Value Based Pricing
In this article I’ll go through multiple aspects of value based pricing and explain why it is the way to go, for both clients and service providers. Especially for service providers who are new on the market and don’t know what their true value is and/or are trying to make their business grow.
I am no expert on the subject, as a matter of fact I started experimenting with value based pricing in 2016, with some of my clients. Being in web development business for 7+ years, I have seen a lot. Good code, bad code, good clients, bad clients, wrote some of bad code myself and some great code as well. Done some good business decisions, done some bad business decisions. After all of this, I came to a conclusion that trading your time for money is not worth it.
Why trading time for money is not worth it?
- Not what you signed up for
- Clients won’t respect your time
- You will chase the money
- You will feel physically and emotionally tired
- You will underdeliver
1. Not what you signed up for
Every freelancer and/or startup owner didn’t go that path to work for hourly rates. This path is stressful, not that easy and fun as people imagine and is in a way escape from 9 do 5 (paid by the hour) way of life. Except it is much worse and it is 0-24 job. Now you are no longer just a developer (in my case). You need to find clients, you need to communicate with them, you need to plan their projects, you need to execute their projects. And if you are paid by the hour and want to build your business up (and you do), you need more and more clients which brings much more work to the table but at the same time, your free time and social life are suffering because you are trying to figure out your overcrowded schedule.
Well, why don’t you build a team? Great idea! I will build a team! The only problem is, you need to spend time to find a (good) team, to delegate a team… You need to PAY your team. Not to mention that you need to make some extra money for your periodical business growth.
2. Clients won’t respect your time (being paid by the hour = losing money)
It is a normal thing in today’s business world that everyone wants everything right now. “Notified on Friday evening, needs to be ready by Monday.” – “They need you to provide a time and price frame on a new project. Project that will never happen.” – “Can you join me and my client on a short Skype meeting?”
Were you or are you still at that place? How many hours you worked for free in order to get that client or a project? How much research was done, time spent thinking about the execution of this potential project that never came to realization? How many words you wrote in your emails? Ten hours, one hundred hours? Hundreds of hours? Scary thought, isn’t it? Being paid by the hour = losing money.
STORY TIME: I used to work as a dispatcher and security systems administrator in a private security company. During summer holidays (Sunday) our receiver system went down. No object intrusion messages were able to get to us, no object opened / closed messages as well. We went pitch black. We had to call a technician who set the system up for our company. He was spending the holidays with his family and wasn’t really happy about the call (he was not even hiding it). All in all, he gave us 10 min instructions that didn’t help us at all and in the end we were able to solve our problem ourselves.
Holidays were over, company staff that was not working 0-24 shifts like the rest of us poor bastards came back and all was back to normal. Until one day the bill came. It was sent from the company that the guy we called owned. I don’t remember the exact amount requested but I do remember that it was close to what was my monthly paycheck (around 180 hours). This was 10 minutes (!!!)
long short phone call! But the guy we called was with his family, on holidays, it was Sunday and we needed his help, not the other way around. He valued both his time and his work.
Now, the problem is, this guy was rude and didn’t help us at all. How many times did you help your clients on your free time? Holidays, birthday parties, weekends, during the night? You were always polite and actually SOLVED the problem? And with your client’s thank you message you got the question “How many hours was it?”. Does it matter? It could have been 2 hours, it could have been 20 hours. You needed help, you needed it right away. You needed it while I was sleeping or while I was going to bed. While I was enjoying my free time. While I was recharging my batteries. Not to mention how many (very often unpaid) hours it took me to learn the skills needed to solve your problem in only 1 hour or even less. That is VALUE.
3. You will chase the money
As mentioned before, if you are paid by the hour you will need more money to grow your business and you will get to the point where you will start to chase the money and big opportunities. Which will make you even more busy and with it you will get more tired and demotivated. You will fail.
4. You will feel physically and emotionally tired
At some point you will get to the place where you will be overburden with work and emotionally drained by your clients. Not because they are bad people but because you didn’t clarify your own view of the value you bring to the table. You probably will doubt your own skills and love towards what you do. And that is a very dark place to be at.
5. You will underdeliver
When your time / money ratio won’t satisfy you (and it won’t if you want to grow your business), you will start searching for shortcuts and for fast and easy solutions which won’t always work as intended. You will feel frustrated, bad, guilty and won’t improve as much as you would like to over a period of time. And on top of that, in the end you will be judged by your clients.
Clients, what do you expect from us?
Ask your clients this:
- Do you expect me to understand you?
- Do you expect me to deliver fast?
- Do you expect me to save your time?
- Do you expect me to save your money on the long run?
- Do you expect me to give you my best and dedicate my love and energy fully into your projects and ideas?
- Do you expect me to be always available for you and your clients?
- Do you expect me to solve your problems?
- Do you expect me to make last minute changes and be dynamic?
- Do you expect me to prevent future problems with my experience?
- Do you expect me to describe into details what I did?
- Do you expect me to help you make an impact?
- Do you expect me to over-deliver?
Do you expect me to provide VALUE?
Service providers, what do you expect from your clients?
Ask yourself this:
- Do you expect them to be loyal and to come back to you?
- Do you expect them to respect your time?
- Do you expect them to be fun working with?
- Do you expect them to love what you did for them?
- Do you expect them to help you grow your brand?
* Notice how this second list, although written for service providers, can go both ways. 🙂
Value based pricing is not something that is bad for a client or something that works only for a service provider. It is about creating and constantly building a relationship and benefiting from each other. When you choose a doctor you will choose someone who you believe in and who provides value, a great service. Not because he/she has a diploma. Think about that the next time you give access to your or your client’s server to someone. When your client’s website is running on code written by someone who is competing on price.
As for service providers, some clients may leave you if you go with value based pricing and although this may feel bitter at first, you are better off without them. Find some clients who think like you do and who will appreciate all the value you bring to the table. You always should give the best of you to your clients and value based pricing will help you with that.
If you made it to the end of this article, don’t be a stranger, leave a comment and share your thoughts and experiences with value based pricing. 🙂 Are you using value based pricing or are you still on hourly rates? Also, feel free to sign up to our newsletter for more articles in the future. 🙂