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Value Based Pricing (Examples, Benefits, and Calculator)

doctor value based pricing example


One of the benefits of Value Based Pricing is the customer pays what the result is worth to them.

Value Based Pricing Calculator:

What if you take the average value people get out of you, and charge based on that? This calculator might help you identify how much value people get from your product:

If your product is worth $1,000 per monthper year to the customer:

5% of its value is $50$50 per month or $50 per year$50 per year

10% of its value is $50$50 per month or $50 per year$50 per year

15% of its value is $50$50 per month or $50 per year$50 per year

20% of its value is $50$50 per month or $50 per year$50 per year

25% of its value is $50$50 per month or $50 per year$50 per year

30% of its value is $50$50 per month or $50 per year$50 per year

35% of its value is $50$50 per month or $50 per year$50 per year

40% of its value is $50$50 per month or $50 per year$50 per year

50% of its value is $50$50 per month or $50 per year$50 per year

60% of its value is $50$50 per month or $50 per year$50 per year

70% of its value is $50$50 per month or $50 per year$50 per year

75% of its value is $50$50 per month or $50 per year$50 per year

80% of its value is $50$50 per month or $50 per year$50 per year

90% of its value is $50$50 per month or $50 per year$50 per year

95% of its value is $50$50 per month or $50 per year$50 per year

100% of its value is $50$50 per month or $50 per year$50 per year



In a life-or-death case you could pretty much charge anything!

However we have an awesome free market system where other people can compete to sell the same thing for better prices:

doctor pricing competition


So if you're selling something that everyone else can sell (a commodity), then Value Based Pricing doesn't work all that well.

However if you have a unique selling point such as:
  • Your brand name has a lot of value.
  • You're the top person in your field.
  • You've directly worked with the top person/company in your field.
  • You sell your advice and you have an amazing track record in your field.


...then you might be able to charge way more money. Value Based Pricing is where you charge a customer based on the value your services are to them.

A major advantage of Value Based Pricing is you can charge customers way more money.

If you're selling a common item with a lot of competitors, Value Based Pricing will be hard.

 

Value Based Pricing Example...Paintings

Art is a perfect display of Value Based Pricing in action. For example:

This set of raw materials adds up to a total value of $70:
Canvas = $50. 
Paint Set = $20. 
Total Value = $70
Painting Value Canvas and Paint


However, the exact raw materials could dramatically spike in value by 1,000,000X if it was drawn on by Pablo Picasso:



Painting Value Picasso

The painting is sold on its VALUE. Value is what the market will pay for it.

Added Value = Picasso was a famous artist.
Added Value = Picasso is dead, so there will be no more Picasso's made.
Added Value = There is only one original painting like this making it rare.

The raw materials of this painting are negligible, but there's only ONE of these original paintings in the world, and a BUNCH of people want it, so the value shoots way up.

To have the privilege of owning such a unique item, someone placed a value of $70,000,000 on that painting.


Value Based Pricing Example...Basketball Coach

Imagine you wanted to learn how to dribble the ball a little bit better on the basketball court. You might pay:

$100/hr = Regular basketball coach.
$250/hr = Coach that taught a famous basketball team.
$100,000+/hr = LeBron James as your personal basketball coach.

Basket Ball Coach Price Difference


I couldn't even graph that properly because LeBron James' fee is so crazily higher.

The normal Coach probably teaches the same thing, but the Famous Coach has more credibility, but LeBron James has an immensely large brand value which allows him to charge asymmetrically more than the others.

He can charge more because he's famous.
He can charge more because he was an MVP.
He can charge more because his time is high in demand.

All of these things create added value to his time. Therefore he can charge on a Value Based Pricing model easier than the lesser known coaches.


Value Based Pricing Benefits:

Instead of charging $50/hr for building landing pages, you might be able to charge much more.

For example if your landing page will generate $100,000 in sales for your client, you might be able to fairly charge $5,000 or $10,000 for that landing page. You can can also use our Freelance Pricing Calculator to set your pricing better.


Value Based Pricing Disadvantages:

I've created email templates for companies that have netted their sales teams more than $1,000,000 extra per month. Does that mean I should get $1,000,000 (or anywhere remotely near that sum) for my efforts?

Not really.

Those companies can find other copywriters help them. I'm not the only person in the world who can do this.

For a lot of companies you can't expect them to pay you how much they make from your services.


Value Based Pricing Formula:

Here's a formula for Value Based Pricing:



V = Value
BA = Brand Advantage
VoP = Value of Product

Brand Advantage (1-10)
This is the advantage your service or product has over others. Maybe your product is flat out better. Maybe the person in charge is a celebrity in the industry.

Value of Product (1-10)
This is the end value of the product to the customer. Maybe if you sell paid advertising services, your campaigns can make your customer $100,000/mo.



Hopefully this taught you something about Value Based Pricing, and helps you decide what your product is potentially worth! If you like this, signup to our newsletter for more.

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