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

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.

Value Pricing Your Service Business: Establishing a Payment Structure

By Tara Joyce Time to Read: 2 min