How You Can Set Your Business Apart with Value-Based Pricing

I get asked quite frequently about pricing products and services. My default is to advise people to stay away from the time-and-materials model. It really doesn't make sense to price something based on what your raw materials cost, or even how much time it takes.

If you want to be paid by the hour, there are (according to current estimates) about 3 million job openings in the U.S. that pay that way. Why would you start a business to be paid the same as a job you'd work for someone else? Surely you bring more value to the world than that.

Below is a little something that was tacked to my bulletin board for years. I found it in a file this weekend, and it's just as relevant today as when I printed it off and posted it long ago. The old Dilbert cartoon hit me right between the eyes, and it hit me when I happened to be reading Alan Weiss's Value-Based Fees, a must read for consultants.

If you've trained your customers to pay you by the hour, you may be losing business. Many customers fear that, if they call you, the meter will start running. They then must make the decision to call, do it themselves, do without, or call someone else. Weiss's basic premise is that, by employing value-based pricing, you won't become the lawyer in the Dilbert cartoon.


Does value-based pricing work across the board? Probably not, but if you're in a field where you can easily differentiate yourself (coaching, consulting, speaking, training, graphic designer, interior design, legal, accounting, etc.), then it might be worth a try.

Here are some resources for more info:
http://www.accountingtools.com/value-based-pricing - Argues that competition can offer lower prices and take your market share. Duh! The idea is not to train customers to pay LESS. Plus, you can't eat a market share sandwich.

http://www.investopedia.com/terms/v/valuebasedpricing.asp - Does a good job illustrating how value-based pricing could apply to a specialty product.

http://www.ohio.edu/people/gupta/MKT202Kotler/Chapter%2010.ppt - Good overview of different pricing methods.

http://www.slideshare.net/genewhammett/value-based-pricing-ppt-finalchattanooga - Focuses on value-based pricing for digital agencies. Good application for other industries, too.

Copyright 2014, Russ Seagle. All rights reserved.

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