How Value-Based Pricing Will Make Clients Beg You to Work for Them

If you’ve ever been to a good sushi restaurant, your initial thought when you looked at the menu was probably, “That’s a bit pricey.”

It’s true — well-prepared, aesthetically-presented sushi is not cheap. But why should it be?

When you choose to go to a nice sushi restaurant, you’re not just paying for the base ingredients in the food. You’re paying for the overall value you receive. The quality of the food, the experience you receive in the restaurant, and even the chef’s expertise in how to properly prepare sushi (a craft in and of itself) are all part of what you pay for at this type of restaurant.

Similarly, although We’ve been taught as freelancers to think that the way to price ourselves is per hour or per project, we should be thinking of value-based pricing instead.

This is actually a more accurate pricing system for freelancers, because once you take all of your client interactions, past experiences, applied efforts, and end results into account (not to mention the quality of your work), you’re no longer dealing with just minutes of your life.

You’re dealing with a person whose services are more valuable than a clock can determine.

Time-Based Pricing Only Goes So Far

At the beginning of your freelancing career, pricing your services according to time makes sense. After all, it’s easier to keep track of your business expenses and income down to the last cent, and helps you figure out your work habits, like how long it typically takes you to finish a project.

Time-based pricing also keeps you well aware of those bills starting to stack up.

But there comes a point where those bills start to pay themselves off more consistently, and you’re not as worried about making ends meet. You realize you need to start earning more, so you can take your business to the next level.

This is when you need to pay attention to your value and not just “what it takes to make it.”

Sure, you can keep telling yourself that it makes sense to charge per hour because you’re still earning what you need to live, and all you need to do to earn more is charge more so you have a higher hourly rate. And of course you can keep telling yourself that it’s okay to provide a quote based on how long you think the project will take you.

But you’ll just be delaying the inevitable meltdown.

Unfortunately, freelancers who make the common pricing mistake of charging per hour tend to run themselves into the ground, because they’re the ones most likely to undervalue their own work. They think, “If I want to make this much, I should work this many hours, so the project’s worth this much.” They position themselves as nothing more than the individual parts that make up their services, like sushi’s ingredients versus the entire sushi restaurant experience.

This often means they get stuck with trying to finish a project within the time frame they quoted to avoid it lowering their hourly rate, or having to deal with clients who try to push them to provide extra services free of charge (scope creep). Or, even worse, they have to deal with the fact that the client could have paid them a lot more money because their work provided so much value.

As an example, let’s say your typical rate is $75 an hour, and you think a client’s project will take you 30 hours, so you charge $2250. But what if the project actually ends up being worth far more than that to your client, say, $5000? You would have lost over $2700, more than double your quote for this client.

You don’t want to deal with this your entire life, do you?

Then start paying attention to value.

Figure out what to charge based on the value you’ll provide to your clients. Be aware this value could look different to each one; a 30-hour project may only be worth $5000 to one client while another would gladly pay upwards of $25,000.

This is why pricing on value, instead of an hourly rate, is so vital . It’s your “get out of jail free” card.

There’s a Value to Value (Seriously)

“Now wait a minute,” you might be saying. “Who’s going to pay for some hypothetical value I claim I can offer clients?”

You’d be surprised how much people are willing to pay for value. If something’s hard to obtain, make, or duplicate, it’s considered valuable, exclusive almost, and people want it. That’s why they pay out the butt for diamond engagement rings, and it’s also why foodies are willing to plop down a good chunk of cash for an unforgettable sushi experience.

Just as people will pay for value, so will clients.

This means you need to stop thinking of your services as the amount of time you put into them, and instead think in terms of the overall value they will bring to your client.

If you’ve got that track record of providing useful ideas to your clients which they implement and consequently earn more than expected, you’d be surprised how many people will want to hire you when you position yourself as a freelancer who brings results and value no one else can. After all, you’re basically providing them a diamond ring or really good sushi in a really nice restaurant.

You wouldn’t want to undercharge for those items, just like you wouldn’t with your own services.

Don’t Underestimate the Value of Your Services

If you’re still worried about switching to value-based pricing, cut it out.

You do need to pay your bills, of course, but you also need to treat yourself like a professional if you expect others to do the same.

Once you’ve paid your dues with time-based pricing, sit down and analyze everything you’ve learned about yourself, your business, and your clients. Price your services based on the value you’re bringing to them, and they’ll gladly refer you to new ones who will pay the fees you’re asking. In other words, your name will start going around as the expert freelancer people are looking for.

However, don’t accept an offer you know isn’t worth your time or stress. If a client wants you to design a website for $20,000, for example, but they have demands you think are going to take you a lot longer than a typical $20k contract looks like for you, negotiate what you can offer them value-wise for that price. If they don’t like it and still want to undervalue you, just move on. Some other client will be more than happy to accept that same offer.

If you treat yourself like a professional and value your work, clients will be coming to you, and the fear of moving to value-based pricing won’t have been justified in the least.

Make the Transition to Value-Based Pricing

Just like a sushi chef has to continually practice making high-quality sushi, it takes time and experience (and less and less instances of you doubting yourself) before you’ll figure out how to better price the value of your freelance services.

That’s okay, as long as you make the transition from time-based pricing to value-based, because staying in the time-based system is just silly if you’re serious about your work.

Once you’ve made the transition, don’t let anyone make you feel like you’re less than your asking price. You’re a professional with your own business, after all, and a valuable one at that.

Image Source: Money Flat Icon Set via Shutterstock.

(2 Posts)

Bree Brouwer is a blogger for Bidsketch.com, a powerful tool that makes it easy for freelancers and agencies to create professional client proposals in minutes.

Comments

  • Mark

    How am I supposed to calculate this “value” ?

  • Curtis

    An interesting read but not something I agree with.

    I’m not keen on the idea of charging clients different prices for essentially
    the same work. With time based pricing everyone is comfortable, as a
    developer/designer you can estimate the amount of hours it will take, this can
    then be offered to the client and they can decide if the quote is acceptable.

    Value based, well firstly how do you calculate value?

    One person’s value is not another person’s… Also I have worked with many
    clients who aren’t ‘tech savvy’. They want a website or app that performs a
    certain set of functions; they often don’t think about value but rather just
    focus on the need for the functionality so trying to price based on value is
    meaningless.

    I work on different pricing tiers, so my hourly rate for HTML/CSS work is
    considerably lower than my hourly rate of PHP/Ruby development, I agree there
    is a habit of people underselling themselves which then has a negative effect
    on the industry because clients become accustomed to low pricing but I don’t
    think value pricing is strictly the answer.

  • Kiodour

    A recommended read for all design professionals :)

  • You unfortunately can’t calculate the value. What you need to do is to understand how much your customers are willing to pay for the result / experience you’re providing them. That is much easier if you specialize yourself in a particular industry. Always remember that value to the eyes of customers is in a combination of results you’re offering them, mixed with the customer experience itself. While combining all of this, your customer will lost track of how much time it really takes you to do thing and will focus of the result they’re purchasing.

  • Lori Krstich

    I had the same question. It’s so hard for me to place a dollar amount on a perception.

  • Bree Brouwer

    Thanks, Kiodour! I hope if you’re not already doing value-based pricing, you succeed in switching over.

  • Bree Brouwer

    Curtis, value-based pricing MAY not be for everyone, but what it does is ensure proper remuneration for your time and efforts (not just your time). I wouldn’t want to quote a client per hour and then have to deal with them pushing me to do more (scope creep), and then maybe them getting angry when I tell them that won’t work with the time-based quote I gave them.

    And calculating value also doesn’t have to be difficult — you can ask potential clients how much they hope design work will impact their bottom line, and give a value-based quote from that number. You would of course want to get further into details as much as possible to more accurately figure out what they view as valuable, but this is a good start (Alex Le Moeligou has a great answer to this question below, too!).

  • Bree Brouwer

    I think the key here is what you pointed out, Alex: it’s easier if you specialize in an industry. Designing for any old business will of course mean you’re not familiar with every industry’s values, standards, and financial dealings. The more particular you get when you’re designing (i.e. you’re a web designer for medium-to-large food manufacturing companies), the more likely you are to know what they view as a good result and value.

  • This is the real point of the post. The value a design or development service provides depends on how much it’s worth to a client. Designing a winning ad for Sprint will add much more to their bottom line than an ad for a mom and pop local coffee shop so you can’t charge them the same amount. However, it does mean that you can charge Sprint more because the service is more valuable to them. One may increase sales by a couple hundred dollars while the other accounts for sales in the millions. It wouldn’t be smart to charge both companies the same amount.

    So how do you figure out what this value is? One way is to learn an industry as mentioned above. People in the same industry probably have similar budgets. Another possibility is to ask people how much a project is worth to them. A lot of people balk at this, but if you can get a ballpark figure, it can help a lot. Questions like, “How much were you expecting to pay?” or “How much did you want to pay for this site?” Once you know the amount, you may be able to charge more AND provide a better service. You may also find out that they aren’t willing to pay enough and then let them know what your minimum amount is for a site. Either way, getting a ballpark figure from the client helps out a lot.

  • Hey Curtis, don’t see it as only trying to charge the maximum, to kind of screw the customers that have more money. That is because you’re looking at the difference between industries. The key is to specialize in a particular industry, and package up many features (some that you might have reused from other projects) that will maximize the quality of the result you’re offering to you’re client, and over time, make you maximize the amount of money you will do, in much less time. This will result in a win-win situation and will allow you to grow incomes over time. If in certain industries, customers have more money than in other, they will only want a better quality result.

    I will give you an example. As you specialize in an industry, you will start building coding objects that will be reusable in the future and you’ll get faster and faster doing the job, right? Imagine you’re charging 50$/h for a 20h job, 1000$ total. You complete the contract and the customer is happy. You repeat that process again and again. In like 6 of 7 contracts, your code will be really optimize and you will become to be really fast; it might take you like 2x less time to do the same job again. What are you going to do for the next contracts if you know you’re customer is willing to pay 1000$ again for the exact same product? #1 – Higher you’re rate to 100$/h if you want to sell the same result OR #2 – add 2x more features to the final product. If that customer was really happy with the result you were offering, the only option would be #1, higher you’re rate. Either way, if you add a couple of more feature as you’re faster and you reuse stuff, you will never end up adding as much as 2x the features, so you will always want to higher you’re hourly rate to keep up with your real value for that particular job, telling yourself that you worth more as you’re much faster than before. This will make your clients only see you as an expensive programmer, focusing on you’re high hourly rate instead of on the real value of the result you’re selling them.

  • Kiodour

    I’m currently using a combination of rate-per-hour and value-based pricing.
    Thank you for this column :).