McDonald’s has Value Meals, not Value Pricing.Thinking back, that is not that dissimilar from what we did at my first consulting firm. We offered bundled packages of services, we gave away a certain amount of loss-leader content (writing, white papers, telephone calls) and almost always included some type of longer-term retainer to monitor the progress after we had completed the initial effort (and build that long-term, come back for more, relationship). But unlike McDonald’s, we had the ability to create a flexible pricing structure and we leveraged that as much as we possibly could. In the beginning, our pricing structure was designed to cover our expenses and make a certain level of profit on each engagement. Across the board, our pricing was fairly uniform client-to-client. But over time, as our “brand” grew and our client base expanded, we gradually adopted a different approach that took advantage of the demand, or value, that we were providing to our clients. Rather than trying to maintain a certain level of profitability, we started to look at how much certain clients were willing to pay for our services. Gone were the fixed hourly rates, replaced by a flexible pricing approach that was different for each client. It was, for us, the beginning of Value Pricing.
Value Pricing is about finding a client’s pain and fixing it. More cure = more value.In Value Pricing, the goal is to match your price to the level of value that the client receives from your services. Forget about what your competitors are charging, or what your costs/expenses are, focus on the value that you bring to the client. To be more precise, think about the value the client believes you are providing. If they believe the value you are bringing to the table is high, price accordingly. Conversely, if they believe the value you are bringing to the table is low, you probably shouldn’t be there in the first place. Here are some guiding principles to Value Pricing that help define the concept as it applies to professional services:
- Value Pricing is NOT the same as “Compensating for Value” in the financial market.
- Value Pricing is determined and agreed to by the customer ‘up front” in advance of the actual engagement.
- Deferred “bonus” payments – typically based on operational or sales improvements – can be considered part of Value Pricing if you really intend/expect to meet or exceed the clients goals.
UPDATE: Note that his post was updated after our last #ProfServ Twitter chat. @Provserv is held on alternate Thursdays at 10pm ET. Hosts are Alan Berkson (@berkson0), Kelly Craft (@KRCraft) and Fred McClimans (@fredmcclimans). Come join us for discussions on the issues facing consulting professionals! Share your insights & experience as: Legal, Analytical, Business Intelligence, Financial Advisors, Accounting & Audit, Public Relations, Sales, Operations, Management, Marketing, Interactive, Entertainment, IT, Social, Software consultants. It’s all about sharing techniques, tactics and building a community of trusted professionals.