'Value-Based Selling': Pricing on the Outcome, Not the Input
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Hey Entrepreneurs,
Today, we’re diving into a concept that’s revolutionizing how the most innovative businesses approach pricing: value-based selling.
This isn’t just another pricing strategy. It’s a fundamental shift in how we perceive and communicate the worth of our offerings. It’s about pricing based on the outcomes we deliver, not the inputs we invest.
The Value-Based Selling Revolution
Let’s start with a provocative question:
What if the time, effort, and resources you pour into your product or service aren’t what your customers truly care about?
It’s a tough pill to swallow, but it’s the reality. Your customers are focused on their outcomes, not your inputs.
Value-based selling is the antidote to the traditional cost-plus pricing model. It aligns your pricing with the value you create, not the costs you incur. This shift in perspective is transformative.
Consider these examples:
Uber’s pricing isn’t based on the cost of cars and fuel.
Apple doesn’t price iPhones based on component costs.
Netflix doesn’t charge based on show production budgets.
These companies understand a fundamental truth: customers buy outcomes, not inputs.
The Paradigm Shift: From Cost-Plus to Value-Based
Let’s break down the traditional cost-plus pricing model:
Calculate your costs
Add a desired profit margin
Set your price
It seems logical, but it ignores the customer’s perspective. It’s all about you, not them.
Value-based selling flips this on its head:
Understand the customer’s desired outcome
Quantify the value of that outcome
Price your offering as a fraction of that value
This approach aligns your interests with your customers’. The more value you create, the more you can charge. It fosters long-term relationships and repeat business.
The Value-Based Selling Framework
Let’s get tactical. Here’s a framework to implement value-based selling in your business:
Value Discovery: Uncover the true value your offering provides to customers.
Value Quantification: Put a number on that value.
Value Communication: Articulate that value compellingly.
Value Pricing: Set your price as a fraction of the quantified value.
Value Delivery: Consistently deliver on your value promise.
Let’s break each of these down:
1. Value Discovery
This is where the magic begins. To uncover the true value of your offering, dig deep into your customers’ world. Here are some powerful questions to guide your discovery:
What specific problem does your offering solve?
How does this problem impact your customer’s business or life?
What would happen if this problem went unsolved?
How does your solution change your customer’s situation?
Pro Tip: Make value discovery an ongoing process. Customer needs evolve, and so should your understanding of the value you provide.
2. Value Quantification
This is where many businesses stumble. Quantifying value isn’t always straightforward, but it’s crucial. Here’s a framework to help:
Direct Financial Impact: How does your offering directly save or make money for the customer?
Example: A software that reduces labor costs by 20%
Indirect Financial Impact: What are the secondary financial benefits?
Example: Increased employee productivity leading to higher output
Risk Reduction: How does your offering mitigate potential losses?
Example: Cybersecurity software preventing costly data breaches
Emotional Value: What intangible benefits does your offering provide?
Example: Peace of mind, status, or fulfillment
Time Value: How much time does your offering save, and what’s that time worth?
Example: A tool that saves 10 hours per week for a $200/hour consultant
Be as specific and data-driven as possible. Use industry benchmarks, case studies, and customer data to support your quantification.
3. Value Communication
Now that you’ve quantified your value, it’s time to articulate it. This is where your sales and marketing efforts come into play. Here’s a framework I call the “Value Narrative”:
Problem Statement: Clearly articulate the problem you solve.
Solution Overview: Briefly describe your offering.
Value Proposition: Explain how your solution addresses the problem.
Quantified Impact: Present the numbers you’ve calculated.
Proof Points: Provide evidence (case studies, testimonials) to support your claims.
Pricing Context: Frame your price in relation to the value delivered.
Weave these elements into a compelling narrative that resonates with your target customer.
4. Value Pricing
With your value quantified and communicated, it’s time to set your price. Many businesses go wrong here by pricing too low.
The key is to price your offering as a fraction of the value you deliver. This creates a clear ROI for the customer while allowing you to capture a fair share of the value you create.
Here’s a simple formula to guide your pricing:
Your Price = (Quantified Value for Customer) x (Your Value Capture %)
Your Value Capture % typically ranges from 10–30%, depending on your industry and competitive landscape.
For example, if your offering delivers $100,000 in value and you set your Value Capture % at 20%, your price would be $20,000.
Don’t be afraid to price high if you can justify the value. Remember, you’re selling outcomes, not inputs.
5. Value Delivery
The final step is crucial — you must consistently deliver on your value promise. This is where many businesses drop the ball, but it’s essential for long-term success with value-based selling.
Here’s a framework for ensuring consistent value delivery:
Set Clear Expectations: Clearly communicate what the customer can expect.
Regular Check-ins: Schedule periodic reviews to ensure you’re on track.
Measure Results: Track and report on the actual value delivered.
Continuous Improvement: Constantly look for ways to increase the value you provide.
Proactive Problem-Solving: Address issues before they become problems.
Remember, value-based selling is not a one-time transaction — it’s an ongoing relationship built on trust and mutual benefit.
Advanced Strategies for Value-Based Selling
Now that we’ve covered the basics, let’s explore some advanced strategies to take your value-based selling to the next level:
1. The Anchor Effect
The anchor effect is a cognitive bias where people rely heavily on the first piece of information they receive when making decisions. You can use this to your advantage in value-based selling.
Here’s how:
Start by presenting the full value of your offering (e.g., $100,000 annual savings).
Then, introduce your price ($20,000).
Finally, frame it as an ROI (5x return on investment).
This sequence anchors the customer to the high value figure, making your price seem more reasonable in comparison.
2. Tiered Value Pricing
Not all customers will derive the same value from your offering. Tiered value pricing allows you to capture more value across different customer segments.
Here’s how it works:
Create 3–4 tiers of your offering, each delivering incrementally more value.
Price each tier based on the value it delivers to that specific customer segment.
Allow customers to self-select into the tier that best fits their needs.
This approach maximizes your revenue while giving customers flexibility.
3. The Value Conversation
Transform your sales calls into “value conversations.” Instead of pitching your product, focus on uncovering and quantifying value for the specific customer.
Use questions like:
“What would be the impact on your business if you could solve [problem]?”
“How much time/money are you currently spending on [related issue]?”
“What would it mean for your team/company if you could [achieve desired outcome]?”
These questions help the customer articulate and quantify the value themselves, making your job easier.
4. The Contrast Principle
This psychological principle states that people perceive things differently when they’re presented side by side. Use this in your value-based selling by:
Presenting the cost of the status quo (e.g., $500,000 annual losses due to inefficiency).
Contrasting it with your solution and its impact (e.g., $100,000 investment for $400,000 savings).
This stark contrast makes your offering appear even more valuable.
5. Future Value Projection
Don’t just focus on immediate value — project the value of your offering into the future. This is especially powerful for long-term contracts or products with increasing returns.
Create a “Value Roadmap” that shows:
Immediate value (Year 1)
Medium-term value (Years 2–3)
Long-term value (Years 4+)
This approach helps justify higher prices and longer contracts by showcasing the compounding value over time.
Conclusion: The Value-Based Mindset
Value-based selling is more than just a pricing strategy — it’s a fundamental shift in how you perceive and communicate the worth of what you offer. It requires a deep understanding of your customers, a commitment to delivering real outcomes, and the courage to price based on value, not cost.
As you implement this approach, remember:
Always start with the customer’s desired outcome.
Be relentless in quantifying and articulating value.
Price confidently based on the value you deliver.
Continuously measure and improve your value delivery.
By embracing value-based selling, you’re not just changing how you price — you’re transforming your entire business model to align with what truly matters to your customers.
The potential for growth is significant. Are you ready to revolutionize your approach to sales and pricing?
Until next time,
Scott