Yesterday we launched our variable rate pricing. The purpose of the program is to create a public indicator of how busy we are in such a way that allows clients with potential projects can take that into account. If we’re not busy, our rate will reflect that and hopefully encourage people to start new work with us, or get into a deeper engagement without increasing their costs. On the other hand, if we’re very busy, we can signal that by an increase in our rate.

We wanted to have a way of varying this rate that was as objective as possible, so we’re basing changes in our rate on how “utilized” we are. Based on our histories working for various agencies, we set our sights somewhat arbitrarily on an ideal utilization of 80%, and decided that anything plus or minus ten percentage points was probably what we could consider “optimal”.

So, if we’re working within this target, our rate stays the same. If we fall below, our rate falls, and if we shoot over the top, our rate rises ($1 a day in either case). We’re also upping our rate $1 for every serious inquiry we get for new work. Simple as that.

So what has this meant for us so far?

First, deciding what is, and is not, “utilized”. Now that we have established a range of utilization that we want to be within, we need to decide what actually counts as being utilized. So far, this has been fairly straightforward: work on billable projects is clearly utilized; work on getting a billable project defined, signed, and running also seems utilized; business development work for our business development guy (@verymickey, contact him if you’re interested in doing business with us is utilized; internal administration is not utilized; and writing for the blog, looking at our analytics, and most biz dev work for everyone but Mickey seems like non-utilized. There are some grey areas, like do we count it as utilized if Justin goes to a meeting with Mickey to talk to a potential client. We’re going with our gut on these (it does count), and so far they seem easy enough to resolve.

Second, a strong incentive to fill out timesheets. We’re pulling our utilization numbers daily based on our timesheets (we use Harvest, in case you’re interested). Since the rate that we charge is directly affected by this, it becomes a pretty good motivator (especially for those of us who struggle to get our time in). Also, since someone is looking at this data every day and taking action based on it, it adds meaning to the task as well. The upshot of all of this is even more detailed reporting on projects in the future.

Third, an evaluation of whether or not 80% utilized is actually optimal. A question that’s starting to surface is whether, given our definitions of what is and is not considered “utilized”, is 80% the right number. We may find out that we do a lot of non-utilized work and that if we also did 80% utilized work, we’d struggle to keep up. We may also find that 70% is not enough or 90% is too much. This may mean that we have to look at changing the target range to more accurately reflect reality. It’s too soon to tell yet, but we’re certainly paying a lot more attention to this.

Fourth, some questions, and some directional answers. We received a few questions about the program pretty much right away (in fact, we got more than a few questions even before we launched). This is great, of course. It’s an experiment for us, and we welcome questions, opinions, and advice. We launched this experiment to see what we could learn from it, so we’re doing a lot of “yeah, that’s a good question” right now. Sorry for that. Hopefully as we get farther into this, we’ll have more definitive answers to share.