Once you’ve committed to implementing Value Based Pricing (see Step 1 COMMIT), it’s time to get started.
Successfully implementing Value Based Pricing requires phasing it in. I never recommend trying to flip a switch.
Step 2 PREPARE helps you begin the phase-in.
No one succeeds without confidence and that only comes from intense preparation. The PREPARE step includes two necessary parts.
Part I: Articulate Value
Business owners hesitate to implement Value Based Pricing because of fear they won’t know how to align value and pricing.
Do not guess! Instead, look at work you’ve already done and build your value fee from there.
Answer these questions. Do it in writing, and use data as needed to support your claims. I’m asking you to get started by identifying three kinds of value, but you are not limited to only three.
1) Articulate three quantitative values your clients receive from your expertise. Here are examples from clients:
- Reduce number of low profit buyers (marketing consultant)
- Increase profit (CPA, business valuation advisor)
- Improve cash flow (outsourced CFO)
- Deliver more value without increasing costs (CPA)
- Reduce the cost of failure work (repeating work to improve results) (Operations expert)
2) Articulate three qualitative values your clients receive from your expertise.
- Increase client satisfaction scores (Customer service advisor)
- Deepen relationships with high value clients (Sales expert)
- Become known as “THE expert” in your field (many)
- Increase readership of media, such as newsletters, social media posts, and articles (marketing expert)
- Get rave reviews for creativity, emotional intelligence and leadership (Executive coach)
Part II: Analyze past client work
Look closely at the work you’ve done for your perfect fit or great fit clients over the past 12-18 months. Make a list of what you did (the inputs), what results you delivered, and how much you charged. It’s really important to do this by hand, to force yourself into close examination of these projects. Spitting out a digital report doesn’t get into the nuances. Be sure to ask the experts who worked on these engagements to help with this analysis. Ask them for details that won’t be in the data, such as level of engagement by the client’s staff, timeliness, creativity and innovation, and other qualitative topics.
Once you’ve analyzed each individual engagement, group the projects by similar outcomes. For example, all engagements that produced improved cash flow would go on one list. All engagements that increased client satisfaction would go together. If any engagement produced more than one outcome, put that project on all the applicable lists.
This helps you see clients and engagements in terms of outcomes, not inputs.
Seeing and thinking in terms of outcomes is the turning point for successful implementation of Value Based Pricing.
Select a few of your best projects–most interesting, most complex, ones with high client satisfaction. What was the final, total project fee the client paid?
Compare the fee to the quantitative value. For example, what is the ratio of the value to the fee?
Is the value ten, twenty or more times the fee? Much less?
This is the starting point for Value Based Pricing. Your experience and your understanding of what clients value will help you refine the value:fee ratio.
We’ll continue this look into the 5 Steps next week with Step 3 ESTABLISH.
Do you feel yourself coming to terms with Value Based pricing or not yet? Let’s talk! Text 703-801-0345 or email to set up a call.