Pricing Strategies: Value-Based Pricing (#03)

today we're going to talk about a pricing strategy that will help you make the most money possible [Applause] welcome this is number three in a multi-part series on pricing strategies I am Mike Gaston and I'm thrilled to have you along today is probably going to be the most important of the series that I do because we're going to talk about value-based pricing and value-based pricing has a huge potential to transform your business and my friends that is not hyperbole and by the way hyperbole is not an easy word to say we've had to do multiple takes to get that right that is not hyperbole and that is not hyperbole good Allah but before we get into value-based pricing what it is and how it can transform your business and some things to consider about it I want to ask you if you haven't already please take a moment and subscribe to this channel it's a newer channel I'm building a community around entrepreneurship value creation wealth creation branding success life fulfillment all these things that can lead to what Aristotle calls the good life so I'd love to have you be part of this conversation I'd love to have you join me so please if you haven't hit that subscribe button let's talk about value-based pricing what is value-based pricing well it's kind of obvious by the name it is basing your pricing on the value that you're creating versus the time and expertise that you're bringing to the table so in my last installment I talked about hourly based pricing and I said hey that's the most common when you're a service based business you're a freelancer a consultant a small development group a little creative agency you're typically using hourly based pricing and you're approaching the market saying look I've got 10 hours I charge a hundred bucks an hour this project would be a thousand bucks but the problem with that is you're assuming that your time is worth the same amount to each customer that you encounter and the fact of the matter is it's not and so if you can determine what the value is to your customer you can charge accordingly now this is really important because like I said it will transform your business no longer are you tied to your time no longer are you tied to your rates because long and shortened you only have so much time even if keep adding people you have a limited inventory of time that's your most scarce and your most difficult resource to come by it's your most valuable actually and when it comes to your rate there's a ceiling like you might be able to charge 100 bucks an hour then you get up to 150 bucks an hour maybe you get all the way up to 250 bucks an hour you're feeling great like we're killing it we're charging awesome rates but you can't get away with 300 500 $1,000 an hour it's I mean look there are people that will pay anything for a service but it becomes more and more difficult and the set of people that you can work with become smaller and smaller the market just will scream uncle when it gets these rates that just seem outrageous because they have a hard time tying those rates to so the value that they're gonna get and so by moving to a value based model value based pricing allows you to escape all of that it completely transforms the relationship between you and your client what ends up happening is in the old model it's very transactional I'm gonna give you some of my time and you're going to give me a specific amount of money it divorces it from the thing that you're actually doing with it the transaction is about your time and money but in the value-based pricing model it keeps the relationship centered on the work that you're doing the deliverable and the value that you're creating the problem that you're solving for the customer and it ties your payment to that so what you want to be thinking about is how can you tie what you do to the value that you're creating your customer let me give you a quick example just to prove the point and then we'll move on think about two different customers one is a small one-man shop let's say he's a Mason and he probably does somewhere between 95 and 120 thousand dollars a year and masonry work he's got a pickup truck he drives around and he's got a little clip art logo and he's come to you and said hey I want a new logo I want to look more professional he's not going to be growing his firm and adding all kinds of people he's not doing big mergers and acquisitions this guy is just running a good little business he's an artisan in the craft and he wants a logo that represents his business more and let's say at the end of the day that you know you do the logo work and it takes 10 hours like I said before so if you're doing the the hourly based pricing you're gonna say well it's 100 bucks an hour that's a thousand bucks now the other customer has a million dollar business and they are ready for a new logo and let's just assume for argument's sake that it takes the same 10 hours to create their logo now the guy in the pickup truck making 90 to 120 thousand dollars a year when he gets a new logo it's not necessarily going to impact his business in a dramatic way but let's say it increases his business by 10% so we'll just take the median we'll go look it's a hundred thousand dollar business ten percent now he's doing 110 thousand dollars so you helped him grow as business 10% but you helped it grow by 10 grand not a lot of money he's not gonna be willing to pay a ton of money for that logo but let's go to the million dollar business let's say that logo that you creep for them helps grow their business by 10 percent also well that's a hundred thousand dollars in each instance on the on the on the hourly base you charge each of them a thousand bucks cuz that's how you think but at the end the million dollar business they stand to grow a hundred thousand dollars from your work and you left all this money on the table they would have gladly knowing that they could make another ten percent on their business they would have gladly paid more for that for them that's a huge deal and so this value based model helps shift you away from selling your time and focusing on how can you create value for your customer and when customers have vendors and people that they work with it are focused on creating value solving problems and helping them grow they tend to value those vendors and relationships a lot more than they do those more tactical where they're just trading time for money so I hope that this convinces you the power of value-based pricing now that here's the challenge a lot of folks think we'll value-based pricing I'm going to determine what my work is worth so you walk into the customer the prospect you go through your sales meeting and they say well we think this job is worth this and you're arguing no it's worth a lot more I'm an expert you don't understand and and so you start arguing over what you think your work is worth and that my friends is not value-based pricing that's your value on your work and that doesn't necessarily help close deals and that doesn't sell so people here value-based pricing go I try then it doesn't work you know people don't value what I do I'm an artist I'm a developer I'm such a smart person I'm a nerd nobody gets me I tried selling unvalued and it didn't work but the problem is typically people that do that and say it doesn't work it's because they're selling I'm their concept of what value is and value-based pricing is based on the customers concept so here's the challenge when you move to value based pricing what you have to become good at is not showing them look how good I am at doing this look how good at I am at doing that here's my portfolio here's all the accolades here are all the testimonials this is why you should hire me you got to have those things those get you the sales meeting what you have to become good at is helping the customer the prospect the one the client your you've got to help them understand and articulate how your work is gonna impact their business they have to articulate with you what the value is worth so the sales discussion shifts from what's it gonna cost to get this job done - what does this work solve what problem does it solve how does it make the company better and then you've got to help transition that to what is that worth that's not easy to do and this is one of the reasons why I think value-based pricing is not as prevalent as it should be I think it's intimidating for people to figure out how do I help my prospect my client come to value my work it's intimidating I don't know how to do it and so I'm just gonna default to the hourly based pricing now here's the thing this means there's an opportunity for you if you're chasing after a prospect you can be guaranteed that there's a few other people that are at the table they're doing their due diligence that are looking at a few different designers or programmers or consultants if you can approach the sales process from a value based mentality if you can take them through identifying the problem where's the pain recommending how we can fix the is talking about what would fixing this do for the business how does this affect you how does it help you what kind of money do you think you can make from that if you can take a more consultative approach to your selling I guarantee you all those other folks at the table the majority of them 99.99% of time will be talking on an hourly based model they'll be talking about the finding the problem trying to figure how much of their time they're going to put into it neither delivering a project fee based on that or an hourly rate you are gonna set yourself up head and shoulders above your competition if you can speak on a value-based level if you can use that kind of approach and mentality at discovering with the client and once you get the client to talk with you and say look here's the problem here's what it would do if we can solve this problem here's the impact I think it's gonna have on my business then it's a very natural discussion to say okay let's work together to see what this is worth you're a hit the dictate to them you say you know is this you know if I can help you grow the business by a hundred thousand dollars would you agree that this work is worth ten thousand dollars and you could talk about how it's going to grow the business over multiple years so it can become would you agree that this is gonna grow the business a hundred thousand dollars a year yes so the over five years that's five hundred thousand dollars would you agree that this project is probably worth about $50,000 assuming that we can be successful together you know trying to get them to trap them in a corner and get them to say you know yes and you go aha that's what it's but you work with them you're negotiating but you're also collaborating on what the value should be and what you should charge at that point it becomes very easy to close business because you've gotten the customer and the prospect to work with you to discover the problem to discover the solution and to agree what the solution is worth and what you should be paid it's a much more consultative and a less combative posturing and it really queues up the relationship in a healthy way accused up the relationship to be much more successful everybody's satisfied you're getting paid what you know you're worth the client is excited about what you're gonna solve for them and they're invested in the solution and they're invested in your success guys I hope that this was useful to you I know I covered a lot of ground but I want to at least get this idea out there you should really explore value-based pricing there's a ton of stuff out there online if you want to do more research and I'll try to do more content on how to sell based on failure based pricing and so on in the future thank you so much for your time again if you haven't already hit subscribe if you thought this was useful give me a like and make sure to share it with somebody that you think could use it guys I'm grateful for your time I look forward to seeing you all in the next video [Music]

Channel: Mike Gastin

Views: 31,900

Keywords: pricing strategies, pricing strategies for services, pricing strategy, value-based pricing, value-based pricing strategy, value based, value-based, freelancer, freelancing, service based business, consulting, consultant, design studio, agency, design agency, developer, mike gastin, gastin, mike, entrepreneurship, small business, pricing

Id: 0H71d0Cj4xw

Length: 11min 43sec (703 seconds)

Published: Fri Aug 03 2018