June 19, 2022

Value-Based Pricing: How it works and how to use it for your business

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In today’s video, I’m talking about value-based pricing and how you can structure it for your service-based business to find success. Let’s go!

First and foremost, thank you all for coming through. As you know, I’m always about getting straight to the goods. Make sure you like, comment, and subscribe below. Drop me a comment, ask your questions. I’m happy to respond to all of them.

And without further ado, let’s break down value-based pricing.

So when you think about selling to a client, in our example, we sell branding and web design services to clients. Now we always say sell. But you don’t want to sell, you want to serve your clients.

Amateurs Give Advice and Professionals Diagnose

Chris Do, basically my spirit animal–the founder of The Futur–said, “The difference between amateurs and professionals is that amateurs give advice and professionals diagnose.” And that’s the biggest thing you wanna take from this entire video. You don’t want to necessarily sell your services, you want to diagnose the client’s potential problem and be able to find solutions to be able to fix their problems.

And by doing so, you’re becoming a thought leader in this space. And when you become a thought leader, you can charge a premium for your services because you have expertise that you can provide to that prospect or client. Always think of the desired future state: what the client is looking to get out of, what they're looking to accomplish, and what the future state will be if you can help them.

By definition, value-based pricing is the perceived value of the product. As a web designer, and brand strategist, let's say we do a website for 10 thousand dollars. If we know that that website can convert maybe 1 to 2 clients at 5k each, then it’s worth that expense.

And essentially, I can forecast how much money that potential client will make over the next 3, 6, or 12 months. That’s why it’s so important as a branding individual or web designer to leverage real data to make informed decisions on what you need to do.

So let’s go ahead and dive into this value-based prices and get it done.

Understand value-based pricing

So step 1, you want to be able to analyze and understand what value-based pricing is. And by doing so, you can cultivate the conversation you’re having with a potential prospect around that. So what I like to do when I jump on a prospect/client, is 3 things initially:

  1. Express enthusiasm. Be excited, be engaging, listen to their concerns, make sure that what’s important is to listen to what they are saying.
  2. Explain your agenda. And I’ll break that down and provide you all with the links to our agenda that we use when we’re talking to potential prospects.
  3. Be respective of their time. You should be able to get this done in 15-20 mins. As we all know, most founders have very busy schedules and they need to get work done.

So let’s go to a scenario. Let’s say we have a construction company that’s reached out to our branding and web design agency, and they’re looking to collaborate with us. Now they have a dated website, it’s looking old, they want to update the branding and the website to make sure it’s reflective of this year and make sure that they can convert users on the website. So what I do is I ask a series of important questions:

1. What services do you provide?

Talk about what services they provide. And during that call, I’m writing down those services or having a team member write down the services that they provide that give them the most bang for their buck.

Try to make it tiered and look at their services from the point of “Okay, what's your most profitable service at the top and what’s your least profitable service at the bottom?” Because we can create content around that in regards to the website design.

2. What problems are you facing?

The next question I’m gonna ask is what problems they’re facing. What are the issues that they’re having at their company, are they having issues with clients, are they having issues getting clients? Ask them and be thorough about that.

Again, remember, we are not selling. We are diagnosing their problem.

3. What is your deadline?

Talk about deadlines. We like to have a 90-day window for a full project build out, so we’d like to preface that by saying, “Hey, we’d love to hear about your timeline. We usually allow 60 to 90 days for a project build out, but we’d like to hear if you have any upcoming events and if we need to expedite that.”

4. What are your 2-5 year goals?

Talk about their goals. Again, we’re setting them up for a future state. So think about what their 2-5 year goals are, what they’re looking to accomplish, and help them get that done in your process.

So a lot of these questions are not only opening up the opportunity for the clients to understand what they’re looking to create and accomplish with this new project, but it’s also getting us an idea of the scope of the project so that we can create a value-based estimate accordingly.

5. What would be in your nav?

Also, ask them about the website navigation. What will be in the navigation, what items are needed, what are the main pages you need on your website?

Some clients might not know what they need. And it is your job to do a competitive analysis later once they sign on to be able to give them information. But ultimately, you want to kind of get an idea of what they need.

6. What functionality do you need?

Talk about site functionality. What are some of the features that you need, do you need to integrate a CRM, a contact form, is there’s some type of third party software that they need? Make sure that you're as transparent as possible.

7. Will you provide a copy/images?

Is the client going to provide you with the images they need for the site? If not, you might need a subscription to Shutterstock or another platform that will also affect the cost as well.

8. If you can reach this goal, how would it help your business?

Probably one of the last and most important questions is, “If you’re able to reach this goal, how would that affect your business?” And this is the biggest piece that leads into that value-based pricing structure.

Going back to the construction site. We’re sitting down with the client, talking to them, we’re vetting them out, we’re answering their questions. We’re making sure that we’re talking about them, we’re talking to them about a desired state: where they want to be, what their goals are.

Now, this is where we talk about pricing.

Always have a minimum engagement price

Always have a pricing minimum. For example, our agency, we don’t do anything for less than 15k on a website build out. “Yesterday’s price is not today’s price!”

So make sure you have your minimum set and make sure that the client understands that. Usually we have a contact form on site that explains and breaks down our price structure.

You want to have a conversation with the client. Let’s say you ask them a question like, “Okay, well, our average sites are around 15-20k. If you were to sign up a new client, what’s the average size of a job?”

They might say an average job is 100k. You could say, ”Well, for one tenth of that, we can create your website, design your website, develop your site, get it live and if you can get new clientele within the 2-3 month window, would that be something that you would think about?

Usually the clients are going to look at it from a perspective of “Well, you’re saying that if I sell a hundred thousand dollar deal, I’m only spending one tenth of that to redesign my site?” It’s a no brainer.

And by structuring that way, the prospect or potential client will look in it from a perspective of “Wow, this is an investment in my business that I’m making, that I’m going to see a return in, because I’m going to have this new design, it’s gonna look more lucrative, I’m gonna be able to acquire more high-end clientele.” And this isl all uncovered from the questions that we went over during that vetting process.

So not only does this help the client make a better more informed decision, but it makes it easier for you to provide value-based pricing at a set cost where you’re not necessarily charging hourly. Because when you start to charge hourly, that is when the issues arrive. That’s when clients might ask for more things, you might need to scope-creep, and then ultimately you’re doing the project for pennies.

This allows you to do it on a value-based process based on what they could potentially make and allows you to be able to make enough to complement and supplement your team, build out a beautiful design and development project, and get the job done.

Conclusion

So with all that said, I know that was a mouthful, I hope that was helpful. And if you have any questions, drop a line below.

I’m gonna drop a link to our prospecting call doc so you can have access. And if you have any questions, let me know. I’ll see you all later, peace!

A web designer on laptop waving at computer

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