A short note on value-based pricing

This is a short note because I’m not an economist and don’t pretend to be one. I think areas like pricing and value and cost determination are complex and should be given their just consideration, however, I recently saw a question on Caribbean Developers and I wanted to share what insights I have on it.

When I first saw this, I knew immediately I wanted to say, “Aye Roger, lean away from thinking hourly rates”, but that felt a bit too curt.

It’s been my experience that freelance developers tend to think in terms of charging hourly rates and doing work that they cost based on that rate. The “better” or more experienced they get, the more the rate reflects their growth/maturity in the space. Then, they learn about markups, based on their understanding of customer risk and that good stuff. But I’ve come to appreciate that thinking in terms of hourly rates for the work you do in freelance is a trap. The actual term for what I think is a better approach is value-based pricing.

I found a great explanation of it on quora:

Value-Based Pricing means presenting a price to the purchaser which is based on their perception of the value they will derive from the result being discussed

More from David Winch, Pricing Coach on quora.

So, I think Roger needs to spend time understanding how to develop a firm that uses Value-based pricing. It’ll help much more in the long run.

After Roger posted his question, I saw a great point from @sehelburt on the matter too: