Embed Size (px)
Citation preview
Value Pricing(How to use it to
price websites)
inboundcreative.co.ukbenfurfieic_ben
inboundcreative.co.ukbenfurfieic_ben
The different ways of ‘pricing’
• Hourly billing
• Fixed pricing
• Value pricing
inboundcreative.co.ukbenfurfieic_ben
The different ways of ‘pricing’
• It’s simple.
• Erm… Yeah, sorry, that’s it.
inboundcreative.co.ukbenfurfieic_ben
Why is hourly pricing good?
• It’s simple.
• There’s a conflict of interest.
• You get paid less for working faster.
• Focuses on the wrong thing.
inboundcreative.co.ukbenfurfieic_ben
Why is hourly pricing bad?
inboundcreative.co.ukbenfurfieic_ben
The problem with hourly billing
“If you bill by the hour, there is an artificial limit on your income.”
”
inboundcreative.co.ukbenfurfieic_ben
The problem with hourly billing…
• It’s relatively easy.
• Client can choose what they can afford.
• Clients love it.
• Rewards you for faster work.
inboundcreative.co.ukbenfurfieic_ben
Why is fixed pricing good?
• It doesn’t take into account affordability.
• It doesn’t take into account ROI.
• It’s still focusing on inputs.
inboundcreative.co.ukbenfurfieic_ben
Why is fixed pricing bad?
To build this website, it will cost you £2,000.
If you invest £2,000 in a new website, it will enable a potential return of £50,000.
inboundcreative.co.ukbenfurfieic_ben
It’s all about semantics
inboundcreative.co.ukbenfurfieic_ben
What is value?
inboundcreative.co.ukbenfurfieic_ben
What is value?
Does anyone know what the technical meaning of value is?
“The maximum amount someone is willing to pay for a product or service.”
inboundcreative.co.ukbenfurfieic_ben
What is value?
(Revenue - Cost) / x% = Value
inboundcreative.co.ukbenfurfieic_ben
What is value?
Value pricing is a way for me to increase my prices…
inboundcreative.co.ukbenfurfieic_ben
What is value?
Value pricing is a way for me to increase my prices…
inboundcreative.co.ukbenfurfieic_ben
What is value?
“Value based pricing isn’t about you talking about your value.”
“Value based pricing isn’t about you feeling more valuable and therefore pricing higher.”
“Value based pricing is finding the right price for the value that’s delivered when that value is appreciated and understood by a
customer.”
inboundcreative.co.ukbenfurfieic_ben
Billing is not the same as pricing…
Chris Lema
Believe that you create value
Know how to discover value
Understand the power of options
Realise billing/hourly rates ≠ pricing
inboundcreative.co.ukbenfurfieic_ben
To use value pricing, you need to…
“Pricing is different than billing. Billing is something that happens after the fact; pricing
is something that happens in advance.” ”
inboundcreative.co.ukbenfurfieic_ben
Billing is not the same as pricing…
Kirk Bowman
inboundcreative.co.ukbenfurfieic_ben
Believe you create value
inboundcreative.co.ukbenfurfieic_ben
Discovering Value
It’s time for that question…
inboundcreative.co.ukbenfurfieic_ben
But before that…
What’s your budget?
inboundcreative.co.ukbenfurfieic_ben
But before that…
You can:
Increase things
Reduce things
Improve things
Create things
inboundcreative.co.ukbenfurfieic_ben
Ways you can create value
Why now? Why not 12 months ago? Why can’t you wait 12 months?
What will this website let you do that you can’t do now?
How does success look like in 6/12/18 months time?
inboundcreative.co.ukbenfurfieic_ben
The power of questions…
However…
Get used to redirecting questions.
inboundcreative.co.ukbenfurfieic_ben
The power of questions…
The Magic Question
“Let me repeat to you what I just heard and let me make sure I got it right.”
inboundcreative.co.ukbenfurfieic_ben
The power of questions…
inboundcreative.co.ukbenfurfieic_ben
Anchoring and Options
As humans, we do not have the ability to judge the value of something in isolation.
We determine value by comparing and contrasting one thing to another.
inboundcreative.co.ukbenfurfieic_ben
Anchoring and Options
inboundcreative.co.ukbenfurfieic_ben
Anchoring and Options
inboundcreative.co.ukbenfurfieic_ben
Anchoring and Options
“Anchoring is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the
"anchor") when making decisions.”
inboundcreative.co.ukbenfurfieic_ben
Anchoring and Options
inboundcreative.co.ukbenfurfieic_ben
Anchoring and Options
inboundcreative.co.ukbenfurfieic_ben
Options
Giu
sepp
e C
osta
ntin
o / S
hutte
rsto
ck
Things you can create options with…
Time (as in duration)
Terms (as in payment terms)
Tailoring and customisation
And much, much more…
inboundcreative.co.ukbenfurfieic_ben
Ways you can create value
inboundcreative.co.ukbenfurfieic_ben
Start Pricing
• You need to believe you create value.
• You need to discover value.
• You need to create options.
inboundcreative.co.ukbenfurfieic_ben
Start Pricing
Meet James
He runs a small IT consultancy
His target market is SMEs with 5+ staff
The average customer spends £180p/m
Goal of 20 new support contracts in 2015
Average lifetime of a client is 5 years
Average profit margin is 70%
inboundcreative.co.ukbenfurfieic_ben
An example…
(New Customers x Average Revenue) x 12 = ARC
inboundcreative.co.ukbenfurfieic_ben
Example
ARC = Average Revenue per Customer
(20 x £180) x 12 = £43,200
inboundcreative.co.ukbenfurfieic_ben
Example
£43,200 / 100 * 70 = £30,240
inboundcreative.co.ukbenfurfieic_ben
Example
Revenue –> Profit Margin = Profit
£30,240 / 10% = £3,024
inboundcreative.co.ukbenfurfieic_ben
Example
Value per year * Average Lifetime of a Website
£3,024 * 3 = £9,072
Questions?
inboundcreative.co.ukbenfurfieic_ben
Thank you for listening!
