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Tiered value-based pricing

Imagine that you were commissioning the development of a new home for you and your family. What would you look for in a bid from a contractor? Would you be satisfied with one option, one price? A quote that lays out averaged costs in the most generic of terms? Boiler plate descriptions of process and procedures that fail to address your specific needs and desires?

Buying a Web site (or any user experience) design shouldn’t feel like this—and yet, consider how we often pitch, scope and quote on projects.

We put together a statement of work that estimates the costs on an “average per-square-foot” basis (e.g. number of templates). We talk about us: our process, our people, our proven track record. If we’re placing a fixed bid, we typically propose one option and one price that studiously and reflexively attempts to cover off everything in the brief.

A couple of weeks ago, Jon posted up some thoughts on why we’re switching from costs-plus to a value-based pricing model. This generated a very lively discussion, which—if I were to summarize it—really boiled down to a sentiment of “that’s great, but how do we do this?”

Since then, we’ve experimented with a number of pricing options and strategies. I’d like to share one that we think shows a lot of promise.

A tiered model for value-based pricing

A tiered model lays out multiple options at different price points and empowers purchasers to make better, more informed decisions that feel less arbitrary. I wish I had a simpler name for it, because it really is a very standard and straight-forward way to price things out. Here’s a template that we developed for a recent client:

Each of these options also got a one-pager that provided more detail. Here’s why we think this approach works better than a more traditional costs-plus estimate:

Measured response

Very rarely are you presented with a purchasing decision where there’s one option and one price. In fact, if you were, I bet you’d have a hard time judging whether or not the price was worth it. We’re not wired to make absolute evaluations in a vacuum. We need points of reference to help set expectations, anchor and compare.

Laying out options gives clients a clear way to compare, contrast and ultimately be more intentional about who they decide to award their business to and why.

What are we actually selling?

Each fixed-bid option focuses on outcomes rather than costs. Clients don’t want to buy 20-30 templates. They do want to buy a digital experience that delights customers and gives them a competitive edge. It’s up to us to understand how this maps onto specific requirements and outcomes, and reflect the perceived value of those outcomes in our pricing. Clients need to have confidence in us and understand how we will execute the project. But ultimately, they care more about how they can derive value from the end result.

Meaningful choice

Rather than pandering to a brief that asks for everything at once, multiple options let us de-couple conflicting requirements (e.g. fast delivery time and lots of features). This means that from the start, we’re setting ourselves and our clients up for success.

We want each option to have a purpose and represent a viable option for the client. We can state exactly what problems we’re going to solve and what trade-offs these solutions will entail. For example, in this case we proposed one option that optimized time-to-market, a second that set specific parameters around certain kinds of innovative features and functionality, and a third no-holds-barred, multi-channel approach.

Final thoughts

The American philosopher John Dewey once said that “a problem well-defined is a problem half-solved.” The goal here is to creatively and conscientiously define problems well, right from the outset, and empower clients to make purposeful choices about what they really want. One thing I didn’t expect to get out of this process was that it was actually fun. Quoting and scoping projects doesn’t have to be a dry, automatic process. It can and we believe should be part of the value you bring to the project.

David Gillis More posts by David Gillis