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How to experiment with value pricing

How to experiment with value pricing

So how much is it going to cost me?

I had just launched my accounting practice and was ready to show the world what debits and credits were truly made of. Yet while I had a wealth of accounting experience, I had never sent an invoice. The most commonly asked questions in business would leave me stammering in an effort to figure out how to respond.

It was only after having that conversation time and time again when I realized that pricing is in fact a skill just as much as my debits and credits were. If I became a good accountant through my years of experience, I’d need to do the same to become good pricing.

If you’ve ever thought, “how much should I charge for this customer?” when asked about cost, you’re likely practicing some form of value pricing. While it’s a component, value pricing is not just about giving a fixed price to a customer—the idea is to think about the value of your service to the individual you’re serving.

So just how do you determine what the value of your service is? There’s really only one way—experiment. Here are 5 ways that you can experiment to learn how customers perceive your service and ultimately provide them with a good price.

Do your homework properly

The only way you can truly price for value is by learning about your prospective customer. Whether it’s one phone call or a series of meetings, doing your homework means asking questions and active listening. Ask what their pain points are and listen to why they are looking for your type of service. If it’s a website they’re after, whether they expect that website to increase their customer base or just display their store hours is going to significantly affect the value of the website to them. Experiment with a few different questions to see which ones give you the most insight.

Give options

Once you have an understanding of what the value of your service may be to your prospective customer, give them some options to choose from. By offering 3 levels of service, you are letting your customer decide on the service that provides them with the most value. You can then experiment with the packages by offering additional services such as warranties, on-going support, etc. to get a feel for what your customers are truly looking for.

Price out of your comfort zone

It’s easy to talk yourself into offering a lower price. After all, you want the business. However, if you never price outside of your comfort zone, you’ll never know how much people truly value your service. In fact, sometimes customers are lost by pricing too low, associating the low price with a lower level of service. By pricing one of your packages a bit out of your comfort zone, you can gauge how much your service is really worth.

Present your pricing

Pricing is a very human experience. Customers will sense if you believe in your service and stand behind your price. Only if you present your pricing then will you be able to determine how well you’ve priced. You’ll be able to note if a customer hesitates or if they don’t blink an eye—all cues that let you know their comfort level with your pricing. While it’s tempting to shoot a quote through email, you’ll risk losing all that valuable information we learn from human interaction. Experiment with your presentation techniques and you may learn a lot about your customer.

Change

If you’ve built up a loyal customer base and you’re making money, why change? Well, there may be customers out there that are better suited to your service that you may be missing out on. If all you offer are basic men’s hair cuts for $20, but you’re really good at styling, perhaps there are customers out there willing to pay $50 for a cut with styling? The only way to get better at value pricing then is by constantly tweaking your pricing and service offering based on what you learn about your customer base. Opening yourself up to change will allow you to get closer to serving your best customers.

About the author: Josh Zweig is a partner at LiveCA LLP: Canada’s first online accounting firm allowing today’s mobile entrepreneurs to connect directly to a Chartered Accountant wherever, whenever. Our philosophy is that accounting is no longer just about doing taxes, but also about technology. The more accessible your accountant is, and the more informed they are about accounting technology, the more value they can add to your business.

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  • Kirk Bowman

    This is the best line in the article:

    “So just how do you determine what the value of your service is? There’s really only one way—experiment.”

  • LiveCA

    Thanks Kirk! We were making a ton of wild guesses in the beginning in terms of how to price items such as “unlimited support” and we’ve only improved by making lots of mistakes. We can’t stress the value of experimenting enough!

  • http://www.newpathconsulting.com alexsirota

    One of the discussions going on in the service world is whether you can actually list the 3 tiers of service in public. Or are the 3 price points individual for each client. When selling software as a service the practice is to list price tiers and features which equate to value.

    Why is this not usually the case with service? If it should be, how do you identify 3 generic price points that fit a wide majority of clients.

    The second most popular page on our website for NewPath Consulting is the pricing page (after the home page). If the pricing page wasn’t there how would I know people are looking for the price. And if you don’t list the price tiers are you doing the right thing, from a marketing perspective?

  • LiveCA

    Good points Alex! Certainly if you’re in the business of strictly compliance work, ie. tax returns, financials, etc., it may be easier to come up with solid price points for different type of compliance work.

    However, if you’re building a consultative practice, whether you’re a CPA or a website developer, every business will be different. For a web designer, each project will take considerably different amount of resources depending on the scope and personalities of the people involved. Setting cookie cutter pricing for a web design firm may limit you from doing a proper analysis as to scope and needs of the customer and therefore put a cap on the value that you can then bring to the table.

    Value pricing therefore involves a lot of ‘unpaid’ or ‘unchargeable’ upfront work as you get to know your prospective client and gain a deep understanding of the value that your team can (or can’t sometimes) provide to them.


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