How to Set Your Price When You Stop Billing Hourly

A founder told me last year that she'd decided to move away from hourly billing. She'd read the arguments. She understood the Efficiency Penalty. She agreed that positioning should enable premium pricing. She was ready to make the shift.

Then a prospect asked for a quote on a patient portal rebuild, and she froze. She'd always calculated pricing by estimating hours, multiplying by her rate, and adding a margin buffer. Without that formula, she had no idea what to charge. She spent two days trying to figure out what the project was "worth" to the client, couldn't find a number that felt defensible, and fell back to an hourly estimate because at least she knew how to calculate it.

She'd solved the philosophical problem (hourly billing is broken) without solving the mechanical problem (how do you actually calculate a value-based price?). She knew why to change. She didn't know how.

This is the gap I see most often. The argument for value-based pricing is well-established. The implementation is where agencies stall, because nobody walks them through the actual conversation, the actual math, and the actual proposal structure that makes it work.

The Pattern Has a Name

I call it The Pricing Discovery Gap: the inability to price on value because the agency has never asked the questions that surface the client's economic reality. The gap isn't intellectual. Founders understand that value-based pricing means anchoring to the client's outcome rather than the agency's cost. The gap is conversational. They've never had the specific discussion with a prospect that reveals what the work is actually worth to the buyer's business.

Here's the mechanism. Under hourly billing, the pricing conversation is internal. The agency estimates hours, applies a rate, and presents a number. The client's business context is irrelevant to the calculation. Whether the project saves the client $50K or $5M per year, the price is the same: hours times rate.

Under value-based pricing, the pricing conversation is external. The agency needs to understand the client's economic context: what problem is being solved, what that problem is costing, what the outcome is worth, and what the client's alternatives are. This information determines the price. But most agencies have never asked these questions, because hourly billing never required them to.

The result: the founder who decides to "switch to value-based pricing" tries to calculate the price the same way they always have (internally, based on their cost), just without the hourly framework. They guess at what the project might be worth to the client. The guess feels arbitrary. They lose confidence. They revert to hourly because at least it has a formula.

The fix isn't a better formula. It's a better conversation. Value-based pricing is built in the discovery process, not in the spreadsheet.

The Three Questions That Surface the Number

Value-based pricing requires one piece of information that hourly pricing doesn't: the economic value of the outcome to the client. This number isn't secret. Clients know what their problems cost. They just haven't been asked, because most agencies don't structure their discovery process to surface financial context.

Three questions, asked during the diagnostic conversation, produce the information you need to price on value.

Question 1: "What is this problem costing you right now?"

This question surfaces the cost of inaction: the ongoing financial impact of the problem the client wants solved. It's the most important number in value-based pricing because it establishes the economic floor. If the problem costs the client $500K per year, the value of solving it is at least $500K per year.

The question needs to be specific. "What is this costing you?" is too vague. Clients can't answer in the abstract. Frame it in terms they can calculate:

"How many hours per week does your team spend on the manual workaround for this?" "What's your current churn rate on the feature that's underperforming, and what's each churned customer worth?" "How much revenue are you losing per month because of the conversion bottleneck?" "What did you spend on the last failed attempt to fix this?"

Each of these questions produces a number. The number might be approximate. That's fine. You're not auditing their books. You're establishing the order of magnitude of the problem's economic impact, which determines the order of magnitude of a reasonable price.

Most founders are surprised by what they hear. The client who asked for a "patient portal rebuild" reveals that the current system is causing $30K per month in support costs and $80K per quarter in patient churn. The problem isn't a $75K rebuild. It's a $200K annual drain that the rebuild eliminates. The economic context changes everything about what a reasonable price looks like.

Question 2: "What would solving this be worth to your business over the next 12 months?"

This question surfaces the value of the outcome: the positive economic impact of the solution. It's distinct from the cost of inaction because it includes the upside, not just the eliminated cost.

The patient portal that eliminates $200K in annual costs might also enable a self-service model that increases patient retention by 15%, which the client values at $400K per year. The total economic value of the project is $600K over twelve months: $200K in eliminated costs plus $400K in new value.

This question works because it shifts the client's mental frame from "how much does building this cost?" to "how much is having this worth?" The first frame puts the agency's price under scrutiny. The second frame puts the client's outcome under scrutiny. When the client is thinking about $600K in annual value, a $120K investment looks like a 5:1 return, not an expensive line item.

Not every project has a clean economic answer. Some outcomes are strategic rather than financial (competitive positioning, technical modernization, risk reduction). In those cases, ask: "If you don't solve this in the next 12 months, what happens?" The consequences of inaction often surface economic value even when the outcome itself is hard to quantify. A security vulnerability that could produce a compliance violation has a quantifiable risk cost. A legacy system that prevents a product launch has the value of the delayed launch. The economics are always there. You just need the right question to surface them.

Question 3: "What are your alternatives, and what would they cost?"

This question surfaces the competitive context: what the client would pay if they didn't hire you. It establishes the upper boundary of your pricing.

The alternatives aren't just other agencies. They include: building an internal team (cost of hiring, onboarding, and managing a development team for this project), buying off-the-shelf software (license costs plus customization plus integration), doing nothing (the ongoing cost of inaction from Question 1), or a phased internal approach (slower, lower upfront cost, but delayed value realization).

Understanding the alternatives does two things. First, it tells you what the client has already considered, which reveals their budget expectations and their evaluation criteria. Second, it gives you a pricing anchor that isn't your cost. If the client's best alternative is an internal team at $350K over eight months, your $120K engagement for the same outcome in three months is positioned as both cheaper and faster. The price is justified not by your hours but by the comparison to the client's real alternatives.

The Math: From Discovery to Price

Once you have the three numbers (cost of inaction, value of outcome, cost of alternatives), the pricing calculation is straightforward.

The Value Anchor. The annual economic value of solving the problem (Questions 1 and 2 combined). In the patient portal example: $600K per year.

The Investment Range. Your price should fall between 10% and 25% of the first-year value. This is the range where the client perceives clear ROI without feeling like you're capturing too much of their upside. At 10% of $600K: $60K. At 25%: $150K. Your price lives somewhere in that range.

The Alternative Ceiling. Your price should be at or below the client's best alternative (Question 3). If the internal team alternative is $350K, your $120K price has clear positioning. If the best alternative is a $40K offshore engagement, your price needs to be justified by differentiated value (speed, quality, diagnostic expertise, domain knowledge) rather than pure economics.

The Confidence Floor. Your price should be above your fully loaded cost of delivery with a healthy margin. If the project will cost you $45K in team time and overhead, your minimum price is roughly $90K at a 50% margin. Below that, the engagement isn't worth taking regardless of what the client values it at.

The final price sits at the intersection of these four numbers: above your cost floor, below the alternative ceiling, within the 10% to 25% value range, and supported by the economic context the discovery conversation produced.

For the patient portal: the value anchor is $600K. The 10-25% range is $60K to $150K. The alternative ceiling (internal team) is $350K. The cost floor is $90K. The price: $120K, which represents a 5:1 ROI for the client, is less than a third of the internal alternative, and delivers a 62% margin for the agency. Every stakeholder in the decision can justify that number because the economic context supports it.

Presenting the Price Without Hourly Breakdowns

The pricing conversation fails most often at the presentation stage, because the agency defaults to showing how the number was calculated rather than showing what the number buys.

Under hourly billing, the proposal includes a line-item breakdown: 40 hours of backend development at $175, 20 hours of frontend at $150, 15 hours of project management at $125. The client reads this as a cost sheet and evaluates each line: "Do we really need 15 hours of PM? Can the frontend be done in 12?"

Under value-based pricing, the proposal describes the outcome, the approach, and the investment. No hourly breakdown. No line items. The client reads this as a business case and evaluates the ROI.

The structure that works:

Page 1: The Diagnosis. Restate the problem in the client's language, including the economic context surfaced in discovery. "Your current patient portal is generating $30K per month in support costs and contributing to a 12% quarterly churn rate, representing approximately $600K in annual economic impact." This demonstrates that you listened and that you understand the business context, not just the technical requirements.

Page 2: The Approach. Describe what you'll do, why you've chosen this approach, and what the client will receive. Focus on the methodology and the milestones, not the hours. "Phase 1: Diagnostic audit of the current system (2 weeks). Phase 2: Architecture and UX redesign (4 weeks). Phase 3: Build and migration (8 weeks). Phase 4: Launch and stabilization (2 weeks)." Timelines in weeks, not hours. The client sees a plan, not a timesheet.

Page 3: The Investment and Return. Present the price as an investment with a projected return. "Investment: $120K. Projected first-year return: $600K in eliminated support costs and retained patients. ROI: 5:1." Then present two or three pricing options (more on this below) to give the client a choice between scope levels rather than a binary accept/reject decision.

No hourly breakdown. If the client asks "how did you get to $120K?", the answer is: "We priced this based on the economic value of the outcome and the complexity of the approach, not on estimated hours. The $600K annual impact supports an investment at this level, and our experience with similar projects gives us confidence in the timeline and deliverables." You're anchoring to value, not cost. If the client insists on an hourly breakdown, that's a signal that they're evaluating you as a commodity. You may need to either strengthen the value case or acknowledge that this client may not be a fit for value-based engagement.

The Three-Option Structure

Never present a single price. Present three options that give the client a choice of scope, not a binary decision.

Option A (Core Solution). The minimum viable approach that solves the primary problem. Priced at the lower end of your value range. In the patient portal example: the portal rebuild with core functionality, estimated at $85K.

Option B (Recommended). The approach you actually recommend, which addresses the primary problem plus the secondary opportunities surfaced in discovery. Priced at the middle of your value range. The portal rebuild plus the self-service features that drive the $400K in retention value, estimated at $120K. Label this "Recommended" explicitly.

Option C (Comprehensive). The full solution including elements the client mentioned as future priorities. Priced at the upper end of your value range. The portal rebuild, self-service features, plus the analytics dashboard the client mentioned wanting eventually, estimated at $165K.

The three-option structure does three things. It moves the client's decision from "yes or no" to "which one," which dramatically increases close rates. It anchors the mid-tier option as reasonable by placing it between a stripped-down alternative and a premium one. And it surfaces additional revenue: roughly 30% to 40% of clients choose Option C when it's presented alongside the other two, revenue that would never have materialized from a single-option proposal.

Handling "What's Your Hourly Rate?"

This question will come, especially from procurement teams and clients accustomed to vendor evaluation. Three approaches, depending on when it's asked.

Early in the conversation (before discovery): "We price on outcomes rather than hours, which means the cost depends on the scope and complexity of what you're trying to accomplish. Can you tell me more about the business challenge you're trying to solve?" Redirect to the diagnostic conversation. You can't give a meaningful price without the discovery context, and the discovery conversation is what enables value-based pricing.

During proposal review: "We don't break our pricing into hourly components because our fee is based on the value of the outcome and the complexity of the approach, not the time invested. That said, our effective rates for projects like this typically fall in the $175 to $250 range, which reflects the senior team and specialized expertise involved." Give them a reference point that positions you as premium without anchoring the conversation to a rate card.

From procurement (as a hard requirement): Some enterprise procurement processes require hourly rates for vendor comparison. If this is a non-negotiable evaluation requirement, provide a rate card with the explicit framing that your engagement is priced on a fixed-fee basis and the rate card is for reference only. "Our standard rates are $200 for senior engineers and $175 for mid-level. For this engagement, we've provided a fixed-fee proposal based on scope and outcome rather than hours, which gives you cost certainty and aligns our incentives with your results."

The Transition Path

You don't need to convert your entire pricing model overnight. The transition works best when applied incrementally.

Start with one offering. Take your most repeated engagement type (the one you could scope in your sleep) and price it as a fixed-fee, value-anchored offering. A Technical Architecture Audit. A Conversion Diagnostic Sprint. An MVP Scoping Session. These are small enough that scope risk is minimal, and the value is clear enough to anchor the price.

Use discovery to set the price. For each prospect, run the three-question discovery process. Let the economic context determine the price within your range. Two clients with the same technical scope but different economic contexts may receive different prices, and that's correct. The client whose problem costs $2M annually should pay more than the client whose problem costs $200K, even if the technical work is identical, because the value delivered is different.

Track your effective rate. As you close value-based engagements, calculate your effective hourly rate (total fee divided by actual hours delivered). In most cases, the effective rate under value-based pricing is 1.5x to 3x higher than the agency's standard hourly rate. This number is the evidence that the transition is working. Share it with your team, because it reinforces that value-based pricing isn't just a philosophical preference. It's a measurable financial improvement.

Expand to larger engagements. Once you've built confidence with productized entry points, apply the same discovery-based pricing to larger engagements. The mechanics are identical: surface the cost of inaction, the value of the outcome, and the client's alternatives. The stakes are higher, which makes the discovery conversation even more important. A $200K engagement priced without the economic context feels like a large number. A $200K engagement presented as a 4:1 return on a $800K annual problem feels like a smart investment.

The Honest Objection

Here's the strongest argument against value-based pricing: scope risk. Under hourly billing, scope creep is the client's problem. Every additional hour generates additional revenue. Under fixed-fee pricing, scope creep is your problem. A project that runs 50% over the estimated hours eats your margin entirely. For agencies that already struggle with scope management, fixed-fee pricing feels like adding financial risk to an already fragile process.

That's a legitimate concern. Bad scope management under fixed-fee pricing is genuinely dangerous.

Where That Logic Hits a Wall

But the risk is manageable, and the alternative (staying on hourly billing) carries a risk that's not. The Efficiency Penalty is compressing hourly revenue regardless of scope management quality. AI-augmented development is making every project shorter, which means every hourly invoice is getting smaller. The scope risk of fixed-fee pricing is a problem you can solve through better scoping, change-order processes, and defined deliverables. The revenue compression of hourly billing in the AI era is a problem you cannot solve at all.

The agencies I've watched make this transition manage scope risk through three mechanisms: clearly defined deliverables in the proposal (not "we'll build your portal" but "we'll deliver these specific components at these milestones"), a documented change-order process that prices additional scope separately, and a 15% to 20% complexity buffer built into the initial price that absorbs normal scope variation without eroding margin.

These mechanisms aren't new. They're standard project management practices that hourly agencies often skip because hourly billing makes scope creep painless (it just generates more revenue). Fixed-fee pricing forces scope discipline, which is uncomfortable at first and produces better project management in the long run. The agencies that transition to value-based pricing consistently report that their scope management, project planning, and delivery predictability all improve as a side effect, because the economic incentives finally align with disciplined execution.

The Next Step

You don't need to overhaul your pricing model. You need to run the three-question discovery on your next qualified prospect and see what the economic context reveals.

Start here: in your next discovery conversation, after you've understood the technical requirements, ask: "What is this problem costing you right now?" Then: "What would solving it be worth over the next twelve months?" Then: "What alternatives have you considered, and what would those cost?"

Write down the numbers. Calculate the 10% to 25% value range. Compare it to what you would have quoted under hourly billing.

If the value-based price is higher (it almost always is), you've found the gap that hourly billing has been hiding. The next step is presenting the price anchored to the client's economics rather than your cost, using the proposal structure above.

One conversation. Three questions. A price that's justified by the client's business reality rather than calculated from your timesheet.

The principle is simple:

There are agencies that calculate their price from their own costs, and there are agencies that calculate their price from the client's economics.

The first group charges what feels defensible. The second group charges what the outcome is worth.

At Haus Advisors, we help dev shops and technical agencies make the transition from hourly billing to value-based pricing by building the discovery process, proposal structure, and productized offerings that make it work. Our Why Us Sprint includes the pricing architecture that anchors your fee to client outcomes rather than your cost of delivery. If you've decided to stop billing hourly but haven't figured out how to calculate what to charge instead, the Pricing Discovery Gap is what's missing. Book a strategy call here →