Value Pricing

Jon Lax

http://www.teehanlax.com/blog/2010/03/23/why-we-are-getting-rid-of-our-hourly-rate

There will be scenarios where the success portion takes months and you may not be in a position to wait for those results due to your business situation. For us, let’s say we have a client who wants to increase twitter followers. We quote the project as follows…

We determine a fixed price to diagnose the problem and come up with some ideas. This pricing is based on our costs and some subjective value measures.

We generate ideas in collaboration with the client. We discover some ideas that we think have huge potential we then say to the client we feel strongly these ideas work, in fact we will tie part of (or all) of our compensation to getting you X twitter followers in 3 months. If we achieve these results you will pay us Y.

We take on the risk that it could fail. But we also capture the upside if it succeeds.

You may need to wait 3 months to get paid some portion of the job. You will take on risk. It may not work out. But you are throwing your hat in with your client.

Each client each project is an opportunity to be creative about how you get paid. Not all compensation agreements need to be results based. Its not one size fits all. Be creative!!!!

Ron Baker himself:
http://www.amazon.com/Pricing-Purpose-Creating-Capturing-Value/dp/0471729809

http://www.verasage.com/

Sam Ladner's scholarly research:
http://agencytime.wordpress.com/
http://www.cjc-online.ca/index.php/journal/article/view/1981
http://tas.sagepub.com/cgi/content/abstract/18/2-3/284

http://www.designcouncil.org.uk/About-Design/Business-Essentials/Business-guides-for-designers/Royalties-equity-...

Turns out Exemplar Law Partners, whom I've recommended to people since attending their entrepreneurship meetups, are celebrated pioneers of not pricing by the hour. See Chris Marston's Circle of Scope. Likely start with a very tight scope at the start of a project, or relationship with a client, and take things in steps (compatible with agile development), or bill to cover the risk of uncertainty-- essentially you are offering an insurance plan against contingencies by building 'who the hell knows' into the far end of your pricing.

Links to why to dump timesheets (and maybe even a little on how)

http://www.verasage.com/index.php/community/comments/ask_verasage_how_do_you_measure_client_profitability_and_em...

and more...
http://www.verasage.com/index.php/community/comments/ask_verassage_all_about_t_a/

From Cost Plus Pricing the Democracy of the Dead:

Cost-plus (hourly and other measures of pricing)

<blockquote>Service → Cost → Price → Value → Customers</blockquote>


Value-based pricing:

Customer → Value → Price → Cost → Service

Now, I do believe that in a fair economy both approaches will approximate one another-- that competition will drive prices toward their actual costs. (This is standard market economic theory a bit more than merely my belief.)

This does not change the fact that the person doing work, the firm coordinating people's work, should look at what potential customers value first. (First in priority, not necessarily in chronology– you may need to learn more about your field and hone a sense of your own costs and capabilities before switching the focus to other people and how you can benefit them.

In short, it's no matter that there's a lot of selfish, rich and authoritarian people cited in arguing for this approach – it is a piece of the way things should be.