The Truth About Value Based Pricing

If you’ve come within the orbit of the freelancing space, you’ll have heard of value-based pricing. Value-based pricing, or VBP, means pricing your work based on the value the results said work will deliver for your client. This sounds good in theory. A concept where everyone wins.

With VBP, fast freelancers get to decouple their earnings from their time and clients get an instant return on their investment.

But there’s a problem. VBP as a concept is simple to understand. VBP as a pricing methodology is a black box. It feels like everyone on the internet is using it but no-one can explain it clearly enough for you to use yourself.

Here’s the truth about VBP:

• Not everyone is using it (some freelancers have no suitable scenarios to try it in)
• Not everyone is using it all the time (VBP only suits certain projects of a certain scale)
• And most importantly, it’s not just an equation you can simply apply to increase your earnings

A basic project example:

As a developer (like me), if your client is paying £30,000 for a software subscription and they want you to build an in-house solution, you can justify charging £10,000 for the solution because it will save the client £20,000. It’s a no-brainer to the client. And, as a fast freelancer, you have the opportunity to out earn what you would by charging hourly for the same outcome.

But VBP as a methodology makes an assumption that you’re a senior professional with years of experience who can deliver production quality work quickly. It assumes you’re comfortable—and have the time to—have “value conversations” (meetings where you ask your leads what the success metrics for their project is).

The aforementioned project example is not the reality for 90% of freelancers. You can’t “VBP” a £500 logo for a local pizza shop. Even the top 10% of freelancers who’re 10 years in at the top of their game can’t apply “VBP” to every project. Sometimes pricing can be as simple as what you’re willing to do the work for and what the client is willing to pay. It doesn’t always have to be complicated.

But all is not lost when learning how to price your work in terms of value. “VBP” still points to an important aspect of pricing that many never consider. Value provided is not always correlated to time spent. Meaning, no matter what methodology you use to price your work, always price with value in mind.

So if you’re frustrated about opaque value-based pricing advice, or perhaps you’ve tried pricing your specific skills based on a one-size-fits-all calculation. Here are 7 questions to ask yourself before giving your next project price (for a simpler life):

• Is the deadline soon?
• How big is the client?
• How important is it that you land the project financially?
• How likely is it that you’d display the work in your portfolio?
• Is there someone else readily available that could do the work?
• Do you have adjacent skills that can help tie the project together?
• Do you have specific industry-level experience for the project at hand?

You can’t “VBP” the £500 logo. But you can probably charge £1,000 for it when they need it tomorrow.

Article originally published in Freelancer Magazine

You can learn more about pricing your work effectively in my book, Pricing Freelance Projects.