Value-based pricing means charging a percentage of the value your product creates for the customer. If your product lifts performance by 20%, you might capture 10-25% of that gain, leaving the customer with more value than they paid for.
Demystify value-based pricing for us. Yeah. Does that really mean to you? Yeah.
The way I, like, the way I've always sort of looked at pricing is I start with value-based and that's like the top of the funnel and that's like the, what you can justify. And then I, I look at like competitive and then, and then I finally look at like the strategic fit internally. But to me, value-based pricing is just as simple as charging for a percentage of the value you create. For example, for our activation products, you know, we have all these different case studies and third-party studies that say, okay, you know, we give you a lift of, say, 20%, right? And then you charge a percentage of that lift, right? And you have to waterfall it down because then you have to look at our— even if I say we, you know, create 20% of lift so I could justify— I think the max percentage of value I've seen is 50%. But realistically, it's, it should be closer to like, you know, 25 or 10, because any more than 50, you're taking more of the value than the customer gets.
Have you spent much of your time helping sellers sell value-based pricing?
Yeah, that's, that's one of the hardest things to, to do. Not in terms of sellers not doing value-based selling. They're, they're great at that. It's that middle step of translating it to the particular pricing model and how the tactics relate, right? So like, just for example, one of the analogies I've used throughout my career is, you know, if you're negotiating a consulting arrangement with one of the big consulting firms, right? McKinsey or Bain or any of them, you know, they'll say, okay, you know, you're going to need, you know, 2 partners and 10 associates and we think it'll cost you about $2 million, right? If you tell them, well, I only want to spend $1 million, you know, they won't just discount it. They'll say, okay, now we'll only give you 1 partner and 5 associates, right? Like as the price comes down, the value we deliver comes down. That's the biggest piece of value-based pricing. It's one, setting the stage when you make your initial quote for, you know, here's the value and, and, and, you know, what we'll deliver. And then as you get pressure on that price, taking pieces out, it's like, okay, cool. Like if, if you're, you know, if your budget is only this and you only want to spend this, let's take this out. Right. And then you can always bring that back in later, or in the case of a usage-based pricing, just cut back on the amount of usage they get. Right. And so that's, that's how I've sort of navigated it with sellers, you know, but the, the other bit as well, it's nailing down what is the customer's biggest concern? Because this way you're not, you're not negotiating on two fronts. It's like, all right, well, what are we trying to solve for? Are we trying to solve for that you don't want to have crazy overages? Are we trying to solve for that you don't want to have leftover usage and you're going to lose budget? Like, and, and solve for that. Right, versus trying to solve for everything. Because otherwise, again, all right, well, if we solve for this, can we, can we close the deal based on that?
