Value-based pricing is one of the best ways to increase your income 10X, without working more.
In fact, it’s one of our favorite strategies to grow consulting services and help you earn what you deserve.
Yet, only 17.3% of consultants leverage this pricing strategy!
If you’re looking to grow your business (and charge more), you’re in the right place. In this post, you will learn what value-based pricing is, and how to apply it to your consulting services INSTANTLY.
How Do Most Consultants Price Their Services?
There are 5 popular ways consultants charge for their services.
In a study, we found that most consultants charge either a project-based fee or an hourly rate for their services.
Significantly, only a very small percentage of consultants charge for the value they provide.
Unfortunately, if you’re not charging a value-based fee, you might never be able to grow your consulting business and increase your income.
Project-Based Rate vs. Hourly Rate vs. Value-Based Pricing
Let’s make sure we fully understand the core differences between the three main pricing strategies, and how they stack up against each other.
We’ve worked with agencies who have used all three of these approaches, and while each pricing method has its own merits, we do feel it’s vital that we share our most common objections to each different strategy.
And ultimately, we’re going to show very clearly exactly why we strongly recommend pursuing value-based pricing.
#1: Project-Based Rate
We’ve found that using a project-based rate is the most common pricing strategy.
And while it can be better than other pricing strategies, it is still limiting – and can easily inhibit your growth. This is because you can’t just 10X your pricing and expect clients to be okay with it.
If you do try this, they’ll be highly likely to just head over to your competitors. Why would they choose your help on a project when they can hire somebody for a fraction of the price, literally?
#2: Hourly Rate
An hourly rate is very limiting since you’re trading your time for money. This means that the more you want to earn, the more hours you need to work, which makes scaling your consulting business a lot more challenging.
Although you can still increase your hourly rate, it’s much more difficult to increase profits.
Ultimately what you’re doing with an hourly rate is presenting yourself to your clients as a cost – rather than as an investment.
#3: Value-Based Pricing
Value-based pricing is getting paid for the value you bring to your clients.
In a nutshell, the whole strategy starts by showing clients what value you can bring to them – how much will their business improve/earn with your help?
You then place a price on your services based on the understood value you will provide.
Here are a few examples of value-based pricing:
- If you provide $10,000 of value, you can charge $1k – $2k.
- If you provide $100,000 of value, you can charge $10k – $20k
- If you provide $1,000,000 of value, you can charge $100k – $200k
And you’ll probably agree that you’d hardly be likely to make $100k charging for a design project by either an hourly rate or with project-based pricing!
How to Apply Value-Based Pricing to Your Services
You may well be sold on the whole “value-based pricing” strategy in principle.
But how will you actually put it into practice with your consulting services? We’ve compiled our best step-by-step strategy to achieve this – and apply it to your business instantly.
#1: Create an Ideal Target Persona (And Stick To It!)
You can’t please everyone with a value-based pricing strategy.
Instead, you should create a specific segment of the audience (A.K.A. a target persona), and focus your efforts on that.
For instance, if you offer design services, you can focus on:
- UI/UX design
- SaaS design
- Landing page design
- Facebook Ad design
It’s important to have a specific segment of the target audience in mind and tailor your services and value to them.
Of course, your consulting services can target multiple segments.
But if you have multiple segments, you must determine a suitable value-based price for each one of them.
#2: See How You Stack Up Against The Competitors
Your next task is to figure out who your biggest competitors are. There are a lot of ways to do this, including:
- Market research
- Customer feedback
- Social media groups
Or you can just type into Google “your niche + consulting services + your location.”
After that, it’s time to make a comparison. This is important because it will allow you to see how others price their services – and give you a rough idea of what to charge.
Note: For products that are truly new, without peers, the value-based pricing won’t work as well.
#3: Figure Out the Differentiator
You should now have a good understanding of what makes your consulting services unique from competitors.
Your next task is to create a list of unique services/perks you offer.
This is also called a USP – a unique selling proposition.
#4: Charge EXTRA for the Differentiators
The last step is calculating a value-based price for the differentiating features/perks.
Your job is to figure out how much value these will bring to your potential clients – and adjust your pricing accordingly.
To accomplish this step, marketers typically use research methods such as:
- Conjoint analysis
- Qualitative customer interviewing
Make sure to take your time on this step – it can make or break your pricing strategy.
Value-Based Pricing Is a Win-Win for Both Parties
The first time you start charging by the value you provide, you’ll simply think that it’s a way to charge more for your services.
But the truth is, it changes the whole dynamic of your business…
Instead of being seen as a cost or liability, you will become a valuable investment to your clients (which will help you with client retention!)
You will also structure your engagements to create value rather than deliver services.
When done properly, everybody wins, and higher fees are just a consequence of putting your focus on the client and the question of how you can create more value.
If you’re still in any doubt about the value of value-based pricing, consider having this kind of conversation with a potential client…
- You begin by asking lots of questions about the business, getting the client to work out the increased return on their investment in you. Take the time to go through this step by step, not telling the client what the ROI will be – but getting them to work that out themselves by answering your questions.
- Once the ROI has been calculated and accepted, ask the client if a 5X ROI would sound good to them. They’re almost certainly going to agree that it would! (And in the unlikely situation that they say no, ask them where else within their business/agency they’re currently seeing a 5X return on investment – they won’t be able to, of course!)
- Now you’ve got an agreed ROI, and an agreed ratio of 5X, you can agree on the price you charge.
So if the company will see an increased return of $100,000 by investing in you, you can provide them with a 5X ROI by charging $20,000.
And if they calculate and agree that they’ll be likely to see an increased revenue of $500,000, you have a very easy opportunity to get them to agree to a price of $100,000 for your services – quite impossible through any hourly rate!
Start Charging for Your Consulting Services the Right Way
Value-based pricing is a fantastic way to maximize profitability without trading your time for money – or doing any EXTRA work. It’s a win-win for both parties – and the fastest way to grow your consulting business.
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