Why we work (and charge) value-based and how you could implement it!

Most companies calculate the cost of producing their product or service, add a margin to it and what follows is the price they will ask (Cost-based pricing). Other companies will ask for a fixed price for what they produce or deliver and ensure money is left to make a profit (Fixed-cost pricing).

We don't, and we won't.

Our customers pay the price based on the value we deliver to them. It's called value-based pricing, and we love it.

This article explains what value-based working means, how it works, and its (dis)advantages.

What does value-based working means?

Value-based pricing is?a strategy of setting prices primarily based on a consumer's perceived value of a product or service. Value pricing is customer-focused, meaning companies base their pricing on how much the customer believes a product is worth. Thanks, Google.

How do we do that?

Typically, a customer has a certain need or issue we need to solve. Based on that, we create a flexible project team that includes a balanced combination of the required skills..

What follows is an agreement between both parties on how much value that team can deliver every 2 weeks (= a sprint). That value is given a certain price per sprint.

After every sprint (= 2 weeks), both parties come together to review the value of what has been delivered based on tangible facts like the number of items delivered or the total estimate of what was planned for that sprint.

Also less tangible ones are taken into account like the perception of the quality delivered or personal opinions.

Once everyone’s opinion is shared, the customer will make a final call on what he perceives as the value of the past sprint, which will coincide with the final invoice that will be paid.

Yes, it means that if the value is perceived at 110% of the initial estimate of a sprint, the invoice will be 110%. If the value is perceived at 70%, the invoice to be paid for that sprint will be 70%.

After working like this for 5 years, we can share with you what we learned regarding the advantages and disadvantages of this approach.

Team flexibility is one of the significant advantages. Since we work based on the value delivered, the client does not have to worry about the team's availability. For example, if the amount delivered is less because of people taking some deserved time off. Or if, for any reason, the team needs to deliver more value because of a certain urgency or issue on the customer's side. There is no need for a new contract or renegotiation; we will just agree on the value at the end of the sprint.

Fast feedback certainly needs to be mentioned. Since we come together every two weeks to evaluate the past sprint, the customer can redirect any sort of discrepancy toward his expectation, and we can be sure to be on track toward the end goal.

Remote work, then, is the last advantage we will mention here. One of the biggest challenges for remote work during Covid has proven that the need for a manager or client to have social control over what a co-worker is doing seems to be a big issue. Since we work value-based, and the time spent on a project is not directly correlated with the value we bring, there is no need for social control.

The fact that defining what "value" means is not as tangible as, for example, time, is certainly the biggest challenge of this approach. Indeed, it requires trust and open communication. It has brought some challenges to past projects and will still be a challenge we must be aware of for future ones.

Note: Everything you can find in this article is in no sense property of Qteal. We believe our 5 years of experience using this approach can help others to implement it to create better working places.

Fix systems, not people.

Qteal