Bad debt: deciding when to stop chasing and write it off
A bad debt is money you have decided not to collect. When to make that call, what the write-off actually involves, and why carrying it costs more than losing it.
Value based pricing sets the price from what the customer gains. It is the most profitable method where it applies and the easiest to attempt badly.
Value based pricing sets the price from the value the customer receives rather than from what the work costs you or what competitors charge. Done properly it is the most profitable of the three main methods, because it captures a share of an outcome instead of a share of your time. Done as a slogan — "we charge for value" with no evidence behind the number — it is cost-plus pricing with extra confidence.
The distinction is whether you can state, in the customer's own terms, what the work is worth to them. If you cannot, you are not doing value based pricing regardless of how the price was set.
The most common failure is asserting value the customer has not confirmed. "This will save you twenty hours a month" is a claim; "you told us this takes your team twenty hours a month and costs about X" is evidence. The second sentence can only be written after a conversation, which is why value based pricing is mostly a sales-discovery practice rather than a pricing formula.
Value based pricing needs a benefit the customer can see and roughly size. Where the outcome is diffuse, where you are one small input among many, or where buyers procure by comparing line items, the method breaks down and cost-plus or competitive pricing will serve you better. Commodity work is the clearest case: if the buyer genuinely cannot distinguish your delivery from three alternatives, the market sets the price and no amount of value framing changes that. Recognising those situations is part of using the method well rather than an admission of failure.
In Ettex, the proposal and the value framing live in Ettex Docs — templates so discovery findings land in the same structure each time, comments while a colleague challenges the number, and version history so you can see what you promised when the review comes round. The pricing model by segment belongs in Ettex Sheets, the discovery conversations and what each customer said the problem cost sit in Ettex CRM as notes on the account, the agreement is signed through Ettex Signature, and the invoice — packaged rather than itemised by hours — is issued from Ettex Invoices with line items, terms and sequential numbering.
The boundary: Ettex has no pricing or quoting tooling. There is no value calculator, no configure-price-quote, no proposal automation, no margin analysis by customer and no approval workflow for non-standard pricing. It holds the conversations, the model and the documents. The discovery — which is where value based pricing actually happens — is a conversation with a customer, not a feature.
Setting the price from the value the customer receives — money saved, revenue enabled, risk avoided — rather than from your cost or competitors' prices.
Ask customers what the problem costs them now: hours, money, missed revenue, risk. Their numbers, not your estimate, are what makes the price defensible.
A defensible fraction, not most of it. The exact proportion depends on your market, but a price that captures nearly all the benefit makes buyers feel captured and invites replacement.
Yes, as a floor. Value sets the ceiling; cost tells you when to decline work regardless of how the pricing conversation went.
For commodity work, where you are a small input among many, or where buyers procure by comparing itemised line items. There, competitive or cost-plus pricing describes reality better.
Because it re-anchors the buyer on rates and effort rather than outcome. Package the work and present the value first, using the customer's own words from discovery.
Value based pricing starts in a discovery conversation, not a spreadsheet. Get the customer's own number for what the problem costs, segment by how much the outcome is worth, package rather than itemise — and keep the cost floor for the cases where the value is not there.
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