Overcoming Value-Based Pricing Fear

Author: Melisa Liberman

Host of the ???Grow Your Independent Consulting Business podcast &?

Creator of the?? IC Business Scalability Scorecard

Pricing is directly correlated to the amount of revenue you bring into your independent consulting business.

In the world of independent consulting, value-based pricing is a HOT topic.

Although it’s a hot topic, it’s also a topic that evokes fear in a lot of independent consultants that come to work with me.?

I want to break it down for you in a way that can, whether you decide to implement it or not.

In this edition of “The Independent” we’ll cover:

• What value-based pricing is
• Why this topic should matter to you regardless of your current pricing model
• A 2 part framework that you can use to overcome the fear and start making progress toward value-based pricing, improve what you're already doing, or generally improve the overall quality of your sales process

What is value-based pricing?

Value-based pricing is a pricing model where you're basing your consulting fees on the client's perceived value of the services you provide. This is not like a typical time-based pricing model. It is also not like a success-based pricing model where you are examining your impact on revenue. You are solely basing your fees on the perceived value of the services that you provide.

There are 3 main reasons why you should consider implementing value-based pricing in your independent consulting business.

1. Value-based pricing can be more lucrative for your consulting business.
2. Value-based pricing effectively helps aligns your goals with your client’s goals.
3. Value-based pricing will help you improve the overall quality of your sales process.

Fear is one of the main factors that keep many independent consultants from moving into value-based pricing.

The reason this fear can often become paralyzing for a lot of independent consultants is that moving into value-based pricing feels risky. Our standard mental construct is that charging by the hour feels the least risky because we're being compensated for a unit that everyone understands.

Here’s a fact…there’s still risk involved if you are charging by the hour. There is the risk for the client:

• Not feeling like the project is moving along quickly enough
• Not feel like they are getting their money’s worth

There is definitely risk associated with the traditional time-based pricing model. But our brains are wired from our corporate days to feel like it’s less risky. This can create an almost paralyzing fear when you start to think about moving into a value-based pricing model.

Fear of incorporating a value-based pricing model can also create a sense of overwhelm for many independent consultants.

Making the switch from time-based pricing to value-based pricing can just feel so BIG to you. So it ends up creating a sense of overwhelm that then feeds the original fear that you already have. What I have found by working with a lot of independent consultants is that this fear just ends up keeping you stuck. It feels like this giant hairball and is oftentimes not something you really want to peel apart and tackle.?

Another type of fear that keeps independent consultants stuck and unable to implement value-based pricing is the fear of doing something wrong.

If I’ve heard it once, I’ve heard it a thousand times, “I just want to do it the right way!” By nature, a lot of independent consultants are perfectionists. They don’t want to:

• Do anything wrong
• Make any mistakes
• Look stupid, especially in front of a client

This can create a swell of fear and end up preventing you from getting started or from being as effective as you could be as you move into value-based pricing.?

So how can you manage this fear in a way that allows you to make progress toward implementing value-based pricing in your consulting business?

You are going to need 2 things to help manage your fear:

1. The right mindset to help you manage your fear
2. The right strategy to help get you into action

These 2 elements go hand in hand, especially when you're working on overcoming a fear that is created by your mindset. You need to work on the mindset behind the fear to really address the root cause and allow yourself to move past it.

Let’s talk about the 2 parts of this framework so you can have a better understanding of how they might apply to you and your consulting business.

Part #1: Reprogramming your mindset to overcome your fear.

From a mindset perspective, the first thing you have to do is be honest with yourself about your thoughts about value-based pricing without any judgment. Your thoughts matter! Do any of these sound familiar?

• “I won’t be successful at selling if I propose value-based pricing.”
• “I’m not someone who's capable of delivering a value-based pricing engagement profitably.”
• “My clients are resistant to value-based pricing.”
• “This is not what we do in our industry.”

When I work with clients who say these exact same things to me, we realize that their assumptions and their data points are not an industry-set-in-stone process. It's just something they might have talked about with one other consultant. So we work past it and create a new process.

Implement Part #1:

I highly recommend that you sit down and write out all of the thoughts that you have about value-based pricing. Write down your thoughts about:

• Being able to be successful in selling it
• Being successful at delivering it profitably
• Your clients embracing it
• Value-based pricing in general

This helps you to really understand what is happening behind the scenes subconsciously that is driving the way that you're thinking about your pricing and selling value-based pricing. Then, you can consciously start shifting into the mindset of a business owner who has already embraced value-based pricing.?

It’s time to step into the version of you who is the business owner that has already successfully been operating with the value-based pricing model that you want to move into.?

You have been doing this for the last year or two. You are really comfortable with it and very clear about how it works and why it's a benefit to your clients. This mindset shift will help you manage the fear and overwhelm that are associated with implementing value-based pricing in your consulting business.

Part #2: Implementing a strategy that will help you get into action.

Now that you have a grasp on the mindset that is driving your thoughts and actions, it’s time to put a solid strategy in place. The first thing you're going to want to do from a strategy standpoint is reverse engineer your sales cycle. To do this, you are going to want to use your most well-understood offer.

This offer needs to be an offer you have executed effectively in the past and has a clear scope of work. You need to ask yourself questions like:

• What do I need to know in order to quantify the value of the outcomes I'm creating for the organization?
• What kind of outcomes do I need to understand from a qualitative perspective and a quantitative perspective??
• What would I need to know from the client as I go through my sales process to know that they're agreeing with me about what this calculation of the value is?

Implement Part 2:

Once you understand the big picture of all the things that you need to know for this well-understood offer, then you're going to break that out into the agendas and the checklists for the meetings that you typically have in your sales cycle.

This process allows you to look at value-based pricing in smaller, more incremental pieces instead of this huge, ambiguous thing. It allows you to get all of this value and understand the alignment with the potential client all along the way.?

Now it’s time to identify an opportunity in your pipeline that will be your first test for value-based pricing.?

This should be a smaller project or something that feels well-understood. Then, you need to commit to it and be okay with failing, being bad at it, or the client not moving forward. It’s important to capture your learnings throughout the process of implementing value-based pricing on this test project so that you know what’s working and what’s not working.

Even if you have never implemented value-based pricing in your consulting business, you can still use the strategy of reverse engineering in order to elevate your sales process. Simply use this strategy as a way to:

• Experiment for the purposes of transitioning into value-based pricing
• Improving what you're already doing with value-based pricing
• Improving the quality of your sales process?

Next steps for incorporating a more effective pricing model in your consulting business.

1. Listen to Episode 86 of the Grow Your Independent Consulting Business Podcast to hear real examples of how you can work through the mindset and manage your fear.
2. Check out my Pricing Megatutorial which will give you an in-depth breakdown of all the different pricing models you can implement in your consulting business.
3. Take my Independent Consultant’s Pricing Assessment which will give you a visual understanding of where your pricing is doing well and areas of improvement so that you can prioritize what to adjust, in order to make the biggest impact.