Lesson #5 – Understanding Value

Understanding Value

When I first started in this industry, I had no idea what real value was. I was absorbed by becoming some kind of unicorn designer/developer with an excellent skillset that would act like an incredibly powerful client magnet.

I found reality to be both very different and very painful.

Over the years I learned three things that made a big difference to securing clients and making my business run much smoother. That is what I will be sharing with you today.

  • Understand your own value
  • Learn how to communicate value
  • Successfully deliver Value

Understand your own value

One of the first challenges you will run into when talking to your first prospective clients is the question of “What should I charge?”. Your initial feelings on that will probably be coloured by your confidence level, which at this stage is probably pretty low. So a better way of measuring  your value is to think about how much value your service will add to your clients business.

For example, you might be talking to an accounting firm where the average lifetime customer value (LCV) is $10,000 if their existing website is very old and doing a poor job of representing them and you make positive changes for them that may win them a new client each month, that makes $120,000/year that is going to be added to their business thanks to you.

I am not necessarily saying that you should therefore charge them $120,000, what I am pointing out is the fact that in this industry, you have incredible value you can deliver to your clients. But you must first believe it yourself.

Another point to consider is that no matter how new you are to the industry, in most cases, you are going to be more advanced than your customers, so you can lead them through the process with confidence. This alone can save them many hours and a great deal of stress learning what you have already learned by experience. That is why you can be confident about the value you can deliver.

Communicate value – Become a trusted advisor

Now you understand how much value you bring to the table it is time to help the client see that.

Contrary to what you might think, the best way to achieve that is not to tell them how great you are, it is to serve them well. Note that you have not secured the client yet but you should be serving them already. The goal is to serve the client to the highest level of your ability on both sides of the sale. That may mean several things:

  • Maybe they want something you cannot deliver, in that case you would serve them by directing them to someone who can do the job.
  • Maybe it turns out their budget isn’t a match for their needs, then serving them might look like reffering them to some good quality DIY website solutions.
  • Maybe it turns out they came to you for a website, but all they really needed was to make better use of their Facebook page. Serving them here may be telling them exactly that and advising them on how to get the best results on Facebook.
  • Maybe they are a great fit and so you serve them best by working together.

In the client’s mind if you start serving them as I have suggested above, educating them along the way, that will move you from being merely an “Implementer” or a “Technician” in their mind to becoming a “trusted advisor”. That is where you want to get to and that is where you want to stay . Firstly it is the most ethical way to do business and secondly it makes them want to work with you.

The only way you can attain and keep your “Trusted advisor” status in their mind is to make sure you are continually working in their best interest. It will make you irresistable and generate more refferals. Even if they never become a client they may become an advocate.

Deliver Value (For them, not you)

When I was starting out, I really wanted to build amazing things, so when a client came to me asking for a website for his custom signage business, I knew he was on a low budget but rather than doing what I should have done: figure out a simple solution based on templates and existing code libraries, I thought it would be exciting to design and build it from scratch with all kinds of ‘extra features’ the client never requested. This project was not even remotely profitable and it dragged on for months, All because I wanted to deliver value to my portfolio (and my ego) rather than to my client and his business.

If you want to avoid my mistakes you will need two things

  1. A deep knowledge of their situation and goals – This is achieved by asking good questions and listenning intently to your potential client.
  2. A willingness to offer them the solution they need, not the project you want to build – Sometimes if you know the client has a big budget and small needs it is tempting to over-charge, or if they don’t really need all the features you think would be great, it can be easy to sell them the deluxe version when all they needed was economy.

How to Price

There are many philosophies as to what is the best way to price a project, but they usually fall into one of two categories, hourly (my hourly rate is $XX and the project took 30 hours so the price is $XXXX), or value based project pricing (This project is worth $XXXX in value to your business so that is what it will cost regardless of the number of hours).

Both approaches have thieir own unique advantages and disadvantages but over the years I have adopted a pricing method that is very similar to Tim Bouchard’s approach, which he calls “Golden Mean Pricing” (I interviewed Tim on our podcast, you can listen to that here for a more detailed look at the topic).

Basically it works like this…

First, you need to know what your hourly rate is. If you have not worked for yourself before, don’t use your current hourly rate where you work as a benchmark. When working for yourself you need to take into account the hundreds of hours of work you will do to keep the business running which is essentially unpaid. This must be factored into your hourly rate. That means it will be considerably higher than a “normal” hourly rate (often more than doubling or sometimes trippling your “normal” rate if you are not self-employed currently.

Secondly, estimate the total number of hours the project should take (make sure you include buffer here because nothing every works out perfectly). Multiply that by your base hourly rate.

Congratulations! you now have your minimum price for the project.

Next we need to set our upper limit, This is by establishing the percieved value of the project, much like I talked about earlier in this lesson. How much value are you going to be injecting into the business. This forms the upper limit of your pricing.

Finally, based on your experience with the client, and your knowledge of their needs and budget you can plot where their pricepoint will be.

E.g. If you know they have a healthy budget and you also can tell this client will require more communication and review cycles than normal, you would set a price to the higher end of that range to acommodate for the extra attention, the opposite would also be true for customers with simpler needs and lower budgets.

Dont be nervous, the first few times is always hard, and you may get it wrong, but you will get better at estimating your own times and reading the client more accurately. Before long you will be getting it right almost every time!

Time to Practice

Now you have the tools to better understand value and how it is expressed it is time for you to figure out your rates. Start by answering the following questions for yourself.

  • Pick three businesses you already know, in different industries who are the kind of client you can see yourself working with, and figure out how much value you believe you could provide them with. This will give you a stronger grasp of your own value.
  • Next, estimate the time needed to build a website for those businesses, having built your own website, you should be able to get a reasonable estimation of this.
  • Figure out what your hourly rate would need to be in order for you to cover your living expenses if you only had 10-20 billable hours/week.
  • Use that information to calculate your approximate cost for building a website for those businesses. Having all these questions answered will prepare you for your first sale which will hopefully be soon!
  • Bonus tip: Do some research to find out what the competition at your skill level are charging, this isn’t a hard rule, but it should give you a ball park that will help you settle on a realistic price.

If you have any questions, feel free to drop me a tweet (@lukef) or email! luke@creatingclients.io

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