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0 pointshn_throwaway_995y ago0 comments

Value-based pricing is used to imply that the price of the service should be proportional to the value the customer receives from it, not the cost it took for the consultant to implement the solution.

Of course, with huge corporations, teeny improvements can be worth millions in value. So consultants working with these large corporations will usually prefer a "value-based pricing" model because if they can convince a customer that they can reap $100 million in additional savings or revenue (not unreasonable for a large company), they could easily charge, say, $40 million for it, but they would never be able to charge, say, $5000 an hour if that's what the timing worked out to be.

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xtiansimon5y ago

I take your point, "because...they can convince a customer they can reap $100 million in additional savings or revenue", this 'potential' revenue extends to the 'value' of the service, and the consulting agency should be allowed to take a proportionally larger share of this potential revenue as fee regardless if they are successful.

I'm coming at this from small businesses, who don't usually have resources (MBAs?) to forecast revenue in the way you're suggesting.

Again, my thought of value-based has a customer with a fixed opinion of the 'value'. You can't really get them to spend more money, because they don't perceive more benefit proportional to increasing cost.

I'm asking, is my application of value-based consistent with the term as you use it? And if yes, on what _other concepts_ does the theory turn to distinguish your concept of fees proportional to the customer's potential revenue?

What flips the interpretation of 'value-pricing' from a 'commodity' service, to your 'gambling' argument? If it's the uncertainty burden, then wow, that is some forecasting and salesmanship!

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