January 9, 2020

Value pricing defined in plain english

There’s an article in HBR entitled A Quick Guide to Value-Based Pricing that includes a breathtakingly convoluted description of value pricing:

“Value-based pricing is the method of setting a price by which a company calculates and tries to earn the differentiated worth of its product for a particular customer segment when compared to its competitor.”

WAT?! No wonder everyone is confused about value pricing :/

Conceptually, value pricing is dead simple:

Set your price for X based on what it’s worth to the client, instead of what it costs you to produce.

That’s it. That’s the core concept.

It’s not rocket science.

How do you figure out what X is worth to your client?


Have The Why Conversation with them:

WHY THIS? Why not NOT do this? What’s the big deal? Why take this big risk?

WHY NOW? Why not wait a year or two? Why not study it for a while? What changed?

WHY ME? Why not do it internally? Or hire your nephew? Or an intern? Or someone from Fiverr?

It takes practice to get good at this but if you you stick with it long enough, you’ll be able to do a cold read - i.e., answer these questions for specific types of clients and set prices without talking to specific prospects on an individual basis.