Download: MP3 (81 MB)

Part 1 | Part 2 | Part 3
We’re back for part two of an epic three-part series on Value-Based Pricing. In part one, we went over five steps to getting started with Value-Based Pricing.

In this episode, you get unprecedented access to the exact messages exchanged between the professional and the client—read word for word.

You’ve wanted to learn how to position yourself as an investment rather than an expense to your clients—that’s what this episode focuses on. You’ll hear exact phrases used that sold a very valuable, high-dollar solution to the client.

I don’t think you can find another episode like this on the internet when it comes to Value-Based Pricing. You’re able to listen to a podcast where someone who is executing Value-Based Pricing talks about it with the person they did it with and you get to hear inside the client’s mind—who also happens to be a professional.

We’re reading real messages exchanged that resulted in a difference of tens of thousands of dollars in the project’s pricing. This is highly-useful information applicable to anyone in client services who wants to learn to price on value.

Learn to Price on Value

Learn why the pricing models you’re using now are broken and how to fix the problem.

Click below to get access to the free series that teaches you how to position yourself in a way that makes you attractive to great clients.

Be 100% confident in every price for every project and start making more money.

Learn More

Show Notes

Don’t Chase Clients, Attract Them

  • 06:01 Sean: You don’t want to chase clients, you want to attract them. This is absolutely key in getting the kind of clients you want. If you’re in Scarcity Mindset and you’re only focused on getting clients, not on getting clients you want, you’re not setting yourself of for long-term success. If you’re attracting the wrong type of clients, you won’t be able to create value for them because you won’t be compensated well enough. When you take on just any type of client, you won’t be free from the cognitive burden of worrying about money. It might seem like taking on the wrong type of client is helping you and you’ll eventually be able to switch to the right type of clients, but taking on the wrong clients now is not going to lead to the right clients later. It always has to be a mental switch. You have to decide to be selective about the clients you take on. We’re talking about getting the right type of clients, not just any type of client.
  • 07:48 When a client approaches you—as opposed to you chasing them—they are in a deferential position. They are more willing to come under your process. When you’re chasing them and cold-calling them, you look desperate. Because of the Rule of Reciprocity, you’re now seen as asking them for the favor of being your client (Related: tv033 How Do I Know When I’m Skilled Enough to Start Making Money?). You’re coming to them asking, “Will you do me the favor of working with me?” which puts you in debt to them. They will then be more inclined to fight you on your process and ask more from you because you essentially owe them for doing the favor of becoming your client.
  • 08:52 Justin: When you have a client that you’ve approached and you change your workflow to fit how they want to work, it actually does the client a disservice. If you’re changing the way you work, your output won’t be as good as it otherwise would have been. If you’re in your comfort zone and working on your terms as the professional, you’re going to put out better work. You want your client to defer to your zone and the only way for them to do that is to have them come to you.
  • If you’re changing your process every time you get a new client, you’re decreasing the quality of your work.

  • 09:51 Justin: Worrying about money and altering your process with every client is cognitive overhead you want to eliminate. Value-Based Pricing does so much to eliminate that cognitive overhead. Having that cognitive overhead will make your work worse and that’s the last thing you or the client wants but it’s not intuitive until you really dive into the details.
  • 10:22 Sean: I like what Aaron said a couple of episodes ago: don’t ask clients to work with you. Instead, provide them value. Say, “Hey, I noticed this thing about your site, I solved this problem for you and here’s some value.” That actually uses the Rule of Reciprocity in your favor because you’re not asking them for the favor of working with you, you’re giving them value. They’ll notice that initiative and they’ll take note that you go out of your way to solve problems they didn’t even ask for. At that point, the client has the opportunity to ask you to work with them on a project.
  • 11:29 Justin: Real world example: that’s exactly what happened with Sean and me! I joined the Community, I saw the existing chat, and I did some things to improve it. No one asked me to do that. I shared everything I did to improve it freely with the Community so others could take advantage of that work. Sean took notice of my initiative and wanted to do projects with me.
  • 11:58 Sean: If you’re wondering how to get clients without chasing them, you can provide value. If you notice something on someone’s site, write a blog post about it and post it on your own site. That way, you’re creating value for the rest of your audience. Then you can mention it to this person and link to the post. That’s a great way to get on a client’s radar without begging for the favor of working together.
  • 12:30 Justin: As a hiring technique, some people will provide the candidate with a web page to be redesigned. Put that on your blog—write up what you would change and why. Do that for potential clients you would like to work with. That’s a great way to get on their radar and show that initiative up front.
  • 13:03 Sean: In the chat room, Sarah brought up a quote from Ben: “You don’t hand someone a note and ask, ‘Will you be my girlfriend?’ You attract the girl you’re interested in by being the kind of person she wants to be around” (Related: e111 Courting Your Clients and Customers). That’s a perfect example! When you are the one who displays the work and expertise, it attracts clients to you. When they are the ones approaching you, it sets the relationship off on the right foot.
  • 13:52 I went to a Dribbble meetup recently in Austin, where I ran into Justin Hernandez. He’s a Community member that just joined a few weeks ago. We started talking about his interest in travel photography. He’s got a day job and he really wants to be working with clients. I suggested that he act as if he was getting paid $5,000 to take photos for this meetup. Go to the meetup, take photos as if you were getting paid, and then write about the experience and challenges and how you overcame them. Photographers all have Instagram and that’s great—a grid of images that are duplicated on their website. Why aren’t they writing? It all starts with writing.
  • 15:09 Write about the challenges of that photo shoot, how you solved those problems, and post that on your blog. While you’re shooting photos at the meetup someone might come up to you and ask, “Are you the event photographer?” They’ll notice you. They may even have an event coming up they need a photographer for and that’s an opportunity to give them your website to fill out your request form. You’ll be able to respond to them with a proposal of $8,000 after you explain all the value you’ll be providing. If they come back and say, “I only have $800,” don’t do the job for $800, do it pro-bono! If you do the event for them for free, then in their mind this is an $8,000 job they’re getting free and they’ll come under your process. Then write about that job and that process again.
  • 16:42 Justin: You should also put the original $8,000 quote on the project when you give it to them. Don’t leave that off and just put, “free.” It’s not free, it’s an $8,000 value they’re getting! That’s critical to keep them in that mindset and to not undervalue what you’re doing.

The Right Client Cares About Value

  • 17:08 Sean: Let’s say you’re attempting to position the conversation with a client around value. If the prospective client is consistently insisting that you provide a rate or a “quick estimate,” then it’s time to politely turn down the client. Don’t be afraid to turn down more people than you accept. Not everyone is ready to work with a professional but don’t let this discourage you. You only shoot yourself in the foot if you decide to take on the job under unprofessional circumstances just to make some quick money. You’re better off focusing your efforts on attracting the kind of clients you want to work with.
  • Expect to say no to more projects than you say yes to.

    This kind of selectivity is what will keep the quality of your work high and lead to better and better projects over time.

  • 18:05 Justin: Scarcity Mindset is the enemy of this practice. You can’t be afraid to say no—saying no is powerful. Everything you say yes to, you’re saying no to hundreds of other things. Saying yes means committing and a commitment means time, resources, and dedication. If you’re dedicated to all the wrong things, you’re never going to find the right things.
  • 18:34 Sean: I say, “Focus on the value,” a lot but I want to emphasize what I mean here. In this case, I’m talking about focusing on the value to the client. What is this project worth to the client? Stop thinking in terms of, “What can I charge for this? What do other photographers charge for this?” The primary focus of Value-Based Pricing is, what can we do for the client? You’re not pricing for some arbitrary reason. You’re pricing according to the value you’re creating for them. A $200/hour rate sounds pretty good, but if you’re a developer and it takes you 20 hours to create a system that makes the client $100,000, you’re only getting paid $4,000 to create a six-figure value to your client. Value-Based Pricing is setting the price according to value and it wouldn’t be unreasonable, in this case, for you to get paid $20,000 for creating that six-figure value. It’s a no-brainer for any business owner to spend $20 to get $100.
  • 19:46 Justin: That’s business sense. You have to think about things from your client’s perspective—put yourself in their shoes. Their value proposition is going to be different than you think if you don’t dive into their perspective on the situation. You’ll often be surprised when you dive into those details and think about, “What is the value of this project to the client in their position?” In part 3, we’ll be talking a lot about how to get the actual number you put on the quote.

Position Yourself as an Investment (Not an Expense)

  • 20:42 Sean: People try to keep expenses down and maximize investments. If you’re positioning yourself as an expense, the focus is on your time, on your work, on the number of concepts that you’re providing, or how many lines of code you’re writing. You need to position yourself as an investment. By asking questions about value, you are positioning the conversation around you being an investment. You’re focusing on the returns the client will get when they hire you. This makes you more of a partner. You’re working with them to increase revenue as opposed to simply working for them in an arrangement where you’re an expense they are trying to minimize and you’re opening yourself up to comparison with your competitors.
  • 22:07 Justin: One of the biggest things about positioning yourself as an investment is demonstrating both the quality of your work and the process you have in order to produce that work. Those things don’t live in isolation of each other—the value-focused process produces better work than if you don’t focus on the value. It’s important to communicate that to your clients in your up front communications and even through case studies, before you even have clients. It’s important to position yourself that way so you’re viewed as someone the client wants to work with, not someone the client will have work for them.

Educate and Build Trust

  • 23:12 Sean: Justin DiRose, in the chat room, asks, “If your business focuses on consulting for the client, how do you focus on getting clients since you don’t always have a product you can case study?” You don’t need a final product that’s tangible to have a case study. It’s a challenging thought exercise to write case studies on intangible things, but you absolutely can. You can write about:
    • What’s different?
    • What’s changed?
    • What’s better?
    • What have you benefited the client?
    • How did the client have increase in some way as a result of working with you?
  • You can always come up with a case study by focusing on the results of the work you do.

  • 24:11 Justin: What couldn’t you create a case study around? The case study doesn’t have to be exhaustive into that level of detail. You can talk about details in an abstract way and you can explain how parts of your process led to value for the client. The key is demonstrating you have the skills, expertise, and the process that results in value for the people you work with.
  • 25:02 Sean: The point of case studies is to educate and build trust with the potential client. Why should the client hire you as opposed to anyone else? Have you established your expertise? Trust is critical. You have to have trust if you want to work as a professional and use Value-Based Pricing. Building trust is a process—it takes time. Clients need to be confident in your abilities before they’re going to give up control of this project and entrust you with something so crucial to their business. The more you’re able to display your process through your writing, the more you’re going to instill confidence in potential clients. That’s where case studies come in. Trust is so important. The client needs to know that you know what you’re doing. They’re ultimately entrusting you with the execution of this project. The execution of the project is your responsibility. The client is giving that up completely.
  • 26:14 It’s like that quote, “This is how much I charge to do the work. I charge twice as much if you want to watch me do the work and 10 times as much if you want to help me do the work.” You have to have full control of the execution so you don’t compromise your process and, ultimately, the quality of the end result. That’s not something to be taken lightly! It’s a big responsibility. You don’t want to rush the process of letting the client get accustomed to you. Justin and I spent two months on discovery and scoping out the project, not to mention the time before that when I got to know Justin and saw his work through other projects. You have to invest in that time. The only way to shorten that time is to increase the case studies you have. Clients can see themselves in those case studies—those stories—and it builds a little more confidence in you with each and every case study. If you want to condense that discovery time, you’ve got to make good case studies.
  • 27:32 Justin: In addition to the case studies, when you do paid or pro-bono work, you start to build a reputation. That reputation for the work you’ve done, plus the case studies that detail how it was done, can help you a ton. In your industry, your clients talk to other potential clients and word will spread. The work you put out is going to demonstrate what you can do, how you can do it, and build a reputation that will have more people coming to you. It’s a feedback loop.
  • The more quality, value-based work you do, the more opportunities you’ll have to do even more of it.

  • 28:32 Sean: The best thing about case studies is they act as stepping stones. Especially, when you go above and beyond to do a quality job. If you’re paid a few thousand, do $10,000 worth of value. Once you cover your bills and money is off your mind, you can invest a ton of time and make your work awesome. That case study is going to look like a $10,000 case study, which will attract clients that have enough money to pay for that kind of a job. Demonstrating your abilities at level 5 makes it more likely that someone will take a chance on a level 6 project. Keep making steps like that—leapfrog to to the next project and keep going up.
  • 29:21 Justin: A really nice case study will also demonstrate your ability to communicate well. Projects succeed or fail, based on how well you can communicate with people. Conveying your process, your ideas, and your thoughts in an articulate way demonstrates to potential clients who have read your case studies, that you’ll be able to communicate your thoughts effectively. That’s just one less hurdle to get out of the way.

Have Confidence in Your Ability to Deliver

  • 30:08 Sean: It’s also important to have confidence in your ability to deliver. I’m talking about delivering on the promise of the project. How certain are you that you can deliver on the project? How strong is your track record for like projects? There needs to be reasonable certainty that you can fulfill project requirements and bring forth the expected results. Obviously, your track record plays a huge role—what similar projects have you completed with successful results in the past? Why would a client go to you for a huge project that you don’t have a track record on? They might be willing to take a leap of faith from one step up from what you’ve done before. You need to stair-step here. You’ve got to have that track record to back up the next project.
  • 31:15 Justin: There’s no quick fix. You’ve got to take those steps, otherwise it doesn’t work. You can’t go from zero to a huge, value-priced project—it doesn’t work that way.
  • 31:31 Sean: Clients might be wondering, “How can you guarantee these results? How can you say with certainty, the value you bring will have [this] effect?” Justin, can you speak to the certainty with which you’re able to deliver on something, and is there some flexibility with that? How do you deal with the confidence aspect in terms of delivering on the project? The client wants to know these two aspects:
    • Is the project going to do what I want functionally?
    • Is the project going to bring about the results that we’re hoping for?
  • 32:20 Justin: I always under-promise and over-deliver. If I’m talking to a client about their problem, I learn where the problem came from in the first place and think about different ways of approaching the problem—from my perspective, the client’s perspective, and from the perspective of the client’s customers. Through that value-discovery, I develop a solution and I convey it to them in the beginning and then I try to go beyond that in the execution. During the execution, if my target is set higher than what I’ve promised them, I feel like even if I fall short I’ll still be giving them what I promised. If I go the extra mile and hit my target, then I’m happy and they’re happy. They’ll be ecstatic because they’re getting more value than they expected and they already expected a lot.
  • 33:53 Sean: In terms of getting someone to the point where they have confidence in your ability to deliver, what would you say to educating clients to get them to that point? Do you think everyone should be 100% ready to work with you as a professional and be focused on value? Obviously, if someone is trying to low-ball you, you want to turn that down but I wonder if there’s some allowance for not confusing those clients with ones who simply need a little bit of guidance. A little bit of education can go a long way here.
  • 34:34 Justin: Educating potential clients definitely can go a long way and this is where case studies come in again. Clients aren’t out there reading case studies all day so it’s highly likely your potential client hasn’t read the case study that demonstrates how you can solve their problem. That’s where some of that education can come from. If in your conversation, the client isn’t sure about the structure of your process, you probably have a case study that has some analogs to your current situation that you can pull out and give to the client. You can say, “I had a similar situation with another client. I wrote it up [here], I used [this process], and [this] is the process I’m proposing for your situation. Look how well it worked for them.” Demonstrate through case studies and past experiences that this is not your first rodeo. Say, “I can help you with this if you give me a little bit of trust and let me do this my way. I think you’ll be impressed.” If they need a nudge, try to convince them to give you that chance.
  • 36:00 Sean: We can also take responsibility for part of it as the professional, like steering the conversation away from pricing in the early stages. If you’re asking clients for a budget and they fill out the budget field, then you’ll feel like you have to educate them on Value-Based Pricing. It’s not just that you need to educate them, you shouldn’t be asking that question in the first place. Not asking the wrong questions up front will result in you having to do less client education.
  • 36:46 Justin: You don’t want them focused on a set price up front before you’ve explored everything you can do for them. It’s a shame when you’re talking to a client and you’ve discovered a problem you could solve so well for them except for the fact you talked about the budget in the beginning and now they’re set on that budget. There’s nothing you can do to budge them from it at that point. You can’t turn back the clock and take out the budget discussion from the beginning.

The Right Client Wants Solutions

  • 37:42 Sean: Value-Based Pricing effects the client’s mentality. Once they see you’re not in it to make a buck, but that you’re genuinely interested in helping them solve the right problems, it has a significant effect on their mentality. Professionals need to be the ones making qualified decisions within their realm of expertise. The client is deferred to for content and goals as they pertain to the area of expertise the client specializes in. We’re not saying the client doesn’t know what they’re doing—they know their business, their audience, and what they want to achieve. You want to capture that information up front. What are we working with? What are we trying to achieve? You should be using your expertise towards solving that problem. This will go a long way in preventing friction with this project (Related: e122 10 Mistakes You’re Making With Clients That Cost You).
  • All matters of execution are the responsibility of the professional.

  • 39:38 The professional process is one of refinement. You start broad, then you hone down. You continue to refine. When you are met with multiple paths or different routes to a potential solution, you need to do your due diligence to seek out the best one for accomplishing the client’s goal. Options should never be presented to the client. We need to focus on the goal and options are a wasted effort. The goal of a professional process should be to arrive at the most effective solution—not merely the one that the client prefers the most.
  • 40:46 Justin: When you’re in the early stages of talking to a potential client it’s ok to ask questions and pose general directions as a way of extracting more information from the client. If you give them a few different, high-level options early in the process, that will give you a lot of valuable information. That can be useful but that’s the only time for this kind of thing. Once you’re into the details, it should be you, as the professional, making those calls. It’s the client’s job to explain their problem, provide content, and answer your questions.
  • 42:04 Sean: Sarah had asked, “Do we help a client define their goals?” You do want to help the client define their goals because they could come to you with the “goal” of wanting to make something specific. That’s not an indication that they’re a bad client, they might just need some help. Lately, we’ve been talking about asking really good questions in general and a lot of clients need that. They need someone to pull out the deeper reasons for their goals and during that process, you may even realize that something else should be the goal.
  • 43:02 Justin: This question illustrates an excellent point. She asked, “Do we have to help a client define their goals?” That’s slightly the wrong question to ask—in a good way. If your client comes to you asking for a logo, that’s their face value goal, not their actual goal. That’s the goal they think will achieve their actual goal but they’re actual goal could be to update an outdated existing logo to attract a younger crowd.
  • 44:00 Sean: For the person listening that’s thinking, “These crazy guys are talking about weird, meta stuff. Obviously, the client just wants a logo, can’t I just make them a logo?” You can do that but what we’re talking about is more consulting and solving the right problems than performing tasks. If you just want to make logos, you can do that and there are clients who want that but we want to help you uncover the value you can create for the client. That does mean talking about some nuanced things that aren’t as tangible as just making a logo.
  • 44:55 Justin: There are clients out there who want you to drive photoshop for them because they don’t want to learn it. If those are the clients you want to have, that’s fine but we’re talking about going much deeper than that and examining the underlying goals, not what the client assumed will achieve this goal for them.
  • 45:30 Sean: We’re not doing this to exploit the client or make more money—this is all in the client’s best interest. If you’re consulting and solving the right problems, then what the client thinks they want may not actually be in their best interest. It’s your job to discover what is in their best interest. After all, what the client prefers may not be in their best interest! It may, in fact, have a detrimental effect on their bottom line. The professional should be the one making objective decisions. We’re trying to provide and create value for the client, not just find extra work to do.
  • 46:28 Justin: Clients come to you because they recognize they don’t have the skills or expertise to solve the problem they have. That’s why they’re seeking out someone to help them with it.
  • 46:45 Sean: But Justin, I can get my nephew to do it, why do you have to charge more than him? I could do this myself.
  • 46:53 Justin: You could but if you were the kind of client to do that, you would hire your nephew or you would try to hack it together yourself. If a client comes to you seeking your expertise, they’ve already recognized they could do it internally but it wouldn’t produce the best result, or they realized they didn’t have the skills to do it at all. When they come to you, they’re seeking your expertise. They often have already thought about the problem they have extensively and come up with assumptions of how to solve it. If someone comes to you asking for a logo—nobody just wants a logo! They want a logo to do something for them. They want a logo to elicit feelings in people to further their own goals. What are the actual goals?
  • 48:02 You, as a professional, need to dive in and find out what the underlying reason is they want that logo, then help them accomplish that goal. That’s how the client gets so much more value and how the work is so much better than if you take their request at face value. If someone comes to you asking for a logo and you make a logo, it might be a fine logo but it’s going to be a fantastic logo if you dive deep and find the underlying desires of the client, and design according to that. Your work is going to be so much better and they’re going to get so much more value.
  • 49:33 Sean: I wanted to clarify: it’s not that you’re a technician unless you price on value. Professionals exist that price on value but most professionals don’t do Value-Based Pricing. You don’t have to think in this consultant mindset if you don’t want to. You can do a simple job and not dig deeper, but that’s the whole point of Value-Based Pricing. If you want to continue doing $500 logos instead of $20,000 logos or brand identities, that’s fine but we’re trying to help you unlock that.
  • 50:30 Justin: There’s nothing wrong with wanting to just make logos. What we’re talking about is a lot of work. I wouldn’t call this mindset easy. It’s rewarding but if you’re not interested in it, there’s nothing wrong with that. You can be a professional and not price on value. If you want to take it to the next level, all of this is required. It’s a lot more work but it can make your work that much better and increases the value you deliver to your clients.
  • 51:38 Sean: If you have arrived at a fork in the road, that means your work is not yet done. It’s not a sign that you should present both routes as options to the client. It means there is work left for you to do. You need to explore each and compare them. Which is going to better serve the client’s objectives?
  • Don’t construct barriers between the client and a solution.

    Options are barriers.

  • 52:15 Don’t ask the client if they want options, tell them you’ll be providing a solution. This is where the leverage of your trust and track record comes in, combined with the fact that they approached you. You didn’t chase this client. That’s why they will be inclined to come under your process. If you’re thinking the client will never go for you providing a solution because they’ll ask for options—they won’t ask for options if you have a track record that shows that’s how you work and if they came to you in the first place.
  • 52:47 Justin: If you find yourself at a fork in the road well into your process, that doesn’t mean you present both options to the client. That means you should have a conversation with the client about understanding their goals better because if it’s not clear which way you should go, you don’t have a full understanding of what their goals are. Talk to them more about what their value-focus is and once you have that conversation, the way you should go will be clear.

Questions

  • 53:40 Sean: Destiny Toro asks, “How much do you reveal to the client when giving them the quote, so that they don’t take your solutions to someone else that would ‘do’ them for a lower price? Obviously, no one could solve the problem like you could, but is there risk of them attempting to take your ideas to someone else?”
  • 54:02 Justin: I don’t hold anything back and if you have a decent filtering process for clients before they even contact you, that’s going to weed out people with such low ethics that they would take all your ideas and have someone else implement them for cheap. The people who are going to do that type of thing are looking to take advantage of people in a way that’s easiest for them—going through your filtering process isn’t easy for them. If you have that filtering process in place, it shouldn’t be a huge concern. Even if they do get past your filtering process and take your initial conversations to someone else, that’s fine. I wouldn’t want to work with that type of client anyway.
  • 56:26 Sean: Someone from YouTube says, “What is an example of how you could provide a $100,000 (or even $10,000) worth of value to a company? If you’re a graphic designer and a company comes to you wanting a logo designed, how would you show them the logo you can produce for them will provide [x] amount of value?”
  • You don’t define what the value is to the client, you have to discover what the value is to them.

    The client defines the value, you don’t.

  • 56:54 Justin: Your responsibility is to give a solution that will provide that value and up front, it’s your responsibility to discover what the value is to that client through conversation with them. It’s not your job to say, “Here’s what I made and it’s going to provide you with [x] amount of value because I said it will.” You have no way of knowing what that value is until you discover it from them. Once you’ve discovered that from them, you don’t need to feed it back to them. They already know that because you discovered it from them. It’s not about positioning it around this thing that will provide [x] amount of value, it’s about providing something that will solve the problem you’ve talked about at length, thus providing the client with the value they’ll get out of the problem being solved.
  • 58:15 Value is relative and a solution doesn’t have any inherent value. Value doesn’t exist in a vacuum. If your local mom-and-pop restaurant asked you to make a logo for their new drink, the value of that logo solution is going to be totally different than if Coca Cola came to you asking for a logo for their new drink. The value of those two logos are dramatically different because of the context. Those two clients are in totally different positions. You’ve got to take all of this stuff into account when you’re thinking about what the value is to your client.
  • 59:11 Sean: Mike Stanley asks, “Can Value-Based Pricing be applied to any type of consulting? Some of the IT consulting work I’ve done is project-based and Value-Based Pricing makes sense. Some of it is more purely technician-like work—literally being called in to fix or rebuild downed servers. It’s hard not to see some of that as ‘by the hour’ work and I wouldn’t have thought that was weird or wrong until finding Sean’s podcast.”
  • 59:44 Justin: Value-Based Pricing probably can’t be applied to any type of consulting, but you might be surprised by the different number of areas it can be applied to. There is a ton of value in having downed servers rebuilt. How much is it costing the client to have those offline? What’s the value of getting those servers back online to the client? I once charged a previous employer five figures for a few hours of work because their internal systems were down and I was the only person who could help them get back online in hours, instead of days. The value was there for that amount of money. I want to be very clear: I’m not saying to exploit people or organizations when they’re hurting but you also shouldn’t undervalue your own time, skill, and experience, or feel obligated to help them out with a super low rate for no justifiable reason.
  • 1:01:07 Sean: Didn’t that project have crazy hours and you had to stand by? It wasn’t a typical, non-emergency situation.
  • 1:01:21 Justin: It was on a Friday and they needed to get online as fast as possible because of a time crunch they were under over the weekend. Again, I’m not advocating to exploit people in that position. Honestly, I could have charged much more than I did but I looked at it from an objective standpoint and asked myself, “What is the actual value to them of getting back online in hours, instead of days?” and that’s what I charged. I didn’t ramp up the price arbitrarily because they were in a pickle. I looked at how many people could be working if I got it back online and I knew roughly how long it would take someone who wasn’t familiar with it to get it back online—probably days. If there were down for [x] days, how much money would they be losing? Then I quoted a percentage of that amount. You don’t want to exploit people but you do have to recognize there is a certain amount of value in what you do for your clients. You shouldn’t undercharge out of a false sense of obligation.
  • 1:02:03 Sean: Part of why it feels awkward is because in most cases where we’re talking about Value-Based Pricing, we’re referring to money. Increased revenue is the #1 way to provide value but it’s not the only way. There’s different ways you can add value to client—more money, lower expenses, or reduced risk. In this case, Justin, you were reducing their risk and lowering their loss. When we worked on the new chat system together, it wasn’t just about creating an awesome experience for the existing members, but if the experience continued to degrade at the rate the Community was growing, I would lose out on what I already had because people wouldn’t want to use the chat and they wouldn’t want to be in the Community. It’s not only about what extra value you can provide me and how you can increase my revenue, but how can we save what we have and not lose any more?
  • 1:05:01 Justin: The situation your client is in factors into the value they’re going to get. If you had a chat system that wasn’t under distress and would have lasted another year, that would have been a different value proposition to you than the situation you were in at the time. The situation matters and factors into the value. We talk a lot about Value-Based Pricing and how it generally increases the amount you get paid but that’s not always the case. Going back to the mom-and-pop restaurant logo example—when you dive into the value proposition there, it might not make sense. The Value-Based Price for them might be too low for you to spend the time and resources to do that project. Because Value-Based Pricing is based on the value the client is going to get, the value isn’t always going to match the price that would be viable for you to do the project.
  • 1:06:42 Sean: The example I always use here is wedding invitation design. When I was doing custom lettering, I had people ask me to design their wedding invitations and the thing is, invitations don’t typically get much of the budget when you’re planning a wedding. There’s so many more important things the budget could be allocated to so it gets pushed to the back-burner. They aren’t looking to invest a lot in invitations even though it is the first impression anyone gets of this event.
  • 1:07:27 I’m going to jump ahead of myself a little here. Up next, we’ve got the Nuts and Bolts of Value-Based Pricing and there’s three factors that comprise Value-Based Pricing:
    1. Your time.
    2. Your costs.
    3. Value to the client.
  • 1:07:43 The first two—time and costs—that’s up to you. What is your time worth? Maybe you think of that in hourly terms or annual terms, but whatever it is, you have to establish what your time is worth to you. You don’t want to send an hourly rate to the client, that’s something internal you need to consider because it’s one of three factors that comprise this Value-Based Price. Secondly, consider your costs. In the case of invitations, that would be pretty low—you really only have to buy some Microns. If you’re doing other type of work you could have various expenses—hardware and software costs, or even internet and electricity.
  • 1:08:36 Justin: With the wedding invitation example, if you’re the one printing them and they’re letterpress, you would have a lot of costs there that would need to be built into your price.
  • 1:08:49 Sean: Yeah, it’s got to be baked in. The last thing is value to the client. What kind of profit will the client realize in their bottom line because of your work? You have to ask the right questions but the client will determine the value you’ll be giving them. The baseline amount for wedding invitation design usually cost more than the couple is willing to spend because of the time it would take to create. That doesn’t even include the value to the client, which is an emotional value, not monetary value. I like to use this as an example because in almost all cases, I had to turn them down because people weren’t willing to spend what it would cost me to do the work, let alone the value to them. In the next episode, the Nuts and Bolts of Value-Based Pricing, we’ll help you figure out if a project is even viable through:
    • Breaking down numbers
    • Figuring out percentages
    • Quoting

Behind the Scenes Of seanwes talk

  • 1:10:33 Justin: I went through Base Camp and pulled out some of our early conversations about the seanwes talk project. I really want to take advantage of the situation we’re in: I’m the professional, you’re the client and we’re sharing all of this inside information. This is such a rare, valuable opportunity. I wanted to talk about some of the actual conversations we had during that project.
  • 1:11:15 Sean: That’s huge! We’re not just talking about this conceptually. We’re giving you actual examples of conversations that happened about a project that was priced on value. It wasn’t content planned to be turned into a podcast, it was something we’re doing after the fact. It is such a cool opportunity to get this kind of insight!
  • 1:12:02 Justin: This first part was from August 12th, 2014, which was right at the beginning. We had briefly talked about something needing to happen with the chat because it was broken and something better needed to happen there. This touches on a point we made earlier, you don’t want to present your client with a lot of different options except in the very beginning of the process, where you’re trying to get information from the client. This is a perfect example of how that can work. My message was “Hey Sean, I wanted to run four basic options by you to get the discussion started. These options are listed from least effort, time, and money to most with the results scaling up accordingly.
    • Option 1: A minimal refurbishing of the existing chat plug-in.
    • Option 2: A robust overhaul or even a rewrite of the chat plug-in.
    • Option 3: A custom chat solution.
  • 1:13:06 “There are two reasons I’m presenting this option: first, I know you like to think long-term and if you plan to foster and grow the community for years to come, this might be worth the investment, especially if you have things you’d like to do now or later with chat that the current plug-in doesn’t support. Second, I know you like to have a certain level of control and this option would let you have that control over this aspect of the Community. Again, this only makes sense if your long-term plans lineup.
    • Option 4: An off-the-shelf chat system—be it a different WordPress plug-in or something else entirely, like Slack, Hip Chat, or even IRC.
  • 1:13:51 “I can help you research options and advise you on the technical pros and cons. Looking forward to hearing your thoughts.” That’s the message that really kicked off the whole discussion and the whole project. Sean, do you have any commentary on that?
  • 1:14:07 Sean: The fact that you presented the option that was above and beyond what I was thinking I would want was pivotal. I was focused on getting the immediate problem fixed, which is easy to dive into. A lot of people focus on the immediate fix. If you had asked what my budget was, I would have given you a budget for solving the immediate problem. But because we didn’t focus on money at first, you were able to focus on the problem and give different routes where you deferred to my goals. Depending on those and how long-term my thinking was, you thought out different options before hand that we could pursue.
  • 1:15:12 Justin: Again, presenting different options at such an early stage was all about trying to extract as much information I could from your situation, problems, and perspectives. The more information I have, the better I can solve your issues. You immediately jumped on the custom option and we started talking about that.
  • 1:15:37 The next day on August 13th, 2014, I sent you this message, “I’m wondering how chat ties into your overall future vision for the Community and what the best approach is. What I mean is you’ve got this Community, which consists of these key components: chat, hangouts, forums, and exclusive content. That’s the Community today and the chat seems, at least to me, to be an increasingly important part of it but I don’t know what your future plans are. What does the list above look like a year from now? Or several years from now? Are these bullet points that will be on there in the future that should be taken into consideration now? I want to make sure the things I build for you and the Community are the right things, not just for today but for tomorrow as well.”
  • 1:16:26 Sean: To that, you might actually hear, “I just want to fix the immediate problem. Stop asking me silly questions!”
  • You’re not going to solve big problems and create value if you don’t have the guts to ask the right kind of questions.

  • 1:16:56 Justin: The next day, we had just started to define the scope of the project. You had decided to go with the custom built option at this point and I’m asking you questions about how you want the logistics of the project to work. This is actually something you sent to me that I wanted to highlight especially. On August 14th, 2014, you said, “I’m very comfortable with nailing down a scope and list of features and sticking to that. I don’t really want a fluid or iterative process. From a client perspective, I like seeing a flat rate and a timeframe. This lets me evaluate whether the investment makes sense, since I actually know what the investment is, and when we can ship so I am able to plan accordingly.” I wanted to call out this message specifically because a lot of people are wary of going to a client with this huge, single number and saying, “I want you to pay me [this],” but clients actually value that in a lot of way. I think this message illustrates that well.
  • 1:18:13 Sean: I would rather have paid the $50,000 knowing you were going to solve the problem, than be on an hourly rate even if it totaled $38,000 when it was all said and done. That might sound crazy to a lot of people that are doing the work but that’s where the client’s mindset is. They want you to take care of it and not worry about. I didn’t want Justin coming to me asking what boiler plate or framework to use, I wanted him to solve the problem the best way knowing my goals. That really is worth money to me. He had the guts to price what he did and I was willing to pay that. Sometimes, that might mean you need to charge a higher flat rate than what the hourly rate would end up being. If stuff takes a little longer, you’ll eat that and if it takes less time, you’ll benefit from it. It takes some guts to price in a way that’s right for the right client, not being scared that the wrong type of client is not going to want to do the project with you.
  • 1:19:34 Justin: The final bit I wanted to share comes quite a bit later in the process. We had been talking a lot in the interim and we had nailed down what was actually going to happen. This is a short message from me to Sean on August 23th, 2014, saying, “Are there any other features, or questions, or musings that we haven’t covered yet? Even if they’re for stuff that’s quite a ways into the future.” That’s the whole message. I wanted to highlight this is because you should never assume the information gathering process is done. The only way you would know all the information you could possible know is to be in the clients shoes. There’s always more information to discover. I like to drop little questions like this throughout the process to make sure something that didn’t occur to anyone hasn’t slipped through the cracks. This can uncover little things that, if discovered early enough, can save you so much time and misdirected effort if you don’t ask them. Keep asking questions, keep discovering information, and keep searching for the details about those goals, because it never stops.