. And what you get out of that is alignment with your client. And I think that's a big thing. So those are a bunch of reasons why I don't like charging by the hour. And then that's a quick primer on value based pricing and the sort of mind shift and orientation shift for with your client.

Let's talk a little bit about that. I couldn't agree more. This is definitely a mindset shift. It's taken me a long time to get there and I feel like I'll never quite arrive. But one of the concerns that a lot of writers have is, okay, I get that conceptually, I understand it intellectually.

Perfect.

How do you determine value when what I do doesn't create an immediate result in terms of sales or profit? How do I measure value? How do I talk about the value?

Well, I say that starts in a different place. You have a different problem that you probably want to start working on sooner, which is, yeah, how do I go ahead and understand my value relative to the needs of maybe my clients or what have you? And those kinds of things. I think at the heart of this approach to value based pricing is a mindset shift towards thinking more like a consultant, if you will. And what I mean by that is, you know, if you work with a consultant, what they do do a bunch of work up front to understand needs and draw that out. So, you know, when I started out as like a web designer, I was like brochure where, hey, I can build you a website. It's going to cost you X. Okay. When I finished doing that work, I would spend a lot of time that note I was not getting paid for, okay. Because I hadn't got the client yet. Sitting down and understanding the goals of the client. You know, I literally start with like the history, tell me how the company was founded. I need to understand you. And people may say, oh, that's a long arc. I don't want to spend time with my copywriter on that. I would say start there, right? And then get into like, what are the problems of today? Why are you trying to get me doing this? And you know, what are the objectives you have with these pieces, like, as a business. And so, like, when you start with that orient and you start to, you know, sort of step into the problems your client is trying to solve as opposed to starting out with, I am a solution, right? Like, the first job is I understand your problem and how I can help and sometimes I can't. And so let's not do business together. You know, it's relatively rare if they've reached out, but, you know, it should be something that you are mindful of. Like, if you don't think you can deliver the value to the client, then, you know, no matter how much money you want. To me, it's like Hippocratic oath, like, you know, do no harm. It's like, you probably shouldn't take the gig, right? So you have to understand, hey, what are you trying to achieve? And then, okay, and get into some understanding of, hey, my work generally does this for clients. And I think to some extent you got to try and make it mathematical because I think that's like, you got to bring some objectivity to this. And so what happens is, and this is where value based pricing often starts to trend into kind of niche stuff where you go ahead and you develop some expertise in a niche and a deep domain knowledge as opposed to being a generalist where I'll write for a hundred industries. I start to understand, like, oh, these kinds of clients with these kinds of problems. I have, you know, prior knowledge I can build on to get better at, better at solving these problems with more and more impact. So those are again, like, and then I can do a better job consulting, a better job understanding your problems, a better job, you know, playing back to you the issues that are in your industry. Because I'm not new here, I've done it a few times before. And that starts to give more and more credibility to Whatever price tag you're going to hang on things, the part. And I think this really does depend what kind of writing you're doing and what have you. But to me, this conversion consulting thing on websites, if you're doing web stuff and you go learn about persuasion and conversion architecture, maybe you're building a white paper a firm is going to go ahead and use to attract new leads or something like that, you can go and like there's a whole discipline around that and show how your content's better than whatever their team wrote before. Like, I'm going to upgrade your content. And you know, this is the performance you should expect from that because, you know, I've done it before for these other clients and I think that's where things can get very powerful online offline may be a little harder because the measurement is just less obvious there. But anyhow, that might be a bit of a ramble ed, reign me in.

But no, no, no, that's good. So I'll throw a couple things that you see. If you agree or disagree, feel free.

Be honest.

I have found that in many cases, so a lot of my listeners are writing content and you mentioned one of them. So white papers, case studies, long form content like longer articles and so forth that help sell at some point a complex product or service. It's also happens to be expensive, like you know, medical equipment, for instance, or enterprise software system. And I found that having a discussion about what this could eventually impact. So in other words, two, three steps down the line puts it in perspective. So we all know that it's going to be hard to quantify some of those things. But when the product, service or solution in question is $750,000 on average, then we know that getting this piece right is important. So I've found that to be effective sometimes even when we can't quantify it exactly. Right. Does that make sense?

Sure. Yeah. I think the thing that is most impactful there for me, and that I would double down on is, is trying to understand those two, three or four steps down the line. Like don't do the job, understand the job right. And then execute.

Yeah.

And so take the time to go ahead and get your head around where does this fit in all the stuff that you're doing right. Like how do I understand my place? And that'll also start to open up other opportunities for you. But if you just go in and say, hey, I need a piece on this medical device or what have you, I think you're, you know, your understanding of the context in which your deliverable lives is too narrow.

Yeah, I agree, I agree. The other thing, I'll speak to something you mentioned a little earlier, which is domain expertise. So when you niche down, when you know that industry or topic really, really well and you can demonstrate that talking about yourself as the lower risk option because when they work with you on this, the risk of this going well or going wrong, sure, the probability is much higher, but going well. Right. So I found that that combination tends to work well when it's very difficult to measure. But I like your point about really digging deeper and understanding that and explaining and showing the client that you do get it right because they need to be sold. Do you find that there are some clients and prospects that just aren't going to get it right? So you could be very well prepared, you could position yourself this way. But some people just aren't. They're looking for the lowest cost resource.

Yeah. Whether it's lowest cost or they just, you know, they think they're dealing with like you know, sort of consulting mumbo jumbo. I had one, you know, client who I did a bunch of work with or a prospective client, he was like here, my big concern right now is, you know, do all this work and tell me, you know, what time my watch says right. This guy, very successful entrepreneur and he was just kind of dubious. Like to me, he like, you know, I think we could have 3 or 4x his multimillion dollar online sales. So. But he was suspicious and that's whatever. He's got street instincts as an entrepreneur and it was going to be hard to convince him. That's fine, I think. Sure. I think like any client or what have you, you may run into an element of closed mindedness. That's not how it's done here or what have you. And to my mind I think there's a couple thoughts there. One is be you. I wouldn't necessarily see.