September 6, 2018

What if everything was value priced?

Have you ever thought what it would be like if everything was value priced?

It’d be pretty stressful, I think.

Value pricing exacts a high emotional cost from both the buyer and the seller because it requires deep and guided introspection. Therefore, value pricing makes the most sense for fairly large, urgent, and high risk engagements.

VP not a good fit for everything. For example, VP makes no sense for things like your morning coffee. It also is typically not an option for anything regulated by the government like a utility.

For what it’s worth, value pricing can be and is more broadly applied to things like soda and bug repellent and airline seats, but these prices are based on an estimated average value to the typical customer and don’t require a stressful 1:1 conversation between buyer and seller for every transaction.

This style of value pricing only applies to software devs in the case of products (e.g., books, video courses) and productized services (e.g., speaking engagements, in-person training workshops, advisory retainers). Custom software projects aren’t a good fit for this “average customer value” variant of value pricing.

But wait... does this mean value based prices change based on who you are dealing with?

Yes, absolutely. That’s the core principle of value pricing. You charge a fraction of what the engagement is worth to the buyer.

But keep in mind that value pricing cuts both ways. You can’t set your price more than what the project is worth to a particular buyer.

Ideally, the process works like this: you figure out what the desired outcome of the engagement is worth to the buyer, set your price below their perceived value, and then decide what you can do for them at that price to help move them toward their desired outcome.

If the desired outcome isn’t worth that much to the buyer, there might be no price at which it makes sense for you to work together because your cost to do the work is higher than any acceptable price.

In other words, you can’t expect to close a huge deal with a broke bootstrapper.