What should we charge?
Value based pricing vs. time based pricing continues to be an issue as it has ever since the first knowledgeable expert decided to sell that knowledge. Business owners need ever more understanding and new approaches to price their knowledge for a profit.
They need to write a new pricing story.
Value Based Pricing Fears
You, the firm owner, have fears about adopting Value Based Pricing.
- You’ll lose money.
- Clients will object and go elsewhere.
- You won’t make a profit on each engagement.
Your clients have fears as well.
- Getting less than they paid for.
- Misunderstanding what they’re getting for their money.
- Not being able to compare your offers to what the competition offers.
You could easily conclude that you should just stick with time based pricing, such as hourly rates because everyone understands what that means.
We’re Inclined to Focus on the Negative
Whenever you’re faced with a big decision, it’s human nature to fixate on the risks rather than the rewards. Brains are negatively biased.
When you fixate on risks, you ignore the cost of inaction. Therefore, when you have these negative thoughts, it’s important to make time to ask yourself the following:
- “What am I missing out on if I don’t change to Value Based Pricing?”
- “How much money am I losing if I continue charging by the hour?”
- “How many value-seeking clients will take their business elsewhere?”
Reframe the fear story you’re telling yourself. Write a new story that puts the costs of inaction front and center.
What am I missing out on? Higher revenue, higher profits, being a long-term partner to clients as their needs continue to grow and become more complex?
How much money am I losing by charging by the hour? How many hours go unsold each week? Multiplied by your hourly rate, that number could shake you up. How much money are we spending tracking hours, invoicing, following up on account receivables, and on lines of credit when receivables are late? These costs come right off profit.
How many value-seeking clients will take their business elsewhere? Your best clients have big growth plans. When every conversation focuses on the inputs and the costs of providing those inputs, will they get fed up? Will they find another high quality provider who “gets” their vision and who will work toward that vision for a fee commensurate with the life changing value of that vision?
The Moral of the New Story?
Choose to work with the clients who are pleased and excited about Value Base Pricing. Period! There’s no rule that says you have to take every client or prospect that comes along.
When you’re not mired in the minutiae of hourly billing, you’ll have more energy and intellectual fire power to devote to delivering life changing value.
Then think of all the stories you’ll tell about how your firm delivers life changing value to clients!