Why “Value Based” Pricing is a Scam
Are you looking for quotes for your next web design or development project? Did some agency approach you with the idea of “value based” pricing?
Saying things like, “Well, since you’ll likely make $10,000 on this, we’ll have to charge $5000.” Smooth talking salespeople (you know you’re paying extra for that, right? And the espresso machines and ping pong tables and that giant fancy office on the corner downtown…those are all baked into the “value” they provide) will often easily convince someone that, yeah, they’re providing a service that will provide more profit for the client down the road.
Sounds logical. Except, if what the agency is building you has so much value, why are they charging you for it in the first place? If they believe that you will make that $10,000, maybe more, why not do the work for free and then charge you a percentage of your profits over time?
Instead, they just don’t want to make the $75, $100 or $250 an hour rates that agencies used to charge. Now they want to make $500 – $1000 an hour off of you, claiming that you’ll make it back.
I’m building a cabin to setup as an AirBNB in a really pretty part of Colorado (it’s all pretty, really). A guy is coming in a few weeks to drill me a well. He gave me an estimate. I’ll pay him to do the work. If I make $50,000 a year renting my cabin out, he’s not going to come back and ask me for a cut of that. The value of the well to me is that I now have a way to get water to my guests. The value of the money I’m paying him is that he has done a certain amount of work and charged what it takes for him to keep his business thriving.
Would I consider, as a client in this scenario, giving him a percentage of my profits in exchange for him drilling the well for free? Hell yes! Would he be stupid to take that? I believe so. How does he know I’ll make $50k per year? How does he know I won’t bail on the business in six months (like many a new web endeavor does)?
Value based billing is a one way street, primarily beneficial to the agency making claims that are often impossible to prove until after the fact. If they really wanted to put a value on something, they wouldn’t take anything up front and instead do the profit sharing situation. Which most of us know is something you never say yes to.
All this is going to do is give our industry the same bad rep that lawyers and car salesman get. The stereotypical car salesman tries to get you to pay as much as possible for something that really has a fixed cost right out of the factory. And lawyers? Call one up with a million dollar lawsuit and you’ll get ten calls back. Try calling one when you need to sue someone for $1500, you’ll never get a single reply. That’s because, with their business model, profit sharing on a $1500 lawsuit is not worth their time.
I’m not here to scam the public. I’m more affordable than any other agency in town and I’ve been working with small businesses and non-profits since day one (which is why, even though my fully custom site rates have drastically increased over the years, I still provide an affordable “starter” option).
If you’re a developer or designer, please reconsider how our industry had to fight to get web standards in place. How we worked hard to convince businesses of the value of the web long before it was as ubiquitous as it is now. Let’s not ruin a still noble industry by trying to convince people to pay us for something we can’t even prove is real. There are enough people slapping $35 themes onto a WordPress install and charging $7000 for it out there giving us a bad name without those of us who do this for real making it an even more difficult climb.