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Most people do not feel confident about their pricing.
They are not 100% certain that the price they put on their proposal is completely fair to the client and completely fair to them.
A common misconception about Value-Based Pricing is that you will charge some companies more just because they’re bigger. That is not at all the case. In fact, two companies of vastly different sizes will always receive a quote of the same price if the value they get in return is the same.
Value-Based Pricing is the fairest pricing model in existence because it ensures a client never pays more than a fraction of the value they’re getting.
Of course, discovering and uncovering that value in an accurate fashion is the key. You then have to take that quantified value and calculate a value-based price that also accounts for the time it takes to realize that value.
That’s what we teach inside the Value-Based Pricing course, and that’s what the tools we’ve developed will help you accomplish.
Highlights, Takeaways, Quick Wins
- A value-based price is based entirely on quantifiable factors and derived by math. Nothing is arbitrary.
- When you use Value-Based Pricing, you can be completely confident every time you quote a price because it’s always going to be a fraction of the value your client will realize.
- Once you stop chasing clients and start attracting them, your professional relationships will be built on a foundation of trust.
- A value-based price has nothing to do with the size of the client or how much money they have in the bank.
- The value of your work is determined entirely by your client.
- Value is relative, and value is contextual.
- Clients without money are not clients.
- If you’re not making a profit you’re going out of business.
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- 02:10 Justin: Among other things, we are going to talk today about a lot of these additional, unexpected benefits we discovered when we were trying to come up with a pricing model that solved the problems of hourly pricing, flat rate pricing, and other traditional ways to price. We talked a lot about the benefits we were after and the goals we wanted to solve with Value-Based Pricing in the last two episodes, but there are a bunch of other reasons why this is really great as well. One of the biggest things is that your confidence in your work, your client relationships, your processes, and your whole professional world increases with Value-Based Pricing.
- 03:10 The way you work with Value-Based Pricing involves attracting clients with a base level of trust because they’ve sought you out. They’re coming to you looking for the work you’re doing. You go through the value-discovery process, and you realize that the work you could do for this person, entity, or business is going to provide them with value. It’s going to help a lot. That’s a really fulfilling feeling, and it boosts your confidence.
With Value-Based Pricing, you have a lot of confidence surrounding your price, because you know the price is a fraction of the value your client is going to realize.
- 04:03 When you do the work, the work is backed up by this wealth of knowledge you’ve received from this new process. You’ve learned a ton about your client’s actual goals in the value-discovery process, and you’ve had this rich dialogue with a client with whom you have aligned goals and incentives. You’re both working toward your client’s success, so they’re treating you more as a peer and a partner. You’re having richer conversations with more useful information, and all of that contributes to you doing not just good work but great work, really stellar work. It’s the best work you’ve ever done.
- 04:51 It’s backed by all this previous confidence, and when you do the work, your confidence goes up even higher. You know that you’re going to knock it out of the park with this work, because you know so much about the client, their situation, and what is going to lead to success for them—and, thus, what is going to lead to success for you. You present this work, you deliver it, and it’s a win-win everywhere. You’re winning, the client is winning, and you’ve done this outstanding project. You do a case study on it, and that case study attracts more clients because it demonstrates that you can execute really well. The quality of your work is there, your ability to communicate is there, and it’s all positive feedback loops.
How to Have Confidence in Your Price
- 05:48 Sean: I think the vast majority of our listeners do not feel confident with pricing. I put two options that people can vote on in the chat right now, and one says, “I feel confident when I present a price,” and the other says, “I do not feel confident when I present a price.” I’m going to give people a moment to vote on that, but I think a lot of people don’t feel confident. Right now, it’s seven to two. People are voting and saying that they don’t feel confident when they present a price. When I say confident, I’m talking about how you feel, the level of surety you feel that the price you put is right. When I say right, I mean right in every sense.
- 06:41 Right in that this is fair to the client and right in that you are getting paid what you’re worth. We’re not just talking about right in that you’re sure the client will be okay with this. That’s another factor. How sure are you that the client will accept your price as a no-brainer to them and have it be something that is fair to them, extremely fair, and very fair to you? Are you getting very well compensated? Right now, it’s twelve to four. Three times as many people do not feel confident when presenting a price.
- 07:16 Justin, what about a Value-Based Price makes it a no-brainer? Why can someone feel totally confident when they present a Value-Based Price?
- 07:28 Justin: The core of it is that through value discovery, your client has told you what the value is of your work to them. They’ve volunteered that information through the discourse that you’re having. It’s not influenced by you, that value-determination. It’s something you’ve discovered. It’s something you’ve encouraged them to volunteer to you. Now that you know that, you can charge a fraction of it. We have tools provided with the course that help you determine what to price, and there are a number of factors in it. If you look at it, value is a combination of money and time. Your client is going to realize an amount of money for your work over a period of time.
Using the factors of value and time, you can determine how much you should charge, which will be less than the value your client is going to get.
- 08:34 Thus, it becomes a no-brainer business decision. They’re looking at this monetary return that they’re going to get over a period of time and what they’re going to pay to get that monetary return. It’s going to be a fraction of the money they’re going to get, so it becomes an investment, a clear win. That’s the core of why, every time with Value-Based Pricing, you’re going to be confident about the price you’re charging and they’re going to be eager, not just willing, to pay that price to get that.
- 09:15 Sean: I saw one person change their vote. Now it’s thirteen to three. Sarah had a comment, “I feel confident when I present a price,” which I think it what a lot of people are thinking right now. They think I’m asking, “How confident do you feel when you present that price? What do you feel in the moment?” I just put out the confidence criteria, which is that the client believes that they’re receiving a tremendous amount of value that’s many times greater than the price, that you believe that you’re being well compensated and getting paid what you’re worth, and also that you know with absolute certainty that the client will say yes to this price.
- 09:49 She says, “I feel confident when I present a price, but I go to bed and I have quoter’s remorse.” She’s thinking both, “Was it too much?” And, “Was it too little?” I know for a fact that a lot of people feel this. Maybe they feel good in the presentation, but they’re wondering whether the price they quoted was too high, or worse, too little. Could I have gotten more? Should I have gotten more? That’s what we’re talking about. When we say confidence here, we’re talking about 100.00% confidence that this price is the right price, and it satisfies all of the criteria.
- 10:29 Justin: All those feelings about the prices you quote and things like that, I was there. We were both there, and that’s why we started figuring this stuff out and we started on the path of creating Value-Based Pricing. This stuff bugged us. Here’s this development project that I quoted at a flat rate. I come up with a number, and it’s somewhat arbitrary. I’ve tried to base it on as much logic as I can, but it’s a pretty arbitrary number when you get right down to it. How do I know it’s the right number? Is it too high? Is it too low? Am I taking advantage of the client? Is the client taking advantage of me?
- 11:14 There are so many questions, so much uncertainty, and so many negative feelings. I was sick of it. This can’t be the way this works for my professional career. There has got to be a better way, and Value-Based Pricing is the better way. It took two years to figure it out, but it’s a much better way.
The numbers you come up with through Value-Based Pricing are based on value, on real-world factors, so they’re not arbitrary in any way.
- 11:49 They’re calculated. They’re put together with puzzle pieces you collect along the way, using this process that we detail out in the course. We give you a road map to get from the beginning to the end, where you have a price that is not arbitrary, that’s based on actual things in the world.
- 12:14 Sean: It’s math. That’s why we built these tools. I think people want to have this kind of confidence when they’re pricing with clients. They want to know that it’s fair. They want to know that it’s a win-win, and that’s what we’re talking about here. It’s a process you go through that starts with defining the value. The client is the person who does this. The client is responsible for defining the value, providing content, and establishing the goals of the project. You’re responsible for everything else, which includes doing the work.
Discovering the Perfect Price
- 12:50 They define the value, and you take that figure. Justin, do you have a sky-level overview of what it takes to go from discovering that value, having the client define it, to this price and why you should feel so confident?
- 13:11 Justin: The tools we have take into account a number of things. Number one, it’s going to take into account what you need to make to survive. What are your expenses? What amount do you need to make to keep a roof over your head? It also takes into account those two factors that go into making up the value—how much money is your client going to realize from this work, and how long is it going to take them to realize that value? Time is a huge factor here, because everyone has a limited amount of time. It’s the one thing we can’t make more of. We’re never going to get more time.
- 13:50 In the business world, time is a critical factor. The more time it’s going to take to realize the value, the less you charge for it. Subsequently, if you’re going to be able to deliver a lot of value in a shorter than normal period of time, the price you charge goes up. Time is a factor here. It’s also going to take into account arbitrary costs for materials and consumables that are project-specific. It’s going to take into account things like your confidence level, time estimates, material estimates, and things like that. There is a wealth of different factors that went into this.
- 14:34 We spent a lot of time coming up with the exact way to take all of these factors, what they affect, and how they affect it. How do we come up with that percentage of value that you actually end up charging? It’s gone through a lot of iterations, and at this point, we feel really good about it.
The calculations for a Value-Based Price take into account real world factors that you have to be concerned with.
- 14:59 You have to be concerned with whether you’re going to be able to pay the bills this month. You have to be concerned with whether the client is getting excellent value out of the work you’re providing. Am I making a profit? That’s a big one that I didn’t mention. Is that profit enough to get me where I want to go?
- 15:22 Sean: There are some people who have a weird relationship with the word profit. They think it’s a bad thing, that it means that you’re taking advantage of people. Let me set the record straight. You have to profit. You must profit. It is your duty to profit. If you don’t profit in business, you don’t have a business. You’re going to die out. Profit is survival. You have to have profit not only to grow, but to maintain what you have. Everything takes maintenance, and maintenance requires resources. Those resources come from your profit.
If you aren’t profiting, you are actively going out of business.
- 16:11 You need profit. Profit is a good thing. It means that you have created value in this world. Here’s a really interesting concept that I heard recently. We think of commerce and we think of transactions. You’ve got someone that has something, someone else wants it, so they compensate the first person in some way, usually through money. They give you money, and they get something in return. Think about when you go to buy something, Justin. Will you pull out your wallet and give away your hard-earned money for something you believe is worth less than that hard-earned money?
- 16:58 Justin: No.
- 16:59 Sean: I wouldn’t either. Almost all of us look for something that feels like a deal. I would argue that most of us don’t do even trades. What’s the point? If I’m getting exactly what I feel is the same value as what I’m giving up, it’s not worth it to me. In fact, it’s a loss to me, because it takes the time of purchasing. We only purchase things that we feel are a good deal to us, where we’re getting greater value than what we’re giving up. If you buy something for $500, you believe that you will get $501 or more of value in return. Otherwise, you wouldn’t make the transaction.
The Power of Collaboration
- 17:38 Now, think about this for a moment. When you have two people working together, one is compensating the other and the other is providing a service, which is your time. Time and money are interchangeable, and you are offering some of your life for doing this work in exchange for money. You’re doing that because you believe that the money you’re getting is worth more than the time it takes you to do the work. The client feels like the work they’re getting is of greater value than the money they’re giving up. What do we have here? We have two parties that believe they are getting an excellent deal. They actually believe that what they are receiving is of greater value than the price they paid.
- 18:26 What this means is that there is created value. We have literally created value out of thin air. That is what has happened here through this transaction. We are injecting value into the marketplace, into the world. We are literally creating it. How amazing is that? I want to give perspective to this word “profit.” Yes, you’re profiting, but so is the client. You’re increasing profit for everyone. The world and the economy as a whole are becoming more wealthy because of the value that was created.
- 19:08 Justin: That’s why collaboration is so incredibly powerful. You’ve got people over here who are experts in their industry, and they’ve got a lot of experience to bring to the table. You have this person or these people on the other side, and they have their own expertise and experiences to bring to the table. In isolation, either one of these parties can create interesting things and provide value on their own, but when you combine them and bring them together and have them work on a common goal, that’s where the magic really happens. You’ve got these two different world views, these pools of expertise, that you can draw from, combine, and mix.
- 20:02 You can bounce those off of each other, and incredible things can come of that. That’s where a huge amount of value can come from. That value that’s put into the world benefits both parties.
One of the core concepts of Value-Based Pricing is that the sum is greater than the parts.
It’s Not About Income
- 20:42 Sean: Ben Flack says, “How is it fair that someone has to pay me more just because they might make more from what I give them than another client? Doesn’t that amount to income-based fees? If you make more you pay more. If I tried to buy something and found out I had to tell how much money I make because I’ll always be charged some percentage of my income, I’d probably be pretty upset.”
- 21:16 Justin: Number one, Value-Based Pricing does not take into account in any way the size or overall income of your client. You could do a Value-Based Pricing project for Coke, the huge company of Coca-Cola, or you could do another Value-Based Pricing project for a mom-and-pop shop, and if the value you are delivering to these two clients was the same, the price would probably be about the same.
- 22:06 Sean: If you do a job for Coca-Cola, you might be tempted to think, “They’re a big client, so I charge them more.” That is not the case. Value-Based Pricing has absolutely nothing to do with income. Zero. Ben’s wondering if this amounts to income-based fees. No. He asked, “How is it fair that someone has to pay more just because they make more?” They don’t pay more because they make more. It’s not relative to any other client.
It doesn’t matter how much the client makes a year or how big their company is—Value-Based Pricing is a price based on the value.
- 22:49 It’s based on the value that the client is receiving. Like Justin said, if you go through a value-discovery process with Coca-Cola, you might find that they only profit $2,000 from you work, and you price accordingly. You might work with a mom-and-pop shop, and through a value-discovery process, you find that they will profit $2,000 from your work. You price accordingly.
- 23:19 Justin: How is it fair that you’re charging more than the other? It’s fair because the work you’re doing for each client is different. You’re not selling the same thing—it’s bespoke, tailored, custom work for every project. That’s why hourly rate and flat rate pricing was so niggling to me. I’ve got this one client over here, and I’m doing work for them. I’m charging them the same hourly rate I’m charging this other client, who I’m doing entirely different work for. The nature of the work is different, the kind of work is different, and the way they’re going to use the work is different.
- 24:07 That’s one of the things that Value-Based Pricing addresses. It addresses the custom, unique, tailored nature of the work and the projects that you do and provides you with a model to price accordingly. You’re pricing differently for each client, because what you’re doing for each client is different.
- 24:30 Sean: It’s always fair because you’re pricing on the value. There’s nothing arbitrary about it. It has nothing to do with how big they are or how much money they make overall. It is only the value of your work, and if the value is equal to another client, then the price will end up being the same. That’s how the process works, because it’s all math.
When the Client Doesn’t Have the Money
- 24:54 There’s another question from Moataz. He says, “What if you can give a startup a whole bunch of value, but the money isn’t there yet?” Then you have to turn them down. A client without money is not your client. I could say, “I could realize $2 million worth of value from this project,” and the professional goes through a value-discovery process and they come up with a Value-Based Price, and they say, “Great! My quote is going to be $350,000,” or whatever the quote is. Maybe it’s $500,000. If I say, “I only have $60,000,” it doesn’t matter. Anyone can realize a ton of value from all kinds of projects.
- 25:38 If you build me a rocket ship, I could probably make millions of dollars, but I need to have millions to afford to pay you to build the rocket ship in the first place. If the startup could profit a bunch from your work, but they don’t have the money, they don’t get to be a client.
- 25:54 Justin: You can’t use exposure to pay the bills. You can’t use good will to pay the bills. You can’t use anything but money to pay the bills. You can’t use anything but money to invest in the resources you need to complete the work.
- 26:10 Sean: But what about all of the exposure that I’ll get? They say I’ll get a ton of exposure if I work with them. They can’t pay me, but someone else might see my work, and maybe they will pay me.
- 26:21 Justin: Exposure does not pay the bills, buy the paint, pay for the software, or make things happen. Exposure is not a currency.
- 26:34 Sean: So you’re saying that when I filed for the rental application for this new house I’m moving to, they did a background check and stuff, and you’re saying they didn’t do an exposure check? I can’t convert that over to money?
If a client doesn’t have money, they’re not your client.
- 27:09 Justin: They have to be able to pay for the work you’re going to do for them. This is key. Your work has a value. The value is determined by the client. It’s there. Your work is valuable. The stuff you’re doing is valuable. It’s going to help people. It’s going to get people closer to success, achieve goals, solve problems, and there is absolutely value in the work that you’re doing. Don’t short-change yourself. Don’t fall into the trap of thinking that you’re not good enough, this work isn’t good enough, or that you’re not worth that much. That’s the whole point. Your clients are determining the value of your work.
- 28:03 They are, by definition, correct, because they’re the ones who are going to leverage the work, use the work, and receive the value from the work.
The Relativity of Value
- 28:13 Sean: To clarify, your work has a certain value to certain clients. Justin is saying that your work is valuable, and he’s saying that your work is valuable to some people. You need to find those people. If someone is not receiving value from your work, then it isn’t valuable to them.
- 28:33 Justin: That’s fine. Value is very, very relative. I like to use the example of someone in the desert, dying of thirst. Hand them a gold bar that’s worth $10,000 and they won’t care. That’s not valuable to them in their situation. A glass of water is. Value is incredibly relative, and when you’re doing client work, your own value-determination of your own work is biased and irrelevant. You’re not the one who’s going to receive the value from that work. Your client is. That’s one of the reasons that it’s so important that your client is solely responsible for determining the value of the work you’re going to be doing for them.
- 29:26 Sean: Matt in the chat room says, “From the outside, it may seem like you did the same thing for both clients, but internally, the process was scaled appropriately.” Justin brought up the gold bar and the water. To the person in the desert, the water is more valuable than the gold bar. They place a higher value than that. So many people get caught up in thinking, “It’s not fair! If you gave him the gold bar instead of the water, then you’re giving him more value, because the gold is worth more.” You need to expand your horizons here.
- 30:05 Imagine an apocalyptic scene, and the only safe place is in this desert. Water is a scarce resource, so water becomes the new valuable resource. Gold doesn’t matter anymore. Gold is only useful in a thriving economy. When all you have left is a few people and you’re in a desert and there’s only a limited amount of water, water becomes this precious thing. That’s an extreme scenario, and the world we live in today is not that extreme.
Exercise a little bit of creativity in your thinking about value to realize that value is relative.
- 30:48 Value is not absolute. Value is not only dollars and cents, and it’s not only the result of the work. It’s the value of that result to this particular client. It’s a relative thing, and it’s something they have to define.
- 31:07 Justin: It took me a while to figure this out on my own. It’s a big mind-shift. You have to constantly watch yourself, and make sure that you’re not falling into the trap of injecting your own value judgement where it doesn’t belong.
- 31:23 Sean: If you say, “Look dude, you need to value this gold bar way more than this bottle of water,” that’s not the right thing to do in that scenario. It also has zero bearing on what the true value is. If you wanted to put a price on the water, you need to have this person define the value of it. That’s the only way it can be accurate. Otherwise, you say, “Well, a bottle of water is worth about $1.50, and the gold bar is worth thousands.” To him, the bottle of water is worth a lot more than that.
- 31:58 Justin: Huge mindset shift here, but it’s critical to start thinking about this stuff in these terms, because this is how the best clients are thinking about these things, and you’re after the best ones.
- 32:29 Once you’re into Value-Based Pricing and you’ve put the process in place, you’re going to be working in a way that attracts higher-value clients to you. That means that you’re going to have fewer clients overall to juggle. I know that for a lot of you out there, the juggling of many clients at once to get ends to meet is a huge burden. There’s a lot of overhead, logistical issues, scheduling issues, and communication issues. It’s hard to switch your focus constantly from one project to the next. Value-Based Pricing helps to address this, because you’re working with fewer clients that are higher value to you.
- 33:28 That’s the other major advantage that I wasn’t even really thinking about in the beginning, when I was trying to solve these problems on my own. When I got together with Sean, we were thinking about all these problems we wanted to solve, and that wasn’t even one that I was cognizant of, but it’s one I’ve realized is very significant now that we’ve put all this together.