Most of us have become accustomed to expect a certain pricing structure from various industries. Consider the experience of buying a cup of coffee versus paying a lawyer for their services. After all, when is the last time you were charged hourly for how long your coffee took to make? When it comes to the managed service industry (lawyers, accountants, etc.) the dreaded hourly pricing is top of mind. However, this does not need to be the case and breaking away from the industry mold can be a positive differentiator for your business. Implementing a Value Pricing model benefits your sales while improving the buying experience for your customers.
What is Value Pricing?
Typically, companies price their services based on a relative margin above costs. That seems like an obvious way to determine what the customer will pay, but discrepancies arise when companies provide intangible value beyond the basic service they provide. Value Pricing is a pricing structure that provides clear and predictable pricing to customers based on their perceived value of the results that your service provides. Your customers don’t care about your cost, they only care about the outcomes they are achieving with your service. So why not focus the pricing on that alone?
Let’s look back at coffee; input costs might include ingredients, shipping, payroll, equipment, rent, and so on. But when is the last time you considered these factors when ordering a cup of coffee? Instead, willingness to pay is based on the perceived value of a hot, fresh cup of coffee in that moment. The same should follow for managed services.
Designing Pricing Options
Designing a Value-based Pricing structure is more of an art than a science. Pricing is often unique for each client, based on your sense of their perceived value of the outcome your creating for them. Determining what aspects your clients truly value in your services and expanding along those avenues is key. A successful transaction occurs when both parties gain more than they give up, whether objectively or subjectively. With Value Pricing, the aim is to build long-term relationships with clients based on the success of the results and outcomes you are helping them achieve.
Another major benefit of Value Pricing is the ability to create multiple options for customers to choose from. Just as the coffee shop presents an array of coffee options, managed services can create a similar array of options. Creating pricing options for your services enables you offer multiple variations and present them side-by-side. In doing this, the customer makes the choice for themselves of what they are receiving and how much they’re spending. And instead of comparing you with a competitor, they are comparing your differently priced options. When customers don’t purchase the highest priced option, they know what they are missing.
Human’s prefer to have choices and psychology drives us to pick the middle tier out of fear of not having enough or spending too much. In turn, this increases sales for minimalist clients and ensures high-value clients know that they are getting the VIP experience.
Value Pricing outlines exactly what the client will be receiving and for how much. This allows you to focus on selling the all-important question of “why us?”
For help implementing a Value Pricing strategy in your business, contact the experts at INT.