Value-based pricing is a pricing strategy which relies primarily on the perceived or estimated value to the client rather than on the cost of the product or historical prices.
When successfully used, value pricing can significantly improve your profitability due to setting higher prices without impacting on costs. The main thing to remember when valuing anything within your business is this: When you put a value on something, it becomes valuable.
So, when exploring how to add value to your services, be sure to use creativity, confidence and have a willingness to think outside the square.
Let’s look at three ways you can add value to your service or product:
1. Expert advice and professionalism
If you are the ‘authority’ in your sector, then your services are expected to be more valuable than those of your competition.
Your aim here is to reflect your value by increasing your price.
Step 1: Make sure you know the benchmark price range for your service.
Step 2: Decide on the premium you feel comfortable with.
A basic increase might be 10% extra. But, you could also take reference from the rates your competitors and clients charge.
For example, say you charge $150 per hour, but your counterpart at your clients’ business charges $300 for his/her hour. If you were providing an equivalent level of expertise for your services in your field, then I would recommend increasing your hourly rate to the same as your competitor.
2. Bundling and packaging
Simplify buying choice by offering bundled price deals.
Packaging two or three related services and encouraging your client to buy all at once is economical and efficient for both you and your client.
For example, say you are providing a bookkeeping service. Instead of charging per hour, you could offer a bundled suite of services such as:
- Weekly data input + Monthly Profit and Loss reporting + Quarterly BAS preparation.
On their own, these services may equate to six hours per week based on your hourly rate.
But, as a bundled price package, your services might look like this:
BASIC Package A
Weekly bookkeeping + monthly Profit and Loss reporting
$735 per month
(9.6 hrs. x $80 = $773.33 reduced by 5% package discount = $734.66)
PREMIUM Package B
Weekly bookkeeping + monthly Profit and Loss reporting + quarterly BAS preparation and lodgment
$780 per month
(2 x 52wks + 1 x 12mths + 3 x 4 quarters
= 128hrs at $80
= $10,240 ÷ 12mths
= $853 per month reduced by 5% package/retainer discount
= $810 per month.)
I would recommend securing this package as a monthly retainer payment. The idea is to offer your client an easier way to buy from you and provide choice, so that it is easier for them to pick the option that suits them best.
3. Transition and education
Provide ‘welcome’ or ‘transition teams’ to enhance the on-boarding phase.
It’s exciting to secure a new client and, when you do, there is a fabulous opportunity for both parties to celebrate and build rapport.
That’s why creating an on boarding or welcome service is a great way to become acquainted with your new client.
One example is to host a breakfast or lunch at your office:
- Invite your client and their team: reception, accounts, finance (don’t forget the people who usually miss out on extra perks, they are often the ones who will be essential alias and friends during difficult predicaments.)
- Invite your team: The purpose of the event is to informally explain people’s roles and introduce them to their counterparts, so that they know whom they will be working with.
TIP: Create a round-the-table introduction game, where each team can share interesting work history and unique personal attributes to get to know each other on a deeper level while also making it easier to remember who is who.
- The following week, send each person from your office to visit their counterpart to facilitate further conversation about the new working relationship and iron out any teething issues.
The costs for the above can all be factored into your hourly charge-out rates.
An estimate might be 20 cents per hour:
- 5 client attendees + 5 from your business = 10 people at $20 for breakfast = $200
- 10 cups of coffee and a muffin at $10 = $100
- Travel and parking 5 X $20 = $100
So, a total of $400 divided by the number of working hours in a year of let’s say 1840 = 21 cents per hour.
Keep in mind your costs; but always remember it is the value of the experience that will be remembered by your clients and your team.
Do you used valued-based pricing when you price your services?