Sent by Jonathan Stark on September 30th, 2019
A longtime friend of the list who I’ll call “Zaphod Beeblebrox” wrote in with a story that illustrates a bedrock fact about value pricing: Whether a price is acceptable depends on the value in the buyer’s mind, NOT the cost in the seller’s mind. (shared with permission, name withheld by request, bold mine):
Jonathan, Here’s a story that happened to me a couple years ago. A long-time client asked me for a proposal on a piece of work, building a large corporate WordPress website. We’d worked with them for about 5 years, and they were happy with the work and value. Our normal project range was $150k-$2225k. I had always spent days planning, estimating, justifying each proposal. For this project, my estimates made me comfortable asking a fixed price of $238k. Chatting with my son-in-law, he offhandedly challenged me to raise the price by $100k and see what happened. I had a strong negative reaction to this idea... at first. I slowly realized that my proposal didn’t include detailed estimates or vendor costs. The price came from what I was comfortable with. So, I changed the “2” to a “3” and submitted it for $338k. And of course they said yes without blinking an eye, and I made an extra $100k in profit by changing one ASCII character. That’s not quite true. What actually changed was the way I understood value. Without that, I couldn’t have changed the “2” to “3”. I was worried that I wasn’t providing enough value to charge $338k, but clearly I was, or they wouldn’t have bought it. Value is in the eye of the beholder. Just thought you might like this story. —Zaphod
Thanks for sharing, Zaphod!
Now dear reader, there’s one thing that I must to point out… you can’t expect to land a deal if you present a price that is higher than what the engagement is worth to the client.
Put more simply:
A buyer won’t pay more for something than it is worth to them.
Value pricing is NOT a license to tack $100k onto every proposal. This only worked for Zaphod in this case because the project in question happened to be worth at least $100k more to the buyer than what ZB was planning on charging.
If you’ve been charging less than your services are worth to your clients, then you can probably charge more without too much fuss.
But if your clients are already feeling like they’re not getting stellar ROI from you, charging more is going to drive them away.