The time has come for Value-Based Pricing and here’s why…

by Guy Ralfe on May 24, 2009

With the sad state of the global economy there are a higher number of people being forced to become entrepreneurs and following their dreams. What this is also meaning is that many of these first time entrepreneurs will have limited access to funds to start up bootstrap type ventures and will be highly focused on containing their start up costs or fixing the price.

In a recent Economist article “Clock-Watchers no more” the article relates how Coke and Proctor & Gamble are contracting projects with their advertising agencies using a value based model as opposed to the traditional bill by the hour. The article also points to out that this trend is being experienced in consulting, accounting and law firms  driven by their clients requests.

I don’t see this shift in the marketplace stopping at these few industries, I see the IT services industry as one that is ripe for this model. It is not a secret that IT projects do not have a history of coming in on original budget, and clients have constantly paid for the overages incurred due to oversights and unforeseen unknowns at the planning stage of the project.

Adopting value based pricing will build trust and align the partnership between client and IT service provider, in addition this will ensure that when projects are undertaken the scope and commitments will be mutually agreed and ultimately the risk shared.

Utilizing this value based model shouldn’t just be about containing cost but building your network with great service providers. When you chose a supplier you are investing in that supplier, you want to have the right supplier as very few  successful entrepreneurial ventures end after the first engagement.

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