In my last post, I mentioned that pricing is tied to the value you deliver to your clients. Understanding the value of your consulting services will help you set your prices, or consulting fees. We hear about value-based selling techniques, value propositions and even value-based pricing but what does this all mean? I look at value in four ways. Here is a mini-lesson on these four types of value. I promise, this won’t be too painful and hopefully it will shed light on which part of the value chain you can address in order to maximize your income.
This diagram is a textbook illustration of how to think about value. Let’s apply it to consultants:
- Value in use is the monetary worth of all the benefits that your client could potentially receive with the use of your services. Since it all starts here, you want to maximize this.
- Value in exchange or economic value is the sum of value of other options in the market (commodity value) and the incremental value you can provide (differentiation value). Your prospect may have a perspective on other options available in the market so you should be clear about how you are different and better. This is typically where a price is set.
- Perceived value or market value is what buyers perceive your service to be worth. Perception of value is normally less than what value could be delivered. You should manage that gap by clearly communicating your value with case studies and examples.
- Willingness to pay is the price clients will actually pay for the value they perceive your service to be worth. Paying a price less than the perceived value is what drives the shopper’s high.
Your homework is to consider the worth of your services in the context of each of these four areas. Before you reduce your rates or prices in order to compete, see if you can do more to educate clients on your differentiated value or communicate the impact to your client’s business so their perception of value and willingness to pay increases. And if your client still thinks your rates are too high, offer a package with less value at a lower rate.
Comment and share how you have increased your value and help others with their homework. If you are stuck on your differentiated value, let us know. I firmly believe there is no such thing as a commodity and can address that in another post if there is interest.
