Value Pricing is such a great way to stop yourself from selling your time and yourself short. However, many people are worried about using Value Pricing. In this video, a snippet from a Xojo presentation, I go over what exactly Value Pricing is and how best to utilize it.
Please find a full video transcript below:
Susan: What is value pricing? It’s prioritizing the outputs for your client versus the inputs of you. What your client gets is more important than how long it takes you to do it. Nobody really cares how long it takes you to do it. As experienced developers you’re faster at it, right? So you’re making less money by the hour because you’re better, and shouldn’t they be paying more because you are? Because you know what the pitfalls are? You know how to avoid some of those things? Think about that as part of it.
The solution the client gets is their output. That’s the thing that’s saving them or making them money. They are not asking for something to be developed because they think it’s fun. They need it for a financial reason to help their company. That financial reason has monetary value, or else they wouldn’t spend money to create it, so they need to be getting a return on their investment, and that’s really what value pricing does. The theory of it is is that the developer or the business owner or the provider is capturing a small percentage of the overall ROI that the client is getting from it.
There are some huge benefits for your business to this. One is no more time tracking. Imagine if you didn’t care how long it took you to do things. That is not the … Uh-oh, what happened?
Can you all see over here? Okay. Imagine if you didn’t have to worry about it. It doesn’t matter how long it takes. That does not equate to I missed my deadline. That’s not the same thing. Duration is not the same as the input of how many hours. So no more time tracking. You don’t have to mess with it. No more sending an invoice and ducking, you know, “Please pay it, please pay it. Don’t ask me about it. I know it’s a lot of hours. Please pay it.” You don’t have to do that anymore.
Most value pricing projects are paid up front, so you get the full money before you even start. One of the benefits of that as well, your money conversation is out of the way. You’re done talking about money, how many hours it’s going to take, all those things. You don’t have to have that conversation. You’re left to develop a relationship with your client and focus on delivering the value that you agreed to upfront that they would get from the product that you’re building for them.
It also forces you very much to want your products to stay in scope, right? It makes it a lot easier to say, “I gave you this price based on these things. Something’s got to give. I can’t do that as part of this.” It also doesn’t mean you’re really tough and you won’t make little tweaks. Of course, you’ll make little tweaks. That’s not the same thing as a change.
If you’re not sold on this, that’s okay. I’m actually not here to convince all of you to change your business model. I am not in that business. I’m just here to expose you to that. One way you can try though without getting into the sometimes invasive and uncomfortable Q&A that you have to have with a client before you’ve delivered or developed a relationship with them in value pricing is to try a fixed price project. It’s a good step. To be able to value price you have to know what the value is, and that sometimes involves asking.
Originally published at Beyond the Chaos: Small Business Project Management and Operations Consulting.