What is value based pricing?

Value based pricing sets your product or service prices based on the perceived value that your service delivers to your customers, rather than basing them on your own costs or your nearest competitors pricing.

For service businesses, this approach can typically increase profits by 25% to 75% whilst building stronger customer relationships.

It is as much a mindset change as it is a pricing strategy. You have to start thinking about the problems that you are solving for your customers and what the value of the services you offer is in your customers eyes.

Instead of, “What margins should I add?” or “What are other businesses charging for this?”, you instead have to consider “What is this worth to my customer?”.

This article covers value pricing strategy, examples, and the implementation frameworks we use here at the Value Alchemists for our clients.

Table of contents

Why value pricing is ideal for service businesses
How value based pricing works
Value based pricing vs other methods
Why most service businesses struggle to change their pricing
The VALUE framework for implementation
Benefits of value based pricing for service businesses
Common challenges and how to overcome them
How to get started with value-based pricing
Ready to transform your pricing strategy?

Why value pricing is ideal for service businesses

Service businesses are usually very well positioned to implement and benefit from value based pricing because,

Services solve specific problems

and solving problems means that there is an inherent value in monetary terms to solving that problem

Every client situation is different

allowing you to provide a personalised service and tailored pricing based on the value you will deliver

Results can be measured

making it easier to quantify and demonstrate the benefit they will get

Relationships are important

and value based pricing enables you to be seen as a trusted partner, not just a supplier

How value based pricing works

Value based pricing operates on the simple basis that price reflects value delivered, NOT the costs incurred

Traditional approach

Your costs + desired margin = your price

Problem: ignores what the customer actually values

Value based approach

Customers problem + impact of your solution = your price

Advantage: price is directly linked to the perceived customer value

The result

Same service but dramatically different pricing and profit margins, because the focus shifts from your internal costs to customer value

Example

A marketing agency provides a range of services from updating your website to developing and publishing content across a range of social media platforms

Cost-plus thinking: The package of services the client wants costs us £900 a month to deliver so we will charge £1,800 a month which makes us a 50% gross margin.

Value-based thinking: The work we do, generates on average 10 quality leads a month which is worth £45,000 of additional recurring revenue to the client. We will price at £3,000 a month as the ROI for the client is clear. This achieves a 70% gross margin or £2,100 in profit compared to just £900 before but for the client they get a 15x return on their investment.

The same service, significantly different profitability because the focus shifted from internal costs to customer value delivered

Value based pricing vs other methods

Method	Based on	Pros	Cons	Best for
Cost-Plus	Your costs + margin	Simple to calculate	Ignores market value	Commodity services
Competitor-Based	Market rates	Easy to research	Race to the bottom	Highly competitive markets
Price Skimming	High initial price, then reduce	Maximises early profits	Limited to new products, not sustainable	New product or category launches
Psychological Pricing	Customer perception	Easy to implement	Focuses on tricks, not value	Retail/consumer goods
Demand-Based	Market demand levels	Responds to market conditions	Unpredictable revenue and profits	Seasonal businesses
Value-Based	Customer value received	Higher profits, stronger relationships, sustainable	Requires deeper customer understanding	Service based businesses

Why most service businesses struggle to change their pricing

Based on discussions with hundreds of business owners, the same patterns and reasons behind not addressing their prices keep coming up,

They haven’t increased their prices in years and are afraid their customers will leave if they do it

They see competitors offering “similar” services cheaper

They already have to discount to win new business so increasing prices seems impossible if they want to win any business

Their customers are already questioning their prices and asking for reductions or additional services for free

Margins are already tight and they can’t risk any customer revenue at the moment

A lack of confidence that their value proposition could justify value based pricing

The VALUE framework for implementation

The VALUE framework was developed to address the common fears and challenges service businesses face when trying to adopt value based pricing:

V – Value Discovery

Understand what truly matters to your customers

– What problems keep them awake at night?
– What would success look like for them?
– How do they measure the impact of those problems?
– What have they tried before?

A – Analysis

Current pricing and cost structure review

– Understanding your true costs (not just obvious ones)
– Identifying where you’re leaving money on the table
– Analysing your current customer segments
– Spotting patterns in your most profitable work

L – Leverage

Identifying your unique value proposition

– What makes you different from competitors?
– Where do you deliver disproportionate value?
– What expertise do you have that others don’t?
– How can you package your knowledge, not just your time?

U – Unlock

Designing your new value proposition and pricing strategy

– Creating service packages based on customer outcomes
– Developing pricing that reflects true value
– Building in premium options for ideal clients
– Structuring offers that customers can’t get elsewhere

E – Execute

Implementation and communication

– How to communicate changes to existing customers
– Scripts and frameworks for value conversations
– Managing the transition without losing key clients
– Measuring and optimising results

Benefits of value based pricing for service businesses

Financial benefits

– 25-75% profit increases typical in our client work
– Higher margins on every project
– Less price sensitivity from customers
– Ability to invest more in your people and service quality

Relationship benefits

– Customers focus on results, not costs
– Stronger partnerships with ideal clients
– Less time spent justifying prices
– More strategic conversations

Business benefits

– Attract better fit customers
– Differentiate from your competitors
– Build a sustainable competitive advantages
– Create predictable revenue streams and a more valuable business

Personal benefits

– Reduced stress about pricing conversations
– Pride in the value you deliver
– Freedom to invest in building your business
– Better work-life balance through higher efficiency

Common challenges and how to overcome them

Change is not easy, especially when your finances may not be where you want them to be. The good news though is that managed properly, the risk is extremely low. On average our clients have a net profitability increase of 43% and lose less than 3% of their customers when implementing a major price change. Any potential loss of customers is always planned and offset by far higher revenue and profits from the remaining clients.

Challenge 1: My customers will leave if I increase my prices

The Fear: “We’ve had the same pricing for 3-5 years. Our customers are used to these rates and if we change anything now, they’ll just find someone cheaper. We can’t afford to lose anyone.”

The Reality: Customers leave because of poor value perception, not appropriate price adjustments. When you haven’t increased prices for years, you’re actually training customers to see your service as a commodity rather than a valuable solution.

The Solution:
– Don’t just increase prices – transform your value proposition first
– Start with new customers using value-based pricing to test the market
– For existing customers, reposition how your services are packaged and communicate the value you are bringing before adjusting prices
– Use a structured communication approach that focuses on the enhanced value they’re receiving

Challenge 2: Competitors are offering similar services for less

The Fear: “Every time we quote a project, prospects come back saying they can get it done for half the price. How can we compete when others are so much cheaper?”

The Reality: You’re not selling the same service , you’re selling different outcomes. When competitors compete on price, they’re commoditising the market and often delivering inferior results.

The Solution:
– Stop comparing yourself to low-cost competitors
– Focus on the specific business outcomes you deliver that others don’t
– Target customers who have been burned by cheap providers
– Develop your own unique proposition for your niche that can’t be easily copied or compared to others

Challenge 3: We already have to discount to win business, increasing prices seems impossible

The Fear: “We’re already struggling to win work at current prices and often have to give 10-20% discounts. The idea of charging more seems completely unrealistic.”

The Reality: If you’re constantly discounting, you’re competing in the wrong market segment with the wrong value proposition. This creates a downward spiral that gets harder to escape.

The Solution:
– Identify why prospects are price-shopping (usually poor differentiation)
– Develop packages that can’t be easily compared to competitors
– Focus on a specific niche where you can demonstrate expertise and tailored services
– Create urgency around business outcomes, not features

Challenge 4: Customers are already questioning our prices and asking for more for free

The Fear: “Our existing customers are constantly asking us to do extra work for free or questioning whether they’re paying too much. They compare us to cheaper options and expect price reductions.”

The Reality: This happens when customers don’t clearly understand the value they’re receiving. It’s a communication problem, not a pricing problem. You have probably also attracted the wrong profile of customers over time due to prices that were too low.

The Solution:
– Implement regular value reporting to show the impact of your work
– Set clear boundaries around scope and additional requests
– Train customers to see you as a strategic partner, not a vendor, quarterly or six monthly business reviews are a great way to achieve this
– Document and communicate the results you deliver, not just the work you do

Challenge 5: Margins are already tight, we can’t risk losing any customers right now

The Fear: “We’re barely profitable as it is. We can’t afford to lose a single customer, so any pricing changes feel far too risky. We need every bit of revenue we can get.”

The Reality: Tight margins are often a symptom of underpricing, not market conditions. When you’re barely profitable, you can’t invest in quality, which makes customer retention even harder.

The Solution:
– Start by understanding your true profitability by customer and service
– Identify your most profitable relationships and protect them with increased touchpoints so you have opportunities to demonstrate the value you are delivering
– Gradually transition away from unprofitable work
– Use value-based pricing for all new customers and implement new prices in a phased approach for existing customers to de-risk the rollout

Challenge 6: I don’t think our value proposition is strong enough for premium pricing

The Fear: “We do good work, but I’m not sure it’s special enough to charge significantly more than competitors. What if customers don’t see the value we think we provide?”

The Reality: Most service businesses significantly underestimate the value they deliver because they’re too close to their own work. You solve problems your customers can’t solve themselves. They are also reliant on you so that they can get on with running their own business.

The Solution:
– Talk to your existing customers and document the value and outcomes you’ve delivered
– List the problems you prevent and results you deliver, not just the services you provide
– Identify what would happen if customers didn’t use your service or used a less effective competitor
– Develop case studies showing measurable business impact

How to get started with value-based pricing

Step 1: Understand Your Current Situation
– When did you last review your prices?
– What percentage of prospects mention price as the main concern?
– How often do you feel you need to discount to win work?
– What’s your profit margin on different types of work?

Step 2: Identify Your Value Drivers
– What problems do you solve for customers?
– How do you measure the impact of those problems for customers?
– What results have you delivered for previous clients?
– What makes your approach different?

Step 3: Start Small
– Test value-based pricing with one service or customer segment
– Develop case studies that demonstrate clear ROI
– Create pricing packages based on outcomes, not your costs
– Measure results and refine your approach

Step 4: Scale and Optimise
– Apply the approach across all your services
– Train your team to have value conversations
– Continuously gather feedback and improve

Ready to transform your pricing strategy?

Value based pricing isn’t about charging more for the same service – it’s about delivering and communicating value more effectively, then pricing accordingly.

The businesses that thrive in today’s competitive environment are those that can clearly articulate and deliver value to their customers. When you make this shift, pricing becomes less of a negotiation and more of an investment discussion.

If you’re a service business owner who’s tired of competing on price and ready to charge what you’re worth, we can help. Our VALUE framework has helped hundreds of businesses increase their profits by 25-75% whilst building stronger customer relationships.

Book a free Discovery Call to discuss your specific situation and see if we can help.

The Value Alchemists specialise in helping service businesses transform their approach to pricing and value communication. We combine pricing strategy with customer experience design to help you stop competing on price and start charging premium prices for the problems you solve.