How to Price B2B Services (Without the Hourly Trap)

Price B2B services by calculating your all-in engagement cost, setting a minimum floor, and tying fees to client outcomes rather than hours logged.

If you're still figuring out how to price B2B services, the honest answer is that most agencies already have the data they need and they're just not looking at it. I've spent years advising agencies and B2B services firms on pricing, and the pattern is almost always the same: smart people, doing good work, systematically undercharging because the billing model they inherited makes it structurally impossible to do otherwise. This post is about breaking that structure.

The book Hourly Billing Is Nuts came out roughly 15 years ago. I read it and immediately understood why. And yet I was talking to an agency owner just yesterday who had a new client ask for their rate card before the first real conversation was done. The tail still wags the dog. Hourly billing is still the default, and defaulting to it is costing services firms real money every single month.

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Why Does Hourly Billing Fail B2B Services Firms?

Hourly billing fails B2B services firms because it caps revenue at your available hours, incentivizes slow delivery, and makes it nearly impossible to price the actual value of your expertise.

The math is brutal when you run it. If you're a solo practitioner or a small firm, you don't have unlimited billable hours. Admin, business development, and client management eat the week fast. I've heard this from pricing consultant Garrick Van Buren, who started his firm 20 years ago billing hourly and hit a wall almost immediately. By the time he reached 20 billable hours in a week, he was exhausted, and there was still a half-week of running the business left. There's no hourly rate you can set that covers the invisible half of the job.

But the deeper problem is the incentive structure, and both sides know it's broken. One person's hour isn't another person's hour. My Monday morning hour is not my Friday afternoon hour. Clients know this. Vendors know this. Everyone's agreed to a polite fiction because it feels controllable. Clients think hourly billing keeps vendors honest. Vendors think it protects them from scope creep. In practice, it protects neither party and obscures the one thing that should be driving the whole conversation: the result.

Law firms have billed hourly for decades. We've all read the stories about inflated hours and billing disputes. That's not a coincidence; it's a structural outcome of the model.

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What Should You Look at First When Changing Your Pricing Model?

Start by totaling every engagement from the past 12-18 months. Compare final invoiced amounts against the actual scope delivered. That backward-looking data tells you what your real price already is.

This is the first move I recommend when I'm working with an agency that wants to move off hourly billing. Don't start with theory. Start with your own history.

Add up what you charged, all in, at the end of each engagement. Then compare those numbers across similar scopes of work. If they cluster around a consistent range, you've just discovered your market price for that type of engagement. You can now quote that number upfront, skip the theater of hour-tracking and line-item invoices, and start the client relationship with clarity instead of ambiguity.

The second piece is setting a minimum engagement floor. Every services firm needs one, and too many never formalize it. When Garrick and I talked about this, he put it plainly: there's a number below which an engagement simply isn't profitable or worth your capacity. Sometimes that number is unspoken internally. The problem with unspoken is that your team can't filter against it, your salespeople can't use it, and you end up in engagements that drain resources and generate resentment.

Set the floor. Say it out loud. Put it in your intake process. It's one of the simplest things an agency can do to immediately improve margin without raising rates on a single client.

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How Do You Move Clients Away from Hourly Billing When They're Demanding a Rate Card?

When a client asks for your hourly rate, respond with a question: how do you currently work with other vendors? This reframes the conversation and often surfaces flexibility the client didn't know they had.

Procurement departments at large companies are built around hourly billing workflows. Their jobs literally depend on those processes. You're not going to change procurement. But you don't always need to.

A good internal champion can find a procurement category that fits a fixed-fee or retainer structure. Garrick's point here is worth taking seriously: all kinds of businesses get accommodated by procurement systems, not just hourly vendors. If you've got someone inside the company who believes in your work, they can often find the slot that works. Your job is to give them the language and the structure to do it.

When you can't get around it, you can still work within it. But before you capitulate to a rate card conversation, ask the question: how are you working with other vendors right now? Are all of them billing by the hour? Even the cleaning service? That one question can open up a completely different discussion about what's actually possible.

| Billing Model | Best For | Risk | Margin Potential | {{MD_TBL}}, -{{MD_TBL}}, -| | Hourly / Time & Materials | Undefined or highly variable scope | Hours creep; margin unpredictable | Low to moderate | | Fixed-Fee Project | Well-scoped, repeatable engagements | Scope creep eats margin if not managed | Moderate to high | | Monthly Retainer | Ongoing advisory or support relationships | Underuse or over-delivery without scope discipline | High with good scoping | | Annual Retainer | Long-term strategic relationships | Client churn risk at renewal | Highest; simplest invoicing | | Value-Based Fee | High-impact, outcome-tied engagements | Requires confident positioning and pricing | Highest potential |

The firms I've seen that are genuinely profitable have usually graduated to some mix of fixed-fee projects, retainers, and value-based fees. They rarely have more than a small percentage of revenue coming from pure hourly billing, and when they do, it's usually maintenance work where hourly actually makes structural sense.

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Why Is Pricing Really a Confidence Problem for Agency Owners?

Many agency owners underprice not because they lack skill but because they lack confidence in articulating their value. The fix is not a new pricing model; it's a clearer understanding of what clients actually value about working with you.

I've been in this industry long enough to see a pattern that's uncomfortable to say out loud: a lot of agencies don't charge what they're worth because someone in a business suit sits across from them and questions the number, and they fold. Not because the price was wrong. Because the conviction wasn't there.

I've been on the other side of that conversation. When I was at my last agency, we had a client tell us we were more expensive than the competition. My answer was yes, we are. And the reason I could say that without blinking was a specific data point: in seven years of business, we hadn't lost a single client. That's not a boast; it's a pricing anchor. It gave us something concrete to point to. If you don't have that kind of anchor, you need to find it.

This is where Garrick's concept of "customer rediscovery" is genuinely useful. He goes back to a firm's past clients and interviews them, specifically to surface the value that was delivered but never priced. Responsiveness no other vendor matched. Communication clarity. A problem solved in the first week that the client assumed would take a month. These things exist in almost every client relationship. They just haven't been named, quantified, or priced. Once you name them, you can decide whether to bundle them in, unbundle them as premium offerings, or simply use them to anchor your confidence in the next proposal conversation.

I've used third-party client interviews for exactly this reason at agencies I've worked with. Clients won't always tell you the full truth with your team in the room; they saw pictures of your account manager's dog on Slack and they don't want to hurt anyone's feelings. Bring in someone disinterested and you get the real story, faster.

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How Does Your Pricing Strategy Connect to Your Broader Business Model?

Your pricing model determines the type of clients you attract, the internal culture you build, and the operational systems you need. It's not a line item in your business plan; it's the foundation of it.

This is the part most agency owners miss when they talk about pricing. They treat it as a tactical decision, a number on a proposal. But wherever you position yourself on the pricing spectrum, from commodity hourly work to premium value-based engagements, everything else in your business follows.

Agencies that bill hourly often resist hiring dedicated project managers, because if you're billing for time, why add overhead that doesn't bill? But without project managers, expectations don't get set clearly at the start of engagements. Scope drifts. Clients get surprised. And the hourly model becomes a convenient way to avoid accountability rather than a real business structure. I've seen this directly; I was coaching an agency and asked why they billed hourly exclusively, and when I dug in, the real answer was that there were no project managers and no defined gates at the start of projects. Hourly billing was a cultural patch over a management gap.

The firms that successfully move to tend to get something they didn't expect: calm. Clarity. Simplification. The billing model forces you to do the hard work upfront, define the result, scope the engagement, set expectations, and that discipline pays dividends well beyond the invoice.

And on the revenue side, creates predictability that hourly billing simply cannot. Garrick ended up sending annual invoices to some of his retainer clients. They thanked him for it. Less administrative burden for them, consistent cash flow for him. That's what a well-designed pricing model actually looks like in practice.

One more thing worth saying directly: if you're competing on price, stop. I hear from founders constantly who think they can undercut existing players in a market and win on cost. What they find, almost without exception, is that the moment they go to market, the reason the current price exists becomes obvious. There are barriers, regulatory complexity, service expectations, support costs, that weren't visible from the outside. This is especially true in regulated industries or anywhere network effects protect incumbents. matters more than your hourly rate.

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Key Takeaways

• Total your past engagements and compare all-in charges against scope. That backward-looking data reveals your real market price for repeatable work types.
• Set a formal minimum engagement floor and build it into your intake process. Engagements below that number aren't profitable regardless of what you charge per hour.
• When a prospect asks for your rate card, ask them how they currently work with other vendors before you answer. This one move can reframe the entire conversation.
• Price confidence is a prerequisite for pricing power. Use third-party client interviews to surface the unpriced value you're already delivering; then anchor your pricing conversations to it.
• Your pricing model shapes your hiring decisions, your operational systems, and your client culture. It's not a line item in your strategy. It's the strategy.
• The shift to fixed fees, retainers, or value-based pricing isn't just a revenue model change. It forces the operational discipline (scoping, expectation-setting, project management) that makes a services firm actually run well.

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For a deeper look at how pricing strategy connects to, I covered this topic with Garrick Van Buren on The Schmidt List. Garrick runs a pricing practice for B2B founders and writes a Substack called For Starters focused on the decisions early-stage founders delay too long. His framing that "your pricing strategy is your business strategy" is the most concise way I've heard it put.

The question I'd leave you with is this: if you totaled your last 20 engagements right now, all in, final invoice, and laid them side by side, would you recognize a price in that data? Or would it look like noise? Because if it's noise, you don't have a pricing strategy yet. You have a billing habit.