How do you know when the client's budget is unflexible? I mean, you should ask them? if yes, how you should ask them?

Thank you Zain for the suggested book. I will have a look at that as well!!

Great book. People should really think of value instead of hourly rates. Thanks for sharing...

Value-based pricing isn't really a viable business model though. In fact, it's essentially the same as price gouging. It's like selling water to thirsty people and upping the price based on their perceived dehydration. "Oh, your lips look really chapped. Here's a water bottle for $25." It's like communism: sounds good in theory, disastrous in practice. It's unethical at best. Hardly the ideal cornerstone for a relationship-based business model.

Mikis Woodwinter please, would you expand your answer a little further? I don't see this model as "selling water to thirsty people". I see it as really considering one's work valuable for others so that they can achieve important economic goals. The example of the proposed book above illustrates a freelancer who priced very low by hour for a job who helped his client get very high incomes. Please. would you expose any other model for pricing?. Any other reference would be helpful. Thanks.

Hey Juan,

" I see it as really considering one's work valuable for others so that they can achieve important economic goals."

The problem lies in your premise; it's faulty. Value-based pricing can only work if there is a direct and objectively verifiable relationship between the services you provide for the client and the impact of those services on the client's business. In other words, for this pricing model to even be plausible, both parties have to agree on what metrics to use in order to measure the "value-added." And even if you have the savvy sales skills to convince a client that you've added a specific amount of value... if you in fact haven't or that "specific value" is meaningless, this is still unethical.

Also, in a relationship-based business, such as freelancing, this is incredibly hard to put into practice. Take a freelance web designer for instance. Did more people come to the site because of your epic UX design or because of unrelated word-of-mouth referrals from a key partner? Did conversion rates increase because of that new landing page you built or because a direct competitor went out of business? And what is the impact of both of these in terms of actual revenue for the client? Did it go up as a direct causality? Conversely, did revenue go down because customers hated the website? What, do you owe the client money now? In short, pricing your services in accordance with the "value-added" is hard. And risky — it might be worth it, it might not. Either way, it's probably unethical.

"The example of the proposed book above illustrates a freelancer who priced very low by hour for a job who helped his client get very high incomes."

I haven't read the book, but let's take this example. As a freelancer, you can charge whatever you want to charge for your services... or at least you can charge as high a price as the market will bear. This equilibrium price point is not fixed; it will change with the market. It will change as you gain more experience, i.e., it will change as your perceived market value changes. In light of this, all you can do is proceed with trial-and-error... just make sure you're at least breaking even with costs and at best meeting your industry's standard profit margin. You can charge hourly, you can charge per project ... I don't really understand the relevance of this... you go with the pricing model that makes the most sense for that particular client... the one that you feel most comfortable with.

What you don't do is assume that your client owes you more than your market value simply because they could theoretically afford to pay you more. Feel free to rebut, this is simply an opinion I hold — there most likely are factors I haven't considered. I would be very interested to hear what Pasan Premaratne has to say on the topic.