Mike McDermott’s Breaking the Time Barrier, a choose-your-own-price ebook, evaluates the value-based approach to pricing services through a fictional conversation between a professional and a curious amateur. Through their dialogue, the reader is introduced to the idea that we should determine the value of our services based on the potential return for the client rather than the time spent or some fixed rate we’ve determined.
I was introduced to this book by this podcast episode, which I highly recommend.
Here are a few of my takeaways:
Problems with Hourly Pricing
If you determine your price based on hours invested, you’ll need to invest more hours to make more money.
If you only charge hourly, you put yourself at odds with the client: they want less hours, you want more.
Problems with Budgets
If you start with cost/budget, they’ll be the only determining factors. They become what distinguishes you from the competition, meaning you’ll have to keep lowering the cost to stay competitive.
Cost-conscious clients are least likely to understand the value of what you provide, especially if you don’t explain it to them.
This can lead to even more cost-conscious clients rather than value-conscious clients.
The Path to Value-based pricing –
Determine client’s goals – Requires learning more about Point A, where they are, and point B, where they want to be.
Determine the project’s potential value – What is their return?
Create multiple options – Separate price tiers with different deliverables
Phrase the cost as an ‘Investment’ not an ‘Expense’
Discounts should only be a two way street – I can break down the price but then I’ll need payment quicker or upfront