Sent by Jonathan Stark on February 21st, 2017
When first exposed to the notion of value pricing, some folks have a kneejerk reaction.
The words “extortion” or “gouging” sometimes come up.
Ironically, I don’t recall ever hearing a reaction like this from a BUYER.
These reactions always come from SELLERS who - I believe - are looking for any excuse to maintain their status quo (i.e., hourly billing, cost plus pricing, or time & materials pricing).
Let’s pull out a dictionary, shall we?
Extortion—Extortion is the act of obtaining money, property, or services from an individual or institution, through threat of violence.
Gouging—Price gouging is when a seller spikes the prices of basic necessities after a supply shock caused by something like a natural disaster.
Unless you are threatening your clients with violence, or spiking prices during a natural disaster, you cannot be accused of extortion or gouging (regardless of how you price - on value or otherwise).
Furthermore, if your client has EVEN ONE SINGLE alternative to hiring you, neither of these terms can possibly apply. (As Jeff Bezos famously said: “Your margin is my opportunity.”)
MORE furthermore... value pricing is CLEARLY more ethical than hourly billing or cost plus pricing, because it REQUIRES that you set your price LOWER than what it’s worth to the buyer.
If you are talking to a friend who refers to value pricing as “extortion” or “gouging”, ask them to explain their reasoning. You (and your friend) will quickly learn that they don’t have a rational argument. They either don’t understand the definition of those words, or they don’t understand how value pricing works.
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