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The Growth Strategy Blog

3 min read

Should You Implement Value Based Pricing in Your Business?

Nov 20, 2014 8:30:00 AM

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If you are consultant or other professional providing services to your clients, such as an accountant, marketing consultant, coach, or engineer, odds are you are using a combination or hourly billing or fixed fees with your clients. I recently watched a Webinar from Jason Blumer, where he discusses the benefits of value based pricing and how you an implement it in your practice. 

What is value based pricing?

Value-based pricing involved determining the price for your product or service based on the client's perception of value, rather than on objective criteria like hours or costs. The customer's perceived value determines the upper range of the price you can charge, with your cost as the lower end. This allows you to price, not based on your time or costs, but based on how much value your customer places on your product or service.

What are the benefits of value based pricing?

Value based pricing is focused on the customer's value, and therefore requires us to focus on the customer's needs and wants. This benefits your customers, because it allows to provide immense value, and benefits you because it allows you to make the maximum profit. Instead of using a standard pricing sheet or hourly pricing, you will create the pricing with your customers by delving into their needs and wants. As a result, your customer will get exactly what they want and you will be in a position to deliver tremendous value.

Value pricing begins with the customer. For example if the services you provide will allow a customer to generate $500,000 in additional revenue, the value is the benefit the client sees from that increase in revenue. Your value based price will be a portion of that value.

As the provider of the product or service, value based pricing allows you to charge higher prices than you normally would using hourly or fixed fees, making your potential income not dependent on the number of hours you put into a project. 

What are the 3 things you have to sacrifice to implement value based pricing?

Switching to a value based pricing business model may require sacrifices. You will probably need to upgrade your business model to implement value based pricing.

  1. Team. The team you currently have in place may not be capable or willing to perform at the level you need them to. Value based pricing requires that you have the best team possible, so you may need to hire a better team. 

  2. Services. Some services you currently provide simply don't deliver enough value to your customers and will have to eliminated. You may also decide to add additional services to your offerings in order to deliver greater value.

  3. Customers. Some of your customers will not want to switch over to value based pricing and you will have to be willing to let them go. You need to have the right clients. This will change the goal of your marketing and sales activities, and may require you to spend more time in the sales process with each prospect to determine if they are a fit for your services.

Tips for implementing value based pricing

  • Focus on the right customers. Your close rate will probably go down and you will have less customers, but at a higher prices.
  • If you are transitioning from a fixed-fee or hourly business model, it might be easier to implement the new value pricing methodology just on new clients at first.
  • Remember that value pricing is not just about charging high fees, it is about providing immense value to the customer.
  • If you have trouble, hire a business coach to help you decide if you should implement value based pricing in your business.
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Myrna Arroyo
Written by Myrna Arroyo

Myrna helps business owners who've been frustrated that they've spent lots of money and time on their marketing, but it hasn't produced results. She helps them develop effective growth strategies that can create more website traffic, leads and revenue.

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