Value pricing featured image

My Value Based Pricing Strategy

Pricing in a creative industry can be tricky. Usually, you pay a professional for their expenses, hours worked, and taxes. And, this works. The client pays for what they’re getting. It is a great way to making a living and charge for your services. But, today I want to propose that you may be giving your clients more than what they’re paying for.

Before I start, I recommend that you listen to episode #004 of The Businessology Show. @danmall introduced this concept to me, and a lot of what you read here will come from there.

The Businessology Show logo

Getting Paid What You’re Worth

When a client pays for an article or a logo, they’re getting more than those tangible things. No one only wants a logo. They are paying for the value that comes with one. They are paying you because they intend to get more value from your work than they are giving you to create it.

This value can vary between clients. Your local barber isn’t going to make as much money from a website as Burger King would. So, the two clearly aren’t going to pay the same price for one. This may have already been clear, but for a different reason.

Another type of value that your clients receive comes from your experience. Would you expect a writer of ten years to receive the same rate as someone that has done it for two? Creative professionals should realize that clients aren’t paying for fifteen hours of writing or eight hours of designing. They’re paying for fifteen hours of writing on top of your ten years of experience.

 

 

It has taken your entire career to get to the point you’re at now. If it were different, you wouldn’t have created the same result. This should affect the value of your projects just as much as who is receiving it. Like the last example, this may seem intuitive already. But, I rarely see it considered from a value perspective.

The Points That Sold Me

Like many freelancers, I started with an hourly rate. But, as I grew, I came to realize the number I put on myself was not very helpful for a few reasons.

Reason #1: I’m selling websites, not hours. Selling time is not only something I dislike, but it puts constraints on the project. When I’m fighting the clock to get a website finished, I’m focusing more on the time than the quality of my work. Often, a client has the same focus because time directly equals money.

Reason #2: Hourly rates limit my income. After getting so high, a client will refuse to pay an hourly rate. Asking for $100 per hour (in Web Design at least) is very difficult. But, with a project you know will take six hours that you charge $600 up front for, the cost is much easier to digest.

Reason #3: I’m pretty bad at time tracking. Alright, this one may seem like laziness. But, my lifestyle requires that I get up often to deal with non-work related things. Because of this, time tracking can be a mess. Value pricing allows me to remove complexity around the project involving tracking.

I actually don’t recommend value pricing to new professionals. It’s a lot to keep up with, and an hourly rate is easier to learn. If the above issues aren’t affecting you, don’t worry about value pricing.

Using Value Pricing For Myself

Here’s the part everyone is interested in: how do I do it? For the sake of transparency with my clients and colleagues and later improving, I’m going to lay it all out here.

Value pricing

To start, I determine my own value and expenses. This begins with an hourly rate at where I measure my value. If you’re having a hard time with this, I suggest calling someone in a similar industry that is not directly competition and just asking. If you’re feeling shy, something like PayScale works just as well. Then I include the costs to operate my business. My expenses shouldn’t be digging into my income. From here, I’ve reached my base figure. I can go into a meeting with this in mind and use it to make an accurate estimate.

Next, I determine the value I’m providing. This is through an interview. In it, we discuss their business, their industry, and their needs. From a design perspective, the more I understand, the better solution I can make. An added benefit is, this helps me gauge value. By the end of the interview, I can determine the length of the project, materials needed, and the value of a sale.

From here, I can roughly figure out how many sales I will generate along with their revenue. I would like to give exact numbers here and a formula for you to follow. But, if I’m being honest, a lot of this is intuition. The difference between someone that makes $100 on a sale that happens three times per day is clear compared to someone making $50 on a sale twenty times per day. Although I have seen people write formulas for it.

If you’re having a hard time with this, a simple way to determine the value they plan on receiving is to ask. I’ll say something like:

We can go crazy with this project and throw in features anywhere. I don’t want you to feel constrained, because the sky is the limit. But, to keep us grounded, I would like to know your budget.

Often, a client will directly tell you. This can be just as effective to gauge where they are financially.

By now, I have my base figure, the value I’m providing, and scope of work. I like to keep my estimate inside of 10% of my provided value over the course of a year. Again, this is intuition until you understand your market well. Then I determine how much I will benefit from the work and adjust accordingly.

If the project is something I need for my portfolio or for a business I morally support, the price may come down 10%. Even as far as 100% for nonprofits. If I can’t put the website in my portfolio, or the client is difficult to work with, the price goes up accordingly. Sometimes as far as 100% also. Yes, I have a mean tax.

This can also change depending on my workload. If I need to make a certain amount by the end of the month, the price may drop to pay my bills. Or, if I have a lot of work, the price may increase to compensate for the added complexity. If they say no because of the price, I’m busy anyway. If they agree, the extra workload is worth the money.

This brings me to my estimate. I run through all the figures above and come out with a flat price for the project. If I’ve estimated my time or value too low, that’s my loss. If I call it high, it’s profit.

This process may seem prone to abuse. Like everything in business, it depends on how fair you are. I communicate to my clients that they will see more money from a website that I make than I will. And I have every intention of delivering.

 

What do you think? I would love to have a conversation about value pricing and any improvements you may have. Feel free to leave a comment to help anyone else reading, or get in touch.

Share

Here's What Everyone Has To Say:

  1. Great article Skyler. In depth and informative. Pricing creative services is definitely a challenge. I personally bill hourly for any creative work, and price our rate according to the seniority of the designer were providing. I use value based pricing for bigger projects that have a measurable result associated with our service (eg conversion optimization services). Like you said, value pricing is prone to abuse – so I like to stay away from it unless there is a clear “value” I’m generating.
    Keep up the good work 🙂

    1. In the original draft, I actually included when I would and would not use value pricing. But that led to another discussion with figuring out if it fits your position that could have been its own article. But, I agree. It definitely isn’t a good fit everywhere. Imagine if your kitchen sink was flooding your home and when the plumber arrived he said, “well, I’d bet this is pretty important to you… It’ll cost you.” Knowing when to apply it is important. Thanks for the feedback, Sina!

Leave a Reply

Your email address will not be published. Required fields are marked *