Value based pricing: charging for the outcome rather than the hours

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.

What you need before you can use it

• A quantifiable outcome: money saved, revenue enabled, time released, risk reduced, a penalty avoided.
• The customer's own numbers, not your estimate of them. Ask what the problem currently costs — most buyers know and few are asked.
• The alternative they would otherwise use, and what that costs, including doing it in-house.
• A share you can defend. Charging a fraction of a clearly identified benefit is arguable; charging most of it is not, and it makes buyers feel captured rather than served.
• Segmentation, because the same work is worth very different amounts to different customers. Value pricing without segments collapses into one average price.
• Your cost floor, still. Value sets the ceiling; cost sets the point below which you should decline.
• Willingness to walk away from customers for whom the value is genuinely low.

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.

Putting it into practice

1. Interview five recent customers about the problem before it was solved: what it cost, how long it took, what it prevented.
2. Group them into two or three segments by how much the outcome is worth. The differences are usually larger than expected.
3. For each segment, write the value in one sentence with a number and its source.
4. Set a price as a defensible share of that value, and sense-check it against your cost floor and against the alternatives.
5. Package rather than itemise. Value pricing falls apart the moment the proposal lists hours, because the conversation returns to rates.
6. Present the value before the price, in the customer's own words from discovery. A number that arrives after the reasoning lands very differently.
7. Offer options at different scopes rather than a single price. Choice moves the discussion from whether to buy to which to buy.
8. Review annually — the value of the same work changes as the customer's business changes, and the price should follow.

Where it does not apply

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.

How it goes wrong

• Value asserted rather than confirmed by the customer.
• One price for all segments, which averages away the whole advantage.
• Proposals that itemise hours, returning the conversation to rates.
• A share of value so large that buyers feel exploited once they do the arithmetic.
• The cost floor forgotten, so a low-value segment is served at a loss.
• Applied to commodity work where buyers compare line items and cannot see a difference.
• Price never revisited as the customer's business — and therefore the value — changes.
• Discovery skipped because the salesperson already believes they know what the customer cares about.

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.