Value Pricing Mistakes (and what I’ve learned from them)
At the start of my journey to value pricing, my goal was to become a 100% value pricing organisation. I’ve succeeded in that goal so far, but I’ve made plenty of mistakes along the way, and learned a few important lessons.
Photo by Matt Duncan on Unsplash
I hope that by documenting them here, you’ll be able to learn from my mistakes to make your journey to value pricing that little bit easier.
Above all, though, remember that it’s inevitable that moving entirely away from time billing is challenging — you are going against very established norms.
1. Not Recognising Value
This is perhaps the single mistake I’ve made in value pricing that underpins all others, and (anecdotally, at least) seems to be very common.
Recognising what your customer values, and — just as importantly — what they do not value, is absolutely critical to successful value pricing.
That does feel like stating the obvious, and on the surface, value pricing does sound pretty obvious. But as I’ve mentioned before, value is often very subjective, and based on situation. It is often difficult to put into words, let alone numbers, what the value of something may be.
There have been many circumstances where I’ve struggled to identify value, and I know this is because I’ve failed to fully carry out the value conversation. This has led to lazy fixed-price billing, which is far from ideal.
I’ve always packaged the outcomes into a fixed price, though, and have managed to avoid time-based billing. In those situations where I’ve been tempted to apply a time-based rate as a “quick fix”, I’ve avoided it by reminding myself how time-billing is painful for everyone involved.
To help avoid this lazy pricing, I’ll continue to productise all of my service offerings, and gradually establish systems that encourage a lot more focus on that in-depth value conversation.
However — and as difficult as it has been for me to accept— there are a couple of situations I’ve come across where this more approach to projects isn’t the right fit, and where value pricing may not be the best approach…
2. Value Pricing Everything
My goal was to become 100% value pricing, but there have been a couple of situations where I’ve really struggled to do much more than offer a fixed price:
Minor Maintenance Tasks
These are the small and often rush/panic jobs that come in such as fixing a minor bug or tweaking a layout.
The technical effort is usually lower and there’s no value in discussing any “bigger picture” subjects (at this stage).
It is sometimes difficult to remember when you spend most of your time in code, but as Jonathan Stark reminds us on this episode of his podcast, code has no value to your customer:
My approach to this type of quick-maintenance work has been to wrap it into a fixed-price, limited-scope product. There are some obvious risks in doing this, but that is reflected in the price/value to me.
Productising the process also greatly simplifies things for the customer, and allows them to quickly weigh up their options.
The CodeShot productised service has been particularly well received, and has led on to further projects. In this way, it acts as a great introductory service for the customer, and is now one of the first things I’ll recommend to new customers who are looking at larger or longer-term projects.
In this style of work, you are being taken on as simply a “pair of hands” to top up an existing workforce. Although I’ve said agency-style work, your client may not be an actual agency.
For example, you might be contracted in to a larger organisation’s team, but the model is similar. Generally, I’m considering work as agency-style if you could easily be mistaken for, or replaced by an employee, and have little or no interaction with the end-customer.
In this situation, your customer is the agency. The value to them is in maximising their profit on your effort, and so value conversations are difficult (simply put, the maximum value to them is minimising your price). This leads to normal market pressures and a focus on input effort rather than outcomes.
I’ve previously tried to apply value pricing to these types of engagement, but it has never been particularly successful. I’ve also used a more productised approach (such as CodeShots) to handle smaller jobs. But as much as it is difficult to admit, I think there is little point in trying to apply value pricing to agency-style work.
As I don’t tend to do a lot of this type of work, my approach moving forward is simply to apply a minimum daily or weekly rate based on my perceived value, and accept the issues that come with that.
Of course, the priority is to continue finding and building projects where I am working directly with the end-customer, as this allows me to deliver far more value, and work on a partnership level with them and their business.
I’d love to hear from you if you have successfully value-priced agency style work.
3. Underestimating Valuable Outcomes
Closely linked with not recognising value above, I still find myself underestimating the true value of outcomes to the customer, even when I know what those outcomes are (i.e. I’ve recognised them, but underestimated their impact).
I’m getting better with this as time goes on — it helps to remember value pricing is a journey, so adjustments can be made with time. Productising my services has certainly been one of the best tools to help do this.
Sometimes, though, it can be very much a case of not seeing the wood for the trees.
Ironically, this is not the case when looking at other businesses from the outside in . Often when working with customers, I’ve found it easy to spot value leaks in their businesses, and can quantify that value without question. Yet doing the same in my own business seems almost impossible!
Perhaps it helps being an outsider to the business, and also being able to appreciate what their valuable outcomes might be worth to me as a customer.
I’m fairly sure I’m not alone in this, and am considering business coaching or mentorship to help put a second pair of eyes on my business and help spot any value leaks.
Having a mastermind group, such as Kirk Bowman’s Art of Value Society is a great way to bounce value pricing ideas and challenges.
Would you like to get another perspective on your software business? As I’m considering doing exactly this for my own business, I’d love to help others who are on the journey to value pricing.
Start a discussion by getting in touch.