Are you beginning to question your existing business model and if charging by the hour is still the right pricing strategy?
Many businesses — from law firms to marketing agencies and everything in between — get stuck deciding how to charge their customers. They debate whether they should continue charging based on the number of hours worked They consider if they should implement fixed fee pricing upfront. And they wonder if they should use the value pricing model which is based on the maximum a client is willing to pay based on their needs and assessed perception of the value of service.
Value pricing requires asking the client questions that cover their expectations, the importance of service guarantee, and what their budgets are for specific services. But since value is subjective, you might have a hard time quantifying it.
How do you put a number on your level of expertise and knowledge? And how do you present each client with different prices?
While value pricing comes with its challenges, mainly when dealing with highly price-sensitive clients, it proves to be the best way to charge your clients and maximize profits. Here are four reasons why:
Most clients will tell you that they hate time-based billing. The final price is uncertain because you can only provide an estimate of how long the service will take. With value pricing, you empower your customers with a choice. Clients will appreciate options based on tailored business solutions that you’ve customized based on their unique needs.
Your Efficiency is Rewarded
With time-based billing, there’s always the issue of feeling rushed so clients will pay less. You agree to get paid less for working faster. Essentially, your increased efficiency means lower income.
With value pricing, you get to work smart and don’t resent the fact that working fast means you make less. And you improve your project management skills to get work completed within the time you promised your client.
Improved Client Relationships
Billing has a way of straining business relationships, especially when customers are shocked by invoices they were expecting to be much lower. When you use value pricing, the price is set before work begins. With this arrangement, the client knows upfront how much they are paying before the work commences.
And because a series of questions are asked during the discovery phase, you gain a full understanding of the needs of the client, improving communications and delivery of services.
Value pricing involves a conversation where the client’s answers determine different prices based on what they want and really value; therefore, clarity improves. Involving the clients in the process and allowing them to see how the cost builds up, leading to increased trust and credibility.
While value pricing comes with its challenges, it’s the best way to maximize your profits. The customer will focus on your firm’s value proposition in its totality rather than the price of each unique service, providing you with competitive differentiation. And because your goal by leveraging the value pricing model is to align the interests of your firm with that of your client, you ultimately exceed the client’s expectations, increase their loyalty, and enjoy long-term profitability.
Until the next time,