Pricing for Perceived Value Is Not Pricing for Achieved Results

This interesting difference has come up just recently with a potential client. When I explained value pricing the prospect asked me, “So you get paid a slice of the profit you create.” Since this question comes up every now and then I’m prepared for it, so I could explain a touch better.

I use the university analogy to distinguish between value and results.

Value is what the university offers in its courses. The courses give students an opportunity to take their lives to a higher level and be successful. The value the university delivers is the ammunition to success. And each student gets the same value. That is, the university delivers the same value for every student.

But some students don’t do their assignments, that is, they are not ready and willing to receive the value the university delivers. But that’s not the university’s problem. Some students freely choose to forego the delivered value and go partying or do other things.

Both president Bush and Rintin Eaglebottom got their MBAs from Harvard. Harvard delivered the same value to both of them, and they both paid for that delivered value. But they received and applied value differently. Hence the difference in results. Bush has become US president. Where is the other guy? Hell knows.

They both got the same opportunity (value), and they used that opportunity differently to crate different results.

Providing a professional service is the same. You offer the value and only clients, the real decision-makers, can turn that value into results. So, you get paid for the value you offer, not for the results clients choose to derive or not to derive from your value, because you can’t control what clients make of the value you deliver.

It was not Harvard that put Bush into the white House. Harvard gave him an opportunity to achieve great things in life. He applied his education and talents to get there.

But the university can’t create results. Similarly, professional service firms cannot create results for their clients. They have to do their own push-ups to get stronger and fitter. Collaborating with clients is like lovemaking. You do it with your partner, not for-, at- or to your partner. And you are accountable to each other to give your best, so it becomes a memorable magical event.

Entitled Rethinking Pricing: Merits of Value Based Pricing, Mike McLaughlin of Deloitte Consulting and author of Guerrilla Marketing for Consultants has just done a great podcasts.

You can listen to the podcast here.