Four Realities Of Value-Based Pricing--The First Reality
I clipped something to post about and when I went back I realized I had forgotten where I found the material. If you recognize it, please let me know so I can edit this post to provide proper attribution. I thought about not posting because of this problem, but the ideas are too valuable not to share and discuss. As you can see, the author identifies four realities of value-based pricing. I will reprint them with some commentary in four separate posts.
EDITED AS OF JANUARY 6, 2006.
I received a comment from Andrea Harris at Guerilla Consulting who kindly advised me that the material I had clipped but forgotten where I found it came from Mike McLaughlin, co-author of Guerrilla Marketing for Consultants. Mike, my apologies.
Four Realities of Value-Based Pricing
The logic of value-based pricing for consulting work is sound. Why shouldn't consultants be paid based on the results of projects, rather than the number of hours they log on them? And to take the logic another step, if a consultant's work generates big savings for a client, shouldn't the consultant share in that windfall?
I think value-based pricing will take hold in the consulting business, so facing the realities of this approach now will prepare you for the changes ahead.
Reality #1: Clients care about the performance of their businesses-not yours.
| "Clients are interested in their results, not your profit margin or how much time you put into a proposal or a project." |
Most clients are looking for tangible results, at the best price, when they hire a consultant. Of course, clients will pay a premium if they believe they can achieve faster, better, or more permanent results with a higher-priced consulting firm.
But never lose sight of the fact that clients are interested in their results, not your profit margin or how much time you put into a proposal or a project.
Some clients will express enthusiasm for and negotiate a value-based fee with a consultant, only to get cold feet at the last minute and ask for a time and materials or fixed-fee proposal. Clients sometimes perceive less risk and lower cost with the hourly rate option, even when that does not reflect reality.
Keep your pricing options flexible even if a client shows a strong interest in value-based pricing. You'll avoid scrambling at the last minute to create a price for services.
My take: I agree with this to a point. A savvy client will want you to earn a profit too since happy vendors or service providers can really help a business advance and grow. The relationship should be one of shared risk, but also shared benefits. One way streets are headed in the wrong direction.
Patrick - these words of wisdom are from Mike McLaughlin, co-author of Guerrilla Marketing for Consultants. Specifically, they are from one of his recent e-newsletters. He has written a few articles and blog posts on value-based pricing.
The TrackBack URL for his post on this subject is:
http://www.typepad.com/t/trackback/3595911
Anyone interested in signing up for his newsletter can find it at http://www.guerrillaconsulting.com/newsletter/ and his OTHER newsletter at: http://www.managementconsultingnews.com/