Guarantees and value pricing

Sent by Jonathan Stark on January 7th, 2019

When you bill a client by the hour for a project, there is a financial incentive for you to spend more time on the project (or at least, not to rush).

When you value price a project, there is a financial incentive for you to finish as quickly as possible.

In general, the alignment of financial incentives created by value pricing is a good thing for both you and the client. The client gets what they want sooner rather than later, and you end up with a more profitable engagement.

However, value pricing raises the specter of rushing. Since you are financially incentivized to finish a value priced project ASAP, the client might fear that you’ll “cut corners” or “do shoddy work” or “slap something together.”

This is where guarantees come in. You can reverse the “cutting corners” objection by providing some sort of guarantee that directly addresses the fear that your client is experiencing.

The nature of this guarantee will potentially be different from project to project. It depends on the type of client, the type of work, the price, the timeline, the assumptions, the risks, and so on.

Here is one way I’ve handled this in the past:

For my value priced custom software projects, the client might fear that I would slap together a pile of shoddy code to rush the job to completion. Offering a “bug free” guarantee addresses this concern. i.e., I’ll keep working until the bugs are gone. 

Maybe this sort of guarantee would work for you, maybe not. As I’ve said before, what you might guarantee will depend on many factors. But the big thing to keep in mind is this:

Guarantees are a tool that you can use to decrease the perceived risk of the engagement in your client’s mind.

This differentiates you from your competitors, increases the perceived value, and justifies premium prices.

Yours,

—J