Why you should be using value-based pricing for digital products and services

Value-based pricing for digital products and services

All digital entrepreneurs have a shared goal: to create digital products or services that add value to their customers’ lives and businesses.

In a previous post about pricing digital products, the topic of value was raised. But what does “value” mean? On the surface, you’ve created a content marketing course that gives marketers up-to-date skills to stay relevant in their field. Or maybe you have created an email marketing service that helps businesses retain their customers. Or perhaps you offer a copywriting service that helps your clients reposition themselves.

What it means is your customers see results. A marketer gets a raise; a company increases its profits; and a client taps into a new market. That’s some serious money-making value for your customers – all because of your digital product.

Yet when it comes to pricing, we often disregard that value that our digital product delivers to customers, and look inward. We initially think about our rates, our costs, and eventually settle on a price.

This traditional way of pricing is one that definitely has merit, depending on your product… but wouldn’t it be great to enlighten customers of the unmatched value they’re receiving from your digital product or service, and discover a price that compensates you accordingly?

You can absolutely achieve this, with value-based pricing.

What is value-based pricing?

Value-based pricing is a pricing strategy that helps you place a dollar amount on the value that your digital product delivers to customers.

It starts with shifting how you think about value. You’ve likely valued your digital product through the lens of price. For example:

  • Course creators review competitors’ prices, then match or go lower hoping to win over potential customers by competing on price.
  • Copywriters present their rate to clients, yet usually compromise at the whim of the clients to ensure they get the project.

But what if your course offers features that make it better than your competitors? What if you’re a skilled copywriter taking on a major project that you’ll complete in a timely manner?

You leave money on the table.

Value-based pricing shifts the conversation from pricing to value to ensure you make the most money doing your best work.

Pricing the value of your digital product

You’ve created one of two types of digital products: a product such as a course; or a service such as copywriting.

Below, we’ve explained how you can price the value of each type of digital product, plus – and perhaps most important – how you can use stories to reinforce that the value your digital product delivers to the purchaser is worth the price.

Let’s start with pricing.

For products (such as courses and software)

Pricing the value starts with finding the additional features that make your product better than your competitors.

Say you’ve created a content marketing course. It includes all the essential features of a successful course – forums, assessments – plus a Content Marketing certificate for customers that complete the course.

The next best content marketing course includes the same features – minus the certification – and is priced at $300.

Pricing your course at $300 wouldn’t make sense. Your course includes a certification not offered by your competitor, therefore, should be priced higher.

But how much higher? To answer this, you must ask yourself: “What is the value of the additional feature worth to my customers?”

Think about why your customers would value the additional features. Furthering our example of the content marketing course, you’d likely think of several reasons why marketers would value a Content Marketing certificate:

  • Marketers can ensure they possess the most up-to-date knowledge in the industry.
  • Marketers can promote themselves as certified professionals (and maybe add a fancy phrase to their LinkedIn headline).
  • Marketers can better position themselves for a promotion.

In total, they can make more money.

Would marketers be willing to pay an extra $100 for your course if it means they could receive a 10% raise? No doubt. What about an extra $200? For the means to put a downpayment on that house they’ve been eyeing – you bet!

No matter your final figure, remember this: it’s an estimate. Rely upon your expertise, anecdotes, and research to trust your estimate is a valid price for your additional features.

Once you’ve set the price of your additional features, the last step to pricing your product is simple; add it to the price of the next best alternative.

In our example, the price of the next best content marketing course was $300. And the price of your certification was $200. Therefore, the total price of your product would be $500.

Because we focused on the additional value your product delivered – beyond the competitors – we could set a price that ensures you’re properly compensated for creating a better product.

For services (such as copywriting and graphic design)

Pricing the value starts with determining the financial gain your customer will see from your service.

Picture this: You’re a niche copywriter who has landed an interview with a major North American corporation. Your task would be to take the corporation’s brand guidelines and customer-facing messages, and craft them in preparation for international expansion. The work is projected to take 100 hours.

Now get this: The corporation projects that the international rollout will bring them an additional $100,000 in annual profit. Yet before you can even take a sip of the complimentary coffee, the client asks you the same ole’ question: “So what’s your rate?”

You know your rate, let’s say it’s minimum $75/hour, but this isn’t a new tagline for a successful local business. This is a project that could win a large corporation tens of thousands of dollars in profit!

So we return to a similar question – what is the value of your work worth to the client?

You can already come to two conclusions:

  • Your hourly rate will not cover the value that your work will deliver to the client. (~$7,500 for a project that will make the client $100,000?)
  • Your work is valued at less than $100,000, lest it wouldn’t be a good investment for the client.
  • It’s undoubtedly a huge project, so more time, care, and effort is required.

What about $25,000? I get it – that’s a big number, likely far more than you’ve ever quoted on a project. But that would mean the client would make four times more than their investment in your work. Pricing at this level also tells the client two things:

  1. They will receive exceptional-quality output (as illustrated with your reputation and your portfolio)
  2. You are worth the value they would be investing.

When you think about it that way, the $25,000 the client would spend on your work is appropriate, considering their financial gain.

If there is a clear project outlined, such as the example above, a flat project fee based on value will allow you the following benefits:

  • You are a contracted expert for a special project – you’re not charging an hourly rate because you’re not a long-term contractor or a part-time employee. Use your expertise as a selling point in your value-based pricing.
  • Clients often prefer a fixed price, because they know exactly what they’re going to get, and for how much. There’s no guesswork and they accept the cost. The rate you quote won’t change at a later date (unless the project changes or grows).
  • You walk away with more money. Don’t undercut yourself – charging an hourly rate will ultimately mean you earn less money if you’re a quick, effective writer. With a set project fee, you make money based on the skill and expertise you offer, not on how quickly you complete the work.

How to tell a story to reinforce your value

After finding what your digital product or service is worth to your customers, you’re ready to present them your price. However, you can’t just come with a figure. You need to, as storytelling expert Bernadette Jiwa describes it, “align your digital product’s value creation story with the customer’s value story”.

When you created your digital product, you likely had a story in mind: you pictured ambitious marketers finding a new sense of professional purpose because of your course; CMOs meeting their marketing goals because of your email marketing service; and clients creating an international brand because of your copywriting.

That’s your value creation story. And just as you have a story of the value your digital product delivers, your customers have a story of the value that they need to meet a goal.

When you tell a story that aligns with your customer’s story, you’re saying “Yes, I understand your needs and have a product that’s worthy of your time (and money).”

Let’s revisit our example of the copywriter whose client is preparing for an international expansion. What would the client’s value story be?

On the surface, the copywriter could think that the client’s value story is the international expansion itself. More customers, more money, all that stuff. But to really convince the client that you work is worth – remember, $25,000 – you have to get to the heart of the matter.

What changed within the company that it decided to expand internationally? What problems have they faced as they’ve prepared for the expansion? What are the implications of that problem?

Questions like these will reveal the unspoken reasons why your customers need your services and will help you ensure your value creation story aligns with the customer’s value story.

Why you should use value-based pricing for your digital products

In the age of digital products, when, according to recent user surveys, the number of people using Easy Digital Downloads to sell courses alone has quadrupled in one year, you need to ensure you’re creating products that add real value to your customers’ lives and businesses.

Traditional pricing strategies tell us to disregard the financial gain our digital product delivers and focus on our rates and costs. But your digital product or service is making a financial gain for your customers, for which you should be compensated.

That’s where value-based pricing shines – it quantifies the value your product delivers so you don’t leave any money on the table.

Top it off with a story that tells the customer, “Wow, this business or person really understands my problems and has a product or service to solve it”, and you’ll get the money you need to do your best work.

The result? More value for your customers, more revenue for your pocketbook, and most important, more confidence that you’ve chosen an effective, proven strategy to price your product.

How do you price your digital products? Do your differentiated features play a role in pricing? As you create and refine your digital products, could value-based pricing be the right strategy for you? Let us know in the comments!

Comments

Very much appreciated this article. Looking forward to turning around my thinking to recognize the value of the services I provide.

Reply
Jacob Moses

Hi Shawn! Thank you for the comment and I’m so happy to hear that the article resonated with you.

Reply

I have since shifted to value based pricing for all my digital products (WP plugins) and revenue has more than doubled.

Excellent article Jacob.

Reply
Jacob Moses

Double the revenue!? Big time, Collins! Value-based pricing has really worked well for your digital products and I appreciate you sharing your successes.

Reply

I want use your plugin but in a country where paypal or the gateway you have doesn’t work. But my bank can provide me with a gateway. Can I use it to accept credit card purchases?

Reply

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