Captain’s log, stardate 20171020
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“Is it realistic for me to do value-based pricing for implementation work?” and more...
Sent by Jonathan Stark on October 20th, 2017
Do you ever wonder:
- Is it realistic for me to do value-based pricing for implementation work?
- How can I transition from selling implementation (labor) to selling strategy (expertise)?
- How can I develop better intuition about the amounts of money that larger businesses are operating with?
Yesterday, I answered these questions and more for students during our live group coaching video session.
Here are some of the actual questions we tackled from folks just like you:
“You’ve talked about how to move up the altitude of involvement and sell strategy. You’ve also mentioned a strategy engagement (like a roadmap) might be 5% of overall project (say, 5k). Given that implementation is very expensive (and thus brings in a lot of revenue), if we start successfully selling strategy only, how will we make as much revenue as when we were doing implementation?” (timestamp: 0m 52s)
“With value based pricing, I need to determine what the overall value is for the client. Is it realistic to get value based pricing for implementation work? Example: Let’s say that I’m able to figure out that the product’s value is worth around $5 million in revenue for the client. What is a reasonable percentage to figure for how much I should charge? 5%? 10%? 5% would be $250k. Where as the hourly priced implementation might only be $50k worth of development if outsourced. Thoughts?” (timestamp: 7m 29s)
“We are considered experts in our chosen technology, and it’s how we get lots of consulting leads. Is it possible to value price horizontal specialization? We’ve tried thinking about things like training, mentoring and coaching but haven’t cracked the value pricing nut for these yet.” (timestamp: 34m 40s)
“In a why conversation, one way to discover the value for a client is to find out how much would an employee cost/take to do the project instead. Are there any other techniques (other comparisons one can ask the client to make) to estimate the price of the project that the client would consider acceptable?” (timestamp: 40m 14s)
“Right now I’m spending most of my time on implementation tasks (coding) for clients, because it’s helping me build up a cash reserve. It’s good to be busy, but I want to free up some time and mental energy to think about the future. Would it help to try delegating to junior developers, or will that just create new problems and more work? Do you have any more general advice on how to start freeing up time without cutting off too much short-term revenue?” (timestamp: 45m 45s)
“When a project is finished, it doesn’t generate revenue (and profit for the client) immediately, but over time... When estimating the value of the project for the client, do you take a look how much profit they would make in a year (let’s say 1 mil) or in 2 years (let’s say that would be 2 mil) or in 3 years (3 mil) as that’s a 2x or 3x difference to how much you could price the project?” (timestamp: 50m 8s)
“I have developed a layer on top of an open source platform (Drupal) that significantly reduces the time it takes to build a website and offers other enhancements for content management tasks. Since the time taken to produce sites is dramatically reduce, hourly billing makes no sense. Are there key factors to consider when working out value-based billing for production services based on open source technology? (I.e. where there is not full control of the IP.)” (timestamp: 51m 48s)
“I find it challenging to think clearly about dollar amounts at the scale that businesses larger than mine operate at. I’ve had a number of 5-figure projects over the years, but it’s hard for me to internalize the fact that a business could justify spending half a million dollars on something. I’ve talked to potential clients who couldn’t afford a few thousand for software development. How can I develop better intuition about the amounts of money that larger businesses are operating with?” (timestamp: 55m 57s)
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