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20 June 2014
How to Price by Value

How to Price by Value


By SalesProEd @ 11:40 :: 2007 Views :: 0 Comments :: Article Rating :: Featured Articles
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Many businesses are stuck in the outmoded approach of time based billing, undercharging and setting fees based on what the competition is charging; a situation where the client and the market is driving your rates and not you.

Value Based fees was pioneered by Alan Weiss, and he advocates that the customer is the ultimate arbiter of value. He goes on to say that ‘there is no law, nor any ethical imperative, which says that you must charge two clients the same exact amount for the same services. First, the services are rarely identical, second, the value to their respective clients will always be different.’ I am inclined to share this view, and in this article, I intend to take you through the 7 steps to pricing by value and increase profitability in your firm:

  1. Be clear on who you work with: Jeff Bezos, the founder of Amazon is famous for saying “start with the customer first and work backwards.” This is an excellent approach, and it begins with getting as clear as possible about your ideal client – what they look like, their needs, wants and desires. Business owners are frequently unclear about their ideal clients. Clarity is power, and working with everyone who comes through the door just leads to frustration, tiredness and takes you away from providing an excellent service to your top customers.
  1. Develop a healthy self-esteem: Having a strong sense of self-worth and self-confidence prevents under-pricing, offering discounts at the first objection and having to chase for payment after the work is complete. Nathaniel Branded in Self Esteem at Work, says that “self-esteem is the reputation we acquire with ourselves”. It is difficult to quote a fee which is outside of your comfort zone, especially if you do not believe in yourself, or have the confidence in the difference you can make to the client’s end result. Your mind set and self-esteem is a critical factor when it comes to setting fees. Spend some time looking at your mind-set and self-worth.
  1. Create packages for your services: American Express have green, gold, platinum and black cards. Each are valued in price based upon the value and services they deliver. Break your service offering into packages. Think about your customer and offer different entry points for them to use your services.
  1. Set clear objectives, measurements and value: A key aspect of value pricing is relationship building and helping the client to see how much they will benefit at the end. It is not about your process or methodology. The first steps it to be clear about their objectives. To start to understand their objectives you could ask questions like – what are you looking to achieve here or, where are you now?
Measurements or some form of it are a great way to assess progress against agreed objectives. A useful approach would be to get the prospective client to explain how they would measure that the project or intervention is a success. This can take some doing but it important to get them to state what success would look like if achieved?
Values are the real drivers behind our decisions. These are the intangible ‘soft attributes’ which help to understand what is really important. To understand what it all means to them you could ask questions like: – if you were to achieve this goal, what would that do for you?
  1. What makes you unique? Imagine that you have left a meeting, feeling rather confident, but unclear as to how you can make your business stand out amongst the competition. Think about what sets your business and services apart. Is it your reputation, knowledge, experience, or are you in the right place at the right time? Take a moment to answer these questions.
  2. Pricing: Setting fees can cause a great degree of anxiety. There is always the fear that they could be too low, or too high and you price yourself out of work. Self-esteem plays a huge part here also. However, it is perfectly legitimate to price your services above the range the customer is willing to pay, and also below the range. Do what feels comfortable, and for each opportunity, answer these questions to assign a price for your services:
    1. What price would be so expensive that the customer would not buy?
    2. What price would be expensive, but the customer would still buy?
    3. What price would the service be seen as cheap and inexpensive?
    4. What is the lowest price that we would not go beyond and be prepared to walk away from this business?
    5. What is our ideal price – a price that would give us excellent profit?
    6. What would be the price that if we were to get it would mean fantastic profitability for the firm?
  1. Writing a successful proposal: The proposal should be summation and not an exploration of their needs. It should be a clear explanation of what you understand their requirements to be, how they will be measured and the value to the business. Submit a draft copy before submitting the final version and do this without including the fees. In the proposal, give them a range of fee options and not just one fee. When you present only one fee, there is nowhere for them to go, but yes or no. Options are a set of yesses.
Value pricing is the way forward for service based business. The time based billing model does not help anyone – you nor your clients – and most of all the focus is in the wrong place how much you will cost as opposed to the end result. If you patiently apply these steps, your self-esteem will increase, clients will be happier and most of all profitability will increase in your firm.
Morton Patterson, works with service based businesses who are using time based billing and struggling with clarifying their value proposition and undercharging for their services. He helps clients to implement a value pricing strategy and to win more business. If you would be interested in having a conversation he can be contacted by email – morton@mortonpatterson.com
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