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.
written by David Gillis
Awesome points, David.
I had a long layover in Calgary airport a few weeks ago and decided to write out different packages that I offer for web design and development. They range from basic sites to complex ecommerce ones, each with a relative price and description of exactly what it entails.
I think everyone should do this, and even if they do not advertise it right on their site, use it for personal reference.
Cheers,
Carson
Could you put a couple of examples used in “key metrics”?
Thank you very much !!
B.
Very good points, I also thought I would let you guys know to check out: http://buildinternet.com/2009/06/the-magic-of-tiered-pricing/
We launched a strategic communication design offering with tiered value pricing the beginning of this year: http://gestaltnow.com. It not only helps prospects qualify themselves and sets expectations but also circumvents the traditional project-based RFP process and directly engages senior decision-makers.
I’d love to know what key metrics were blurred. I can guess the purpose and content for everything else in the template except for that. C’mon, please?
@geof they are things like “Time to market” and “new features” but they can be any outcomes you want.
Thanks Jon, that makes sense.
I am wondering what controls are in place to stop clients inadvertently migrating from one plan to the next? For example, if you have a startup as a client requiring design work, they may opt for plan 1, which suits their current business situation which finds lower entry costs as being far more attractive.
Plan 2, may involves more comprehensive consulting or more time spent on requirements gathering, etc, However, in this project through the evolution of the project and the inevitable scope creep, the clients requirements start to expand and start encroaching upon what you would offer in Plan 2?
How do you draw the line a that? Because You are very right in saying, clients don’t see hours, they only see the finality of what is delivered. So to them, the differing plans may not mean anything to them, because they don’t understand the implications of the ‘features’.
David
An excellent piece and very well put.
My only suggestion for a simpler way of saying “A tiered model for value-based pricing” is “Offering value options”.
As you indicate, offering optional “Value Packages” of significantly different value – and remember everybody that offering more of something is not offering SIGNIFICANTLY greater value – and attaching significantly different prices to them, allows clients the comfort of choosing the option that suits them best.
In response to Tim Allan, I would say that scope creep is definitely not “inevitable”. Integrating value-based pricing with “Selling Without Selling” ensures scope can be tightly defined, mutually agreed and its limits closely policed.
The client chooses the value option that best suits them and any requests for work beyond the scope of that option represent a separate, separately chargeable project to be discussed, agreed and prioritised. You can’t work on more than one project at one time with any one client.