🔐 Pricing problems: The locksmith paradox

Have you ever been mad at somebody for being good at their job?

It sounds ridiculous, but you probably have. I have. It happens all the time.

Enter: The Locksmith Paradox.

As the locksmith improves at his craft, the customers become increasingly upset by the lower time input required to deliver the service.

The results are the same, but the perception of value changed.

An example of the logic of the Locksmith Paradox is:

• It takes you 60 min to do X and customers pay $100 for X

  
  

• You improve at X, so it now only takes you 30 min to do X. Customers now only want to pay you $50 for X

  
  

Same output, but perception of value is 50%. You are penalised for proficiency!

This paradox is particularly evident in service businesses, but causes huge problems for both small and big businesses of all types.

Conventional corporate culture often fixates on input metrics like hours worked, emphasising quantity over quality. I know I have seen countless employees working long hours doing things that make them look busy, rather than any high quality tasks that move things forward.

The root of the problem is simple, a misplaced focus on the input rather than the output.

Time is an input, and a poor indicator of productivity. You’re productive if you achieved your desired outcome, not if you worked 100 hours on that outcome.

We need to divorce the inputs from the outputs, to remove time from our valuations for both us and the customer, to ensure we don’t get trapped in the locksmith paradox.

ACTION: Switch focus to outputs.

As a solo entrepreneur or freelancer, it's beneficial to decouple earnings from hours. Instead of billing clients by the hour, focus on charging based on tangible results and deliverables.

This prevents you from being penalised for finding new sources of leverage that allow you to deliver more more quickly.

As an employer, encourage employees to improve outputs and outcomes. If they finish all their assigned work early, reward them - let them go home sooner, pay them more, whatever. Then focus on further improving outputs. Their time input is borderline irrelevant. Don’t punish people for being efficient.

For everybody: when evaluating whether something is worth paying for, remember to focus on the value you will receive rather than how long it will take the person to give you that value. $100,000 for an hour of somebody’s time can be an amazing deal.

💡 Quote I'm pondering

“It took me a few seconds to draw it, but it took me 34 years to learn how to draw it in a few seconds.” - Paula Scher

Click here to share this quote on Twitter

As I recently explained on LinkedIn, the amount of time it takes you to do something has no bearing on the value you provide.

Time is one of your costs. It factors into your floor price, not your ceiling or target price.

Most entrepreneurs price their products and services based on their costs.

When really, you should price based on the value the customer receives.

I shared this in my Work Smart Wednesday newsletter. Want the full set of related insights? You can read them here: https://worksmartwednesday.substack.com/p/work-smart-wednesday-february-7-2024

👋 Want to work together?

When you’re ready, here are 3 ways I can help you:

🔍 Clarity Call - we will discuss your situation and create a step-by-step action plan together so you know exactly what you need to do next for maximum impact

👓 StartSmart - Achieve a 6 figure income within 6 months, whether you only have an idea or you have already started your business

🧘 Overload to Optimal - reduce your workweek to 20 hours or less within 90 days while running your 6-8 figure business