Value-based pricing is the most sophisticated method of bill rate selection. We’ll walk through the steps to determining a value-based approach to pricing as well as understand how this more sophisticated pricing approach links back to the cost-based analysis and market validation. You will learn specific ways to set a value-based rate including examples that bring each rate scenario to life.
Think back to the last premium item you purchased. Perhaps price was a factor, but not the main deciding factor. Just as you may have enjoyed the comfort, prestige or added value of your purchase, so does a business when it contracts with a professional and pays not for time – but for value.
If you’re an independent consultant who can clearly identify the project, discern the client’s objectives, define the measures that will indicate progress towards improving the client’s condition and ultimately show that value to a client, you’re well on the way to charging a value-based rate.
Better still, if you have some unique intellectual property (IP), process, skill, expertise or methodology that can create value for qualified clients, you now are ready and able to step away from the traditional models of setting and structuring time-based bill rates and, instead, charge your fees based on the ‘value’ your services create for your clients.
This is perhaps the only instance, where expertise, not time, is of the essence.
Instead of being simply a transactional or deliverable-based resource to the client, value-based consulting pricing positions you as a strategic partner, engaging with your client in a true consultative manner. The client may need an outsider to step in and frame, guide and solve a specific business problem. Perhaps they need help in reaching a new territory, building a new product, creating a new methodology, or trying to save a business process going very wrong. Think of it as not just getting a rate per hour, but a true “piece of the action.” Of course if you cannot deliver, or if it takes a lot more effort than you bargained for, you also will have your share of the loss.
Value-based projects often arise when a consultant listens hard, truly understands a client’s motivation and needs and identifies areas where their specific skills can help the client save money, increase revenue, accelerate productivity, etc. Value-based pricing works when the results add measurably to the client’s bottom line or top line.
Are you ready to price for value?
In traditional pricing methods, the client takes the risk in paying you for services based on a statement of work of assumed time and delivery. However, in the value-based method, there is a morphing of the traditional model of the contractor/client relationship to a collaborative one where you both share in the risks and rewards.
Value-based pricing ignores time in favor of results, and so the risk must be a measured one. Are you confident you can deliver on solving the business problem? Are you confident you can show results? If so, you can set a valued-based fee.
Learn more valuable information, including detailed charts and graphs on how exactly to calculate your rate using the Value-Based Method (including information on fixed vs. hourly rates), in the free guide below.
Contracts should clearly articulate services to be performed, timelines for completion, and payment terms and conditions. Here are 6 best practices for drafting the right contract for your independent consulting services.
When it comes to consulting, your reputation can be everything—so why risk it? Here's how to keep your record clean and your clients satisfied.