Are you wondering how to charge more without giving extra time to customers or spending more?
Welcome to value-based pricing. Value based is a new way of pricing that is revolutionizing the service industry. It creates a win/win situation for both the client and the service provider. Although it is becoming more common when it comes to services, many businesses still haven’t embraced it.
But what is value-based pricing?
Value-based pricing is when you charge your customer according to the value of your product or service, not based on time or how much it charges you. The pricing is different for each customer and the service is completely customizable. No more template pricing. The value is subjective, and the price will be different for prospects in different situations.
If the exact same service can generate more revenue for prospect B than prospect A, your service will end up costing more to prospect B. Another important premise of value based pricing is that the cost of providing a service is not really related to its perceived value. Value-based pricing is not based on the cost of providing it.
The types of pricing for services
There are three types of pricing when it comes to services:
● Cost-based pricing
● Time-based pricing
● Value-based pricing
Cost-Based Pricing
Cost-based pricing is pricing based on how much the service costs you as a business and then placing a markup. And it depends on the price of production of the product. You start with the product when it comes to cost-based pricing.
Time-Based Pricing
Time-based pricing is simply trading your time for money. This is bad for the customer because it doesn’t encourage you to provide the results as quickly as possible. Time based pricing does not reward mastery, it rewards inefficiency.
Value-Based Pricing
Value-based pricing places the customer first. It is more consumer centric because you think of their needs first and then price the product or service based on that. Once you find out how much of an impact your service has on their business then you decide on the prices.
Value-based pricing Is much more customer-centric.
The service is much more customized for your prospect, so it is much more valuable. It won’t end up costing you any extra work. Value-based pricing ends up saving you work because you cut out unnecessary things from your service.
Reasons to use value-based pricing for services
Value-based pricing has so many advantages. Obviously, value-based pricing has the consumer in mind. This way of pricing is like having a personalized relationship with the customer. Your price is based on how much you can help them. It means you care about them, and you want to provide a quality product or service.
Here are some reasons why you should use value-based pricing:
● You get to make more money
● Customers only get what they need
● You save time for your customer and yourself as well
You get to make more money!
You can charge a lot more money, plus, save loads of time by not doing unnecessary work! Imagine that you find out your service will add one million dollars of revenue to their company over the next year, you can realistically get away with charging $100,000 as they still get a 10x return on investment.
You can also cut out all parts of the service that your prospect doesn’t need. Your original prices for the services might have been $10,000 or $20,000 but now you get to deliver only the most important parts of the service to your customer. You get to focus on the most important parts of the service that will generate a million dollars for your client.
Charging based on ROI your service provides the customer is an important premise of value based pricing. If your service is proven valuable, then you can get away with charging more money.
Example:
You are offering dental implant leads and it takes the dentist 20 leads to close one client. Each client is worth a minimum of $5k. If you want to give the dentist a 2-1 ROI, your leads are worth $500 each. You can charge fairly, and then spend time and energy getting good quality leads for your customer that convert into sales for them.
A usual service package for dental leads could be $50 a lead, charging $500 would be too much for most marketing agencies. They would focus more on quantity instead of the quality for the leads where you would focus on only giving them the best quality leads possible that don’t waste their time and have a high chance of converting. The lead cost is higher at $500 but you get to deliver only the best quality leads that will actually lead to sales.
Customers only get what’s needed
Another important benefit to the value-based system is that it allows customization. Your service will be customized according to your prospects’ needs.
What parts of the service that you deliver will completely depend on what your prospect tells you in the sales meeting. What exact services you provide will be decided after you discover what your prospect needs. This is what makes value-based pricing so customizable.
When you implement value-based pricing, you first figure out what the customer needs and wants. Then you examine how much of an impact your service will have on their business. At last, you calculate the prices. This works in any industry. It is getting more and more common with marketing consultants and coaches, but it has yet to be adapted by most service providers.
Save time
No longer do you have to do menial tasks that your customer doesn’t care about just because they are a part of a pre-set service package. You get to focus only on the targeted plan.
You get to be much more efficient and get results more quickly for your customers. They enjoy more meaningful results that move the needle in their business.
There is no standard market price for many professional services, it depends on a lot of different factors. Pricing based on cost or time is starting to become the old standard.
The key to high profit margin when offering professional services is to do value-based pricing, not having standard prices.
If you haven’t considered using value-based pricing in your business yet, start to make that shift now. It will take time as you rework your packages and sales processes. It will also take flexibility, but this flexibility will lead to great results in the long term not only for your business but most importantly, for your customers.
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