Rise of the Innerpreneur

Value Pricing Your Service Business: Establishing a Payment Structure

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Call it what you will — value pricing, karma pricing, pay-what-it’s-worth pricing — any way you cut it, not having a price is not normal. Letting your customers set your price is very unorthodox. And yes, it makes people uncomfortable.

As far as I can tell, it’s hardly ever done. I learned about the idea from author Phillip Dignan, and in the last 6 months I’ve learned that Radiohead and a few restaurants use the model, as well as a web developer in India and a business consultant in England. And there’s also a woodworker in America that is experimenting with it… and then there’s me.

Getting comfortable with value pricing

Since February I’ve been working towards establishing a solid payment structure, i.e., when and how to charge clients, for my service-based business. It’s important that the structure works for me, but also creates a straight-forward and comfortable atmosphere for my clients to explore and practice value pricing.

My initial questions on how to value price a service

  1. Do I request an initial deposit, i.e., the value you place on the opportunity to work with me?
  2. Do I bill per project?
  3. Do I bill per time period?
  4. Do I bill per project milestone?
  5. Do I bill per session?

I’ve settled on #3. Pricing per time period

I realized that bottom line, the structure I chose needed to pay me regularly. Working for months without payment is not a viable, nor smart option — for that reason I was able to discount billing per project immediately. In the past half a year I’ve experimented directly with billing per project, per project milestone and per time period.

I have not experimented with initial deposits or billing per session.

Pros and cons of each pricing structure option

  1. Requesting an initial deposit
    pros: establishes client commitment to the project and to the pricing system | cons: an undetermined deposit value is confusing, perhaps too wacky for clients to feel comfortable with?
  2. Billing per project
    pros: full, big picture value of work is realized before payment | cons: I’d work for months without any income; requires large lump sum payment from client; lack of time accountability could result in client stagnating the project completion
  3. Billing per time period, e.g., billing bi-weekly
    pros:
    more regular income, easy for clients to conceptualize the value between payments | cons: holidays and other work interruptions can make billing confusing
  4. Bill per project milestone, e.g., planning the website
    pros: tangible experience received before each payment is made | cons: income can be months apart; requires larger bulk payments for clients; can be hard to discern time and value-provided between far-reaching milestones; lack of time accountability could result in client stagnating the project completion
  5. Bill per session
    pros:
    client is valuing something tangible; regular income for me | cons: I do work for my clients between sessions
Related Read:  Mapping the Results of Giving Freely

Key learnings from the last 6 months

  • Value pricing establishes an immediate and deep trust between my client and I.guitarvalue
  • My pricing structure must create a regular income stream.
  • I do not accept payments for future value, i.e., I do not take money unless an already created value it attached to it.
  • I must be discerning about who I work with, i.e., you need to “get” the idea of value pricing or at least be open to it.
  • It is not pay-what-you-can as my client’s financial situation is not my business. It’s pay-what-it’s-worth and how you fund this is not my problem.

I’ve got so much more learning and growing to do with the concept of value pricing but I can honestly say that it has been and continues to be a very positive business experience.

Hello! I’m Tara, a wizard of less obvious things. I love hearing from you, so please feel free to connect with me.

I deeply appreciate your support of my work—through allowing it to grow in your imagination, through sharing it with others, and through your financial support.

About Tara Joyce

Hello! I'm Tara, a wizard of less obvious things. I love hearing from you, so please feel free to connect with me. I deeply appreciate your support of my work—through allowing it to grow in your imagination, through sharing it with others, and through your financial support.

8 Thoughts on “Value Pricing Your Service Business: Establishing a Payment Structure

  1. Glad to see these thoughts fleshed out in a post. These milestones are key to those of us looking to incorporate similar structures. I can also see how this can be adaptable to each business structure as well. Terrific post!

  2. Cool. I'm so glad my thoughts are of value to you, Adam. I've been
    thinking about value pricing a LOT in the last 6 months;)

  3. timbursch on August 18, 2009 at 12:46 AM said:

    Hi Tara,
    This is brilliant. I like that clients pay what-its-worth. They see the value, in a set time period, and then pay. Very intriguing. It seems like this is all about transparency and trust. If you really believe in your work/product, you earn a fair wage.

    Do you suggest a starting price or typical price, or just leave up the $$ figure to the client?

  4. Hi Tim,

    My thoughts exactly. I've got so much more to say about value pricing but you did a great job right here of summing up the benefits.

    In regards to your question, I have not suggested a starting or typical price as I feel that giving a suggestion of any monetary amount is limiting my earning potential. While it may only be a suggestion, it does give my clients a benchmark to base their payment decisions off of and I would much rather have them determine an amount simply based on what they intuitively feel it's worth.

  5. Hi Tim,

    My thoughts exactly. I've got so much more to say about value pricing
    but you did a great job right here of summing up the benefits.

    In regards to your question, I have not suggested a starting or
    typical price as I feel that giving a suggestion of any monetary
    amount is limiting my earning potential. While it may only be a
    suggestion, it does give my clients a benchmark to base their payment
    decisions off of and I would much rather have them determine an amount
    simply based on what they intuitively feel it's worth.

  6. Hi Tim,

    My thoughts exactly. I've got so much more to say about value pricing
    but you did a great job right here of summing up the benefits.

    In regards to your question, I have not suggested a starting or
    typical price as I feel that giving a suggestion of any monetary
    amount is limiting my earning potential. While it may only be a
    suggestion, it does give my clients a benchmark to base their payment
    decisions off of and I would much rather have them determine an amount
    simply based on what they intuitively feel it's worth.

  7. Ashima Saigal on January 3, 2012 at 9:18 PM said:

    Tara,

    This is just what I’ve been trying to figure out for my business. I know it’s been 2 years since this post, but I’d love to learn more about what you’ve done and how it is working for you.

    Peace,
    Ashima

  8. Wonderful to meet you, Ashima! Much has developed since this post two years ago and I would be happy to share what I’ve discovered with you. Why don’t you drop me an email and we can continue the discussion?
    Warmly,

    Tara

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Value Pricing Your Service Business: Establishing a Payment Structure

By Tara Joyce Time to Read: 2 min