What Is Value-Based Pricing And Is It Right For Your Business

There are basically three types of pricing models for service professionals; Time, Project, and Value. The stage of your business will depend on which model is best for you, and over time, your business may include a combination of all three.

Time-based pricing is just what it sounds like, you bill your clients based on the time you put into the work. This type of pricing is good when you are first launching your business, before you have enough experience to accurately estimate the amount of time your services will take. It can also help you build a client base in the early stages of your business.

Project-based pricing can include one-time project fees, or monthly fees you charge your clients based on continuous services such as social media management, copywriting, or coaching. Project-based pricing is great when you’ve been in business for a few years and you have a better understanding of how much time you spend on your projects and you know how many clients you realistically have time to work with each month.

While project-based pricing is more streamlined than time-based pricing, it is still related to the time you spend working, where value-based pricing has nothing to do with time. It can be charging your clients based on a certain percentage of income you help them acquire, or other metric related to the value you provide.

For example, think of a career coach who helps their client land a dream job for a much higher salary than they would be able to get on their own. There is a value to this well beyond time. Not only will they have an increase in salary for that year, but also for several years to come.

In the case of the career coach, helping a client get a job that pays an additional $50,000 per year from what they’re currently making is a $50,000 value to them. Charging them $10,000 for this service may not be unreasonable. To them, your services are an investment that returns 400%.

Of course, there are plenty of services that provide non-monetary value to your clients, especially in regards to improving quality of life. You can certainly come up with rates that are based on providing value, though it is more difficult to determine that magic number. For guidance, look at your industry standards. Value-based pricing makes a lot of sense for people providing these types of services because their work isn’t task-based, therefore is hard to measure by time.

Despite the benefits of value-based pricing, there are situations where time or project pricing makes more sense. Unless you can consistently get the results you promise, clients won’t want to pay you for them in advance. Second, not all value is as easy to quantify or define. If the value is there but seems vague, you may want to stick with project-based pricing for a while.

Your business may start out with a time-based pricing model and then transition to project-based pricing, and eventually move over to value-based pricing. Or you may even use all three at one time depending on your services. If you know you provide value, and you can not only articulate this to clients, but can show them proven results, it might be worth incorporating value-based pricing into your business model.


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5-Step Pricing Guide

This 5-step guide is designed to help you increase your rates, strategically and thoughtfully, so that you can be successful at implementing them with current clients, and future clients as well.