July 2, 2021
Reader question about value pricing, post-delivery requests, and business outcomes
Fellow list member “Nick“ wrote in to ask about the how to handle change requests and/or new feature requests after a project has been completed.
It turned into an interesting thread about how to define business outcomes and success metrics. I think you’ll find it useful (shared with permission, name withheld by request, lightly edited for clarity);
Nick
Hi Jonathan,
I wanted to ask you about value pricing and new feature requests.
When using value pricing, should we charge the customers for the new feature/change request that comes up either during the development or after the development is completed and accepted by the customer?
I think we should but just want to know your opinion on this.
Thanks.
Jonathan
Hi Nick!
The short answer is no, you wouldn’t charge clients for features or change requests because with value pricing you’re not selling features or deliverables, you’re selling the desired business outcome.
I can tell from your question that this is probably going to make your mind explode :-)
Nick
Hi Jonathan,
I am referring to change requests that occurs after, let’s say, 3 months of the successful completion and achievement of the desired outcome for customer.
Now, they feel that this new feature should also be added
For example, desired outcome at that time was A. This was achieved. Now few months later, they want to add B to that A.
Should that B now be charged?
Jonathan
Can you give me a specific example with details rather than an abstraction?
Nick
Consider this example.
A customer asked me to do a customization in NetSuite to allow them to set the item pricing on the customers and let them see other related item details on the same screen. This outcome was achieved and they were happy with the results.
A few months later, they asked me if there could be a button to export all the results shown on the screen into a CSV file. Should this be charged?
Jonathan
Hm... I think we might have a semantic difference around the word “outcome.”
What was the business outcome of the initial engagement?
Nick
The outcome was that they will be able to add customer item pricing more efficiently, with all required information displayed on one page.
Jonathan
Understood, but why did they want that?
Nick
To make the process easier.
Jonathan
Why? (I know this sounds like a stupid question but I’m trying to get you past the obvious surface level stuff to the buyer’s ACTUAL MOTIVATION)
Nick
So that they can increase their productivity.
No, I am actually happy and kinda surprised that you ARE replying to my emails/questions.
Jonathan
Great! We’re getting closer to a measurable business outcome but we’re not there yet...
How do they measure their productivity currently?
What is their current productivity level?
How much do they want to increase their productivity?
Why do they want to invest in increasing their productivity right now?
What benefits will accrue to their business from this increased productivity?
What are some other ways that they could realize the same benefits without increasing their productivity?
Nick
To be honest, I didn’t ask these questions. I was reading about value-based pricing yesterday and these are the questions that will lead to extract the value of an outcome.
Jonathan
Yep, exactly.
So...
Nick’s original question was based on a common and fundamental misunderstanding about value pricing.
Folks who are new to value pricing often conflate requested features with business outcomes.
Features are not business outcomes.
Farther down in the thread, Nick suggested that the client’s desired outcome was increased productivity.
Increased productivity IS a business outcome, but Nick apparently didn’t talk about it in the sales process.
Therefore, the client didn’t have the chance to agree to “X% of increased productivity” as the success criteria for the project.
If they had, Nick would have been able to declare victory once the business objective was met (i.e., “Congrats everyone! X% increase in productivity has been achieved. The project is now over.”)
Any additional request that came in after declaring victory should be considered part of a new project, which would have its own success criteria, and be priced appropriately.
Yours,
—J