Do you see declining margins and lower profitability?
Does it seem as if clients don't appreciate the unique value that you provide?
Do you lack a clear framework for pricing based on the client and the project?
If you answered 'yes' to any of the above, value-based pricing may be part of the solution.
Value-based pricing involves pricing your service based on the value it creates for the client. Instead of charging for the cost of producing the service - usually the number of hours - the price is set based on the benefit the client gets from the service.
At first glance, value-based pricing may seem like a way to raise prices. But companies that only try to increase prices do not always succeed in implementing value-based pricing. This is because they forget about the client. It is the client's perception of value that determines what something is worth.
"Value-based pricing is not just about charging higher prices, nor is it only about better profit—it is about better business. It is about being rewarded for creative thinking and innovation and delivering propositions to the right customers that generate sustainable win-win relationships. Value-based pricing is not about profit maximization at the expense of relationships, and it is certainly not about “ripping off” our customers. These attitudes merely lead to adversarial relationships in the future. As one of our clients put it, 'We need to have some skin in the game.'"
– From the book “Value-Based Pricing” by Macdivitt and Wilkinson
According to Macdivitt and Wilkinson, value can be defined in three ways:
Revenue gains - the extent to which the service leads to an increase in the buyer's revenue.
Cost reductions - the extent to which the service reduces the client's costs.
Emotional contribution - how the service is perceived by the buyer. Here we include things like "painless", "smooth" and "proactive".
What We Offer
Switching from cost-based to value-based pricing is a big step that requires work, focus and discipline. But it's also something that pays off every time you send an invoice.
We start with an initial analysis of what efforts will be required and then develop an implementation plan. To apply value-based pricing effectively, a company needs to be well-positioned, differentiated and client-focused, and needs to develop pricing methods.
Positioning describes your unique role in the market, your offer and your target group. Clear positioning helps companies charge more for their products or services because they are seen as experts in solving a specific problem. Positioning can be horizontal – based on your offer, or vertical – targeting a specific type of client.
Differentiation is about how you distinguish yourself from your direct competitors in a way that creates client value. This is related to positioning but is also about how you concretely create benefits for the client. A desire to differentiate provides an opportunity for innovation in the way you work. There are many ways to differentiate. One could be to focus on availability by offering a 12 hour "written by a human" response guarantee. The best differentiation is difficult for your competitors to copy.
Client focus is about the extent to which you put the client and client benefits at the center. A client-focused business designs its operations to best meet its clients' needs. This can range from simple and concrete things like payment terms, invoice layout to how you present information at meetings. We help you map the client experience and identify how to improve it to increase client value.
Pricing requires a consistent approach and established principles. This also includes how you showcase value-based pricing, such as the appearance of quotes and discussing price and value in clear and practical terms.
It's the Client Who Decides What Something Is Worth
You do not define value. If the client is unwilling or unable to see the value of the problems you solve, you're fighting an uphill struggle. But if you create the right conditions by positioning yourself correctly, differentiating yourself, creating a great customer experience and presenting your value-based pricing effectively, the chances are that the customer will see you as a valuable partner and be aware of the value you create.