Sent by Jonathan Stark on July 27th, 2019
In his book Pricing On Purpose, author Ron Baker blew my mind with this (paraphrased) insight:
Value - not cost - determines price. Your costs will change depending on what price you set.
In other words:
Once I started value pricing, I completely understood points 1 and 2. Value determines price, so you must have a rough idea of the value before you can set an acceptable price - i.e., you can’t charge more for something than it’s worth to a buyer.
But… it didn’t dawn on me until I read Baker’s work that once you set a price, then you SET a cost! The key word here is “set” - i.e., your cost is not some constant that must be exceeded by the price for you to make a profit from an engagement. You can simply set your cost to be less than the price!
This was a complete game changer for me. This was the insight that allowed me to finally stop thinking about scope in a sales interview.
But let’s back up for a sec and talk about how most folks like us price our services. Typically, it goes like this…
A prospective client sends an email that says something like, “Hey Alice! Our mutual friend Carol said I should get in touch. I need some work done and she says you’re great! When can we talk?