While the fixed-price model and value-based pricing might sound very similar in terms of their pros and cons, the conditions for selecting between them are quite different. You could lose revenue if the scope or timeline changes or you have to renegotiate every time it does.You could lose money if you underprice the scope of work.It usually includes an advance payment.You will be rewarded for being efficient.You may get paid a set amount for the entire project or you may get paid based on completing a series of deliverables. Fixed Pricesįixed-price or project-based pricing is when you charge a flat fee for a defined scope of work or deliverable(s). Since the majority of mergers fail, the value of not failing may be high enough to negotiate a sufficient value-based payment that can cover uncertainties that come with most mergers. Or value-based pricing would be a good fit if the price is high enough to absorb any project shifts or uncertainties. Good examples might include creating a product or offering a package of services that are well defined. The complexity and duration of the project does not increase the uncertainty of the scope and outcomes.You have enough control over achieving the outcomes.You know what is needed to achieve the outcomes.The scope is sufficiently clear and predictable.Depending on who you want to work with, they might not understand or accept this type of payment model, which means you either have to choose clients who will do it or pick another pricing model. Doing it well requires new knowledge and skills and enough information and confidence to price it correctly. The first time I did a value-based price, it felt liberating-for me and my client! Plus, receiving an upfront payment is wonderful because it helps with cash flow and means I don’t have to spend time and tracking down payments.īeing able to tease out what the value is with a client-and ensuring the price meets your value and income needs-isn’t always easy to do. Personally, I do not like watching the clock or pretending that my value is a unit of time. If the conditions are right, I would do value-based pricing in a heartbeat. Existing clients may not want to switch to this model.Some clients, such as government clients, can’t use this model.Not all clients are used to this model or understand it.Sometimes the actual value to your client can be difficult to determine.You could underprice the value of the engagement and not get paid your full value.You can have more flexibility with your time.You can scale your business more easily and make more.It is usually an advance payment, in part or whole. You can focus on providing value, not hours.Value-based pricing is when you receive a defined fee based on the value of the outcome you achieve for the client. But the right pricing model will reduce risks and increase benefits for you and your client. Keep in mind that a pricing model won’t eliminate client management issues like scope creep or project drift. That’s why you need to know enough about each to make an informed decision.īelow, I share four different pricing models, along with pros and cons of each and an overview of situations that tend to be best for each. It can reduce or increase the time you spend doing work you don’t get paid for, such as negotiating and executing contract amendments. Your pricing model can eliminate, reduce, or create stress for you and your client. Picking a pricing model can support or undermine your ability to get paid for all your value and have the income and life you want. It’s essential to know what you want your pricing model to do for you and what you want to avoid.Ī pricing model is more than just the way you bill and get paid by clients. There’s a lot at stake with a consulting pricing model. So what do you need to know to make a good choice? What Do You Want From Your Pricing Model? There are trade-offs to every model and different things you have to do-and do well-to make them work for you, your business, your clients, and your life. Since there is no perfect pricing model for your consulting services, you need to know what you are gaining and giving up when you pick among the models.
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