- Time-based. You set an hourly or daily rate, estimate (or log) how long a project will take, and multiply the two.
- Cost-based. You consider the costs incurred providing a service or product, and then times it by your desired profit margin.
- Value-based. You calculate the value the service or product provides to the client, and derive a price based on the client’s potential return on investment.
- Market-based. You determine your price by looking at what everyone else providing a similar service to similar clients is charging.
Each approach has it’s strengths and weaknesses. But the one I want to focus on here is value-based pricing. More specifically, how the hell do you 1) define what “value” means, and 2) calculate and put a number on it? I don t know if you can. Value is utterly subjective, so there’s no right way to define or calculate it.
But there is a heuristic concerning value that’s useful, even if you can’t pin a name and figure on value. It applies to project pricing, and to personal and professional relationships:
Put in ten times the value you take out.
For example, give every positive action in a relationship or project a value of n. The aim is to provide 10n for every n received. To deposit ten times what we withdraw.
This is where we run into the roadblock of defining and calculating value. At best, we can only guestimate. But that’s okay. Here, aspiring to the ideal is more important than achieving it.
Think about the upward spiral such an aspiration creates. You begin a relationship with someone. They do something good, they provide value to you. You reciprocate by doing ten times as much for them. They respond by doing even more for you. You react by doing ten times as much for them. After a few rounds of back and forth, you’re both 1) fully committed to making the life of the other person better, and 2) benefiting way more than if you operated on a 1:1 value basis.