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If you haven’t noticed for the last couple of episodes we’ve been a series of pricing strategies. This week we dive deeper into my new favorite type of pricing, value based pricing.
Amongst all the pricing strategies you can implement in your business value based pricing is the most complex however it can also be the most rewarding. With value based pricing the focus is on the solution you’re providing and the value the solution brings. For value based pricing to work you have to have the right type of client, the type of client that is going to take action from what you’re providing and understand that paying you is an investment that has the potential for large return. That return may not always be monetary, the return may be time, notoriety, increased efficiency, perception or overall brand equity.
To break value based pricing down in a simple way I am going to break it down into three main parts:
- Understanding the problem
- Understanding the costs
- Presenting the solution
For this episode we are going to look into understanding the problem which involves qualifying the client, defining the problem and uncovering how solving their business problem will result in a positive return for their business.
First you must qualify the client.
What I mean is you must ask certain preliminary questions in order to discover if the crying is good for you. You want to find out:
- what is their deadline?
- What are they looking to have built?
- Are they able to afford you?
- Does this client conflict your business values?
- Research the client as best as possible to find out some clues about how they conduct business.
Now if the client was able to pass the preliminary questions you can move forward with scheduling a formal meeting and begin asking questions which will help determine value based pricing.
Understanding the problem
To discover how valuable the solution is to the client you have to understand what the problem is or what problem they are having. The more defined the problem is the easier it will be to arrive at a solution to the problem. Understand that there’s a reason a client is talking to you. You have something of value to offer that they need otherwise they would not be talking to you in the first place. Even if they have the knowledge to complete the task that you’re doing perhaps they don’t have the time.
Here are some questions to ask the client:
- What does the client want to be completed
- What took place that made you realize you needed a _______?
- What made you contact me specifically?
- What does success of this project look like?
- What happens if this problem is not fixed in your business?
Once you understand the answers to those questions you can begin to uncover what the client is really looking for. At this point, it is all about defining and understanding are counting the cost of what it is going to take for you to provide that solution. The solution may be simple perhaps it already exists such as a software as a service and you simply charge the person to teach them how to use the software as a service. If the solution is to come up with doesn’t already exist and will be custom you’re going to have to research and invest time to come up with the solution for the client.
During the process of uncovering value, you want to explain or convince to your client that you are an investment not simply and expense. The key here is to prove your service is an investment but you have to understand what is important to the client. Perhaps the client’s return on their investment is more website visitors or they do want a financial increase for what they’re about to invest in you perhaps the return on investment is more awareness of their business and we’ll take it from there. Part of this question asking process is to uncover what the client deemed as most important as a result of the work you are going to do for them.
Understand that value based pricing will not work on every single client.
There is a certain number of factors which will make this pricing method in strategy more effective. For example if somebody needs a blog article written and they want the blog article to be about a thousand words a copywriter can’t really use value based pricing because they’re just looking to have an article written now perhaps physique operator has a large following and they compromise they can bring in more readers to that article maybe then discussions can be had however most of the time that’s not the case.
Now the last step of the first part of this simplified explanation of value based pricing is to present the solution to the client. Most of the time this will come in the form of a proposal in which you describe how you understand the client’s problem you’ve devised a solution and then you’re going to give options to what the solution may be. We will get into this in parts 2 and 3.