In the words of Jonathan Stark, value pricing is “fixed bid on steroids”. Jonathan is a mobile consultant who helps consumer brands thrive in the post-PC era. He is the author of three books on mobile and web development and a business coach helping other consultants transform their businesses using Value Pricing. He has been interviewed by national media outlets MSNBC and the Wall Street Journal and can be heard on numerous podcasts every week. On this episode, Jonathan and Jason discuss Value Pricing, a method of pricing consulting work that he has used successfully for the past ten years.
Most consultants price their work based on cost, or time it takes plus any materials needed. They either charge an hourly rate for services provided, based on the length of time it took to complete task, or offer a fixed bid, essentially offering the hourly estimate as a flat price that will not change. Fixed bid is still based on the cost of the project plus a markup of some kind.
Value Pricing allows consultants to price their work based on the value that the work will bring to the client, regardless of the cost. As a result, the amount of value created by the work could be significantly greater than the amount that could be charged by the hour, leading to a much higher income for the consultant without watching the clock or haggling with the client over changes to the project scope. The key to Value Pricing is finding clients who have a very expensive problem, and who will gain significant value as a result of the work.
Jonathan offered three ways that you can try out Value Pricing concepts without fully committing to the method. Offer a fixed bid alternative to your hourly estimate by multiplying the estimate by a factor of 1.8. For example, offer at $10k estimate as a flat fee or $18k. If your time based estimate was even reasonably close, you will not lose money and if your clients take you up on that offer, they will pass the risk of the project to you, the expert, where it belongs. Charge a flat rate for the project’s discovery phase that includes some kind of valuable deliverable for the client, such as a wireframe for a software application or website. Finally, create a productized service, a relatively fixed scope project that you offer to any client for an advertised price. This allows a potential customer to make a value decision and essentially qualify him or herself prior to any interaction with you.
Check out ExpensiveProblem.com to learn more about Jonathan’s coaching services, that can help you learn more about Value Pricing and implement the process in your own business.
- There really is a cap on what you can charge for a unit of your time. It may vary slightly depending on your location, industry, and experience but it exists. If you want to significantly increase your annual income you need to look at other methods. Value Pricing is one of them.
- You can’t just flip a switch and change your company from an hourly based service provider to a Value Pricing model, especially with the clients you already serve. The process takes time, but there are things you can do to try out the concepts of Value Pricing incrementally.