I’ve been reading advice on value pricing for awhile and I admit I still don’t get it.
Let’s get a few things out of the way before I explain.
First, what is “value”? The obvious starting place is Merriam-Webster, which defines “value” as, “a fair return or equivalent in goods, services, or money for something exchanged.” Sounds fine to me.
Next, what is “value pricing”? Investopedia defines it as, “the setting of a product or service's price, based on the benefits it provides to consumers.” I’ve got no problem with this either. The problem, however, comes with implementation, which I will discuss in a moment.
Third, let me clarify that I don’t think it is possible to overcharge so long as the client is willing to pay the fee. I am not in favor of suppressing freelance and consulting rates out of some crazy belief that it is wrong to make a nice living—or even live in luxury.
I come at this from an unusual perspective.
I both offer freelance / consulting services to clients and hire others to provide services to my business. Because I can be on either side of the transaction, I look at this from the perspective of the Golden Rule: Do unto others as you would have them do unto you.
I charge others a respectable rate, adjusted for such variables as the nature of the work and the degree of specialization, and I pay others a respectable rate as well. Not necessarily the same rate. I’m simply saying that I pay fairly, sometimes more and sometimes less than my own rates.
In contrast, many service providers boast about their fabulous earnings while at the same time they recommend that other self-employed people use bargain-basement-priced service providers, just as they themselves do.
The reality of value pricing
First the rationale offered for going this route. The freelancer / consultant who charges by the hour or by the project is frustrated because he recognizes that his income is limited by how much work he can turn out. There must be an easier way to make more money, he figures.
Then an epiphany: If he charges by value, he can charge much more for the same work. No, I am not twisting words to make a point. This is exactly the reasoning presented by value-pricing advocates.
I feel his pain but I don’t want to pay for it.
So he changes his proposal. He improves its presentation by listing off how his services will financially (or otherwise) benefit the client. Then he justifies the dollar amount as a percentage of estimated benefits.
It goes something like this: Mr. Prospect, for each $1 you give me, you will receive $10 of income (or even profit). Isn’t this something you would like to do?
Fine with me if it is a guarantee. If the service provider works for a single flat fee until the financial objective is achieved, that’s worth a substantial amount far above the typical hourly or project rate.
I’d even consider value pricing if the freelancer / consultant could show similar measurable results with previous clients.
But basically, if I’m the prospect, a list of possible benefits, no matter how juicy, is not enough to merit a huge expenditure since there is no guarantee I will actually enjoy these benefits.
It’s like paying a commission or royalty that is not firmly tethered to results.
Originally posted 8-3-15