Value-based pricing is a strategic tactic where setting price is based on the benefits your service or product provides to your customers. It is the ability to charge based on the value you offer. On the other hand, cost-based pricing is based on the dollar amount it takes to deliver the product with a percentage margin added.

Service firms with compelling brands and real differentiation are able to take advantage of value-based pricing. Firms that offer unique services are in a better position to optimize value-based-pricing tactics versus their counterparts offering undifferentiated services that are easily available from competitors.

Here are three building blocks to consider when preparing your services firm for the transition to value-based pricing.

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Understand the skills and expertise that drive value for your customers

In my previous blog on high-performance teams, I mentioned that service companies are built on the value of their people’s skills. The unique combination of skills applied to projects is what drives results and profitability. Smart consulting companies recognize that they need to focus on what their customers value beyond cost. Accenture research specifies that “61 percent of customers will pay a higher price if they can be assured that the product or service of higher quality.”

When evaluating your projects, have you considered the skills and expertise your firm uses to deliver on those projects? What skills are your customers actually buying from you? Consider the ability to understand the top skills and expertise your firm has applied consistently across projects and the level of expertise, would this data be important to you as you look to understand the services your customers are buying from you?

TeamFit shows you where a skill has been applied on different projects and the team involved in delivering that project. When planning you can also determine the level of expertise your team has in that skill. Here is an example based on a consulting company’s delivery of innovation management.

Design an exceptional experience

Ideo is recognized as one of the most innovative and award winning design firms in the world. In their Field Guide to Human-Centered Design they say, “When you understand the people you’re trying to reach—and then design from their perspective—not only will you arrive at unexpected answers, but you’ll come up with ideas that they’ll embrace.”

By delivering an exceptional experience that is designed with your customers needs in mind you can avoid having price be the key factor in purchasing decisions. Your service interaction is the very core by which your value is measured. Each touch point is the opportunity to engage, satisfy your customer, prove credibility over your competitor. This engagement not only allows you to strengthen your relationship but is enables you to understand your value offer and why they are choosing you over your competition.

Be selective in who you serve

A professional services business cannot thrive if it fails to understand the market segment it serves. According to OpenView Labs, without a deep understanding of how a company’s best current customers are segmented, a business often lacks the market focus needed to allocate and spend its precious human and capital resources efficiently.

Understanding the customer categories that you serve and their unique needs helps you to understand where to not only allocate your people, such knowledge will indicate where you need to invest in skills development.

Two segmentation approaches aligned with value-based service defined companies are needs-based segmentation and value-based segmentation. Needs-based is segmentations is verified through primary research. As per its name, the segment is defined by need instead of industry or size. Value-based segmentation is categorizes customer groupings by economic value.

By properly segmenting your target market based on need and value will help you service the types of companies that will increase your margins. Mutual value is created.

How is your professional services driven company identifying the differentiated value your customers are wanting to buy from you over your competitors? Feel free to comment or send an email.

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