Questions

What are some ways to charge for service - based on creation of value?

For example, if my work creates 30% more monthly net profit.

3answers

If you're talking in terms of service-based work (freelancing, consulting, etc.), then ALL of sales should be based around the value you're creating for the client.

If I build a new marketing funnel for a client and they see an extra 100 leads per month — assuming their standard conversion rate for new leads of 5% and an average lifetime value of $6,000 per new customer — I've just created a pipeline that will feed this company $30,000/month of new revenue in perpetuity.

Even if that work seems easy for me, I need to be charging on the value I create. I've coached many freelancers who struggle with the idea of charging for their work, and it's always because they're framing it on hours or difficulty rather than value.

But if you sell on created value, your fees are essentially an afterthought: the client knows what they stand to gain, and paying you 20% of their first few months' revenue is a steal in their minds.

If you'd like to talk specific strategies for sales, I'm happy to share what's worked for me. Drop me a line.

Good luck!


Answered 4 years ago

Ideally, you should always charge based on the value you create. Try at least to think about or talk to your clients about how to quantify the value you create.

But your client wants to be treated fairly, which is also very important - but is very subjective. No matter what value you create, sharing the value creation is a very rational process. And customers are not always rational like that; they may hold an idea of how well you should be compensated.

You should also be aware of the market price for your service - f.ex. if you are working in consultancy.

So think about these different components: Measurable or quantifiable value created, clients assumptions of fair price and market price level for your service. The more alone you are with the service you provide, and the more you can persuade your client to consider you an investment in value creation - the more you will be able to capture the value.

But be sure to agree on it up front, so your client does not move away from the deal after you have done your end of the job.

You have chosen the harder road to the goal. The easier ways are just to price based on cost plus margin, or adopting your competitors price structure. But the value creation path is the right way to go. So don't give up, but also accept, that this is a learning process; you won't be able to hit it the first time, you do it. Luckily, the game is repeated.

Should you need some dialogue through this process, feel free to set up a call.

Best of luck to you.

Best regards
Kenneth


Answered 4 years ago

How much does the 30% increase in profits equal? In order to set your pricing; my advice is to meet with the client & map out the objective. You'll need to understand how big an impact you can really have & how you will help them achieve that benefit.
For example, if you're going to be able to move the needle from $1,000 to $1,300 per month, you've increased profits by 30%, but the business just won't be able to pay you very much. However, if you can go from $1MM/mo to $1.3MM/mo, that's a very different story. How long will that benefit last? Is it a permanent solution, or will the client only get a few months benefit before their competitors begin doing the same?
All of that said- the amount of time it will take to for either client could be very, very different.

Always charge based on creation of value; Never charge for a consultation; Always make sure you take the time up front to understand what you can do for the client; THEN (and only then) do you start to come up with a price quote.


Answered 4 years ago

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