What is value based pricing?

Recently you had a new client contact you with an exciting project. Things were going well. The client was friendly, the company was one you believed in and the deadline sounded reasonable.

Then, after a little bit of back and forth the client asks “What’s your rate?”

Sounds familiar, right?

This is the sound of a client who sees you as an expense, not an investment. What’s the number one thing people want to do with expenses? Minimize the cost of them. Already, the client’s mindset is more focused on the price you’re going to propose, than the value you can deliver.

At this point it’s worth asking yourself: Do I want to make a living positioning myself as an expense, or an investment?

As freelancers it’s common to encounter this question. I’ve seen many freelancers go with the flow of whatever the client wants or expects. This means they often end up compromising their process by charging an hourly rate (which by the way, punishes yourself for working efficiently).

The amount and quality of value you can deliver is always going to be one of your unique selling points. It’s time to shift the conversation with the client from being one of price, to one of value.

How to shift the conversation to one of value

Conversations centered around value based pricing are focused on redefining the client’s goals and needs. It’s not a pricing discussion, it’s a value discussion. To be able to uncover what the value of the project is it’s worth finding out what’s in it for the client.

Focus on the value that the project will provide. What will the solution you provide help the client achieve? What is that worth to them? Will it help them get more sales? Get closer to landing investment? Uncover that and quote the project based on your problem solving skills and ability to provide them with the the utmost value. Helping the client achieve their goals is a super valuable thing, so don’t underestimate what it’s worth.

Often, one of the leading goals of a client is for the project to be successful. So ask them: What defines success in this project?

Uncovering the measure of success helps us get closer to identifying what the project requires in order for it to be considered a success. This allows us to have conversations that are much more aligned to achieving success and delivering value.

Stop competing on price. Start competing on value.

Often a client will send through the bare minimum information about a project and expect us to turn around and quote them a price. This expectation comes from the majority of designers doing exactly that. Quoting a project without digging deeper and uncovering the client’s goals and success expectations.

As a designer, I know that my number one job is to focus on solving problems for the client by providing them with the best possible solution. Depending on the problem and solution required, I can’t possibly give the client an accurate price without first discussing the problems that need to be solved. You could do this via an onboarding questionnaire.

Value based pricing in a nutshell

By now you’re probably thinking: Ok, center the conversation with the client around value not price. Got it. But Femke, how do I then decide how much to charge them?

Great question! There is no, easy, one size fits all answer. However there are some guidelines we can follow that will help, such as…

Assess what the project is worth to the client and quote based on that value.

For example, you may uncover that the work you do will bring in $50,000 in sales for the client. Based on this, you already know that the value of the project is less than $50,000 because otherwise it wouldn’t be a sound investment.

What you also know, is that charging them $500 wouldn’t allow you to provide them with enough value. Charging $10,000 however is a sound investment for the client. Easy maths tells me the client will make x5 more than their investment in you, if they invest in you. Pretty hard to say no to that.

What’s it worth to the client?

Let’s consider the following scenario. You’ve enquired a freelance photographer to take photos of your wedding day which is ten hours long. The photographer internally assess that this may be a total of fifteen hours work after they’ve accounted for preparation, shooting, packing, transport, editing and delivering.

The freelancer has two options:

Quote their hourly rate of $30 x 15 = $450
Quote based on the value of the photographs = $3,000

Yes, $3,000 is a lot higher than $240. But it’s your Wedding! If your wedding photos were lost, destroyed or gone forever, would pay up to $5,000 to get them back? What would they be worth to you?

The second option shifts the focus to value, not price. You know it will take you fifteen hours to complete the project, but why should the client care? What they do care about is your ability to perform the work efficiently and successfully.

Paying $3,000 for quality photographs that they’re guaranteed to have last more than a lifetime and capture the moment beautifully – that’s the type of conversation you should be having with your client.

Benefits of value based pricing

Pricing based on value benefits both you and your client.

No hidden costs – Unlike charging per hour where you could easily go over the agreed upon time, value based pricing has no hidden costs. The client knows up front the total price, This allows them better plan their finances, leaving no room for argument about the price at the end of a project.

Shows commitment – You can (and should!) ask for a down payment up front before beginning the project. This is often a percentage of the total price and shows commitment from the client that they’re willing to invest in you.

Less admin – Forget about logging your hours, feeling rushed and stressed about completing work in the agreed upon time so that you don’t go over budget. Focus on getting good work done rather than how long it’s taking you.

You’re rewarded for your efficiency – Encourages you to be more wise, efficient and focused with your time. If the project takes longer than you expected, consider it a lesson to give yourself more time in the next project. The more efficiently you finish a project, the sooner you can move onto the next one and earn more.

Allows you to better budget – You’ll know better exactly the amount of money coming in and when, allowing you to better plan your personal or business finances.

Let’s you upsell – You could use different value packages to provide your client with more value than they expected or asked for. This specific kind of price positioning is a great way to upsell.

Conversations are focused on value not time – It shouldn’t matter to the client how long things take you (obviously you want to meet deadlines, but that’s something completely separate). What matters the most is providing them with the best value with a professional approach.

Builds trusting relationships – Clients shouldn’t be penalised for your slowness or misjudgements, which is much more likely to happen if you’ve quoted them an hourly rate and set amount of time the project will take to complete.

“Your work is more than the number of hours you log at your desk or on your couch (hey, I don’t judge). It’s also an accumulation of learning, exploration, focus, creativity and experience that adds up over time” – Paul Jarvis.

What Paul says above is the perfect summary. The work you do for clients is worth so much more than the time you spent. Shift the conversations with your clients to one of value and blow them away with how much of it you can provide.

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