Too many businesses struggle with pricing models that fail to reflect the true value of their work.
This is particularly the case with hourly billing, a common pricing model that tends to reward inefficiency and penalize expertise. That makes both clients and providers frustrated since projects often run over budget, incentives misalign, and profitability takes a hit.
For some firms, value-based pricing turns out to be a much more convenient solution. We hosted Jonathan Stark, a leading advocate for value-based pricing, to discuss how to shift away from hourly rates and deliver maximum value to clients.
Let’s explore Jonathan’s most important conclusions.
| Listen to the full podcast episode here: Do less work and make more money using value-based pricing with Jonathan Stark |
What is value-based pricing?
Value-based pricing is a model that focuses on the outcomes or value delivered to the client rather than the time spent completing a project. This results-driven approach transforms your services into investments for clients, making it easier to demonstrate the return on their spending and justify higher fees.
For example, experienced developers can complete certain projects quickly and with high quality but generate less revenue because they billed fewer hours. In contrast, a junior developer — who often requires more time and rework — becomes the most profitable member of the team under the hourly model.
Such misalignments punish expertise and efficiency. This is exactly what value-based pricing corrects by tying compensation to the outcomes achieved, not the time spent.
Why value-based pricing outperforms hourly billing
Hourly billing has long been the default pricing model for all types of firms, agencies, and consultants. However, this model comes with inherent flaws that can hinder your profitability and client relationships. Here’s what makes value-based pricing a better option.
Reflecting true value
Hourly billing often fails to capture the true worth of a service because it practically encourages inefficiency. Stark explains it very concisely:
“It punishes expertise if you're billing for your time. The better you are, the worse you get paid.”
On the other hand, value-focused pricing is all about delivering and getting the job done as quickly as possible. In this case, compensation is proportional to the impact delivered.
Predictable costs for clients
Many clients dislike hourly billing because it introduces financial uncertainty. This has to do with the fact that projects often exceed initial estimates and lead to unexpected costs. For example, reports show that only one in 200 IT projects delivers the intended benefits on time and within budget.
This isn’t an issue with value-based pricing because clients receive a fixed price upfront. That way, you give them clarity and confidence.
Encouraging better business practices
There’s an important side effect of value-based pricing — it motivates you to invest in tools and training that improve the overall team performance.
When time is no longer tied to income, upgrading to faster software and refining processes becomes a good business decision rather than a financial risk. As Stark puts it: “Saving time actually makes you money with a different approach to pricing.”
How to make a transition from hourly to value-based pricing
Switching from hourly billing to value-based pricing is a transformative process that requires careful planning and execution. If you’ve been working on a per-hour basis, rest assured this process is going to feel overwhelming at first.
However, you’ll ease into the transition by using the following tactics:
Start small
Transitioning to value-based pricing doesn’t mean overhauling your entire business model overnight — begin by testing the approach on smaller projects with trusted clients who are open to new ideas. According to Stark, this lets you refine your process and build confidence without significant risk:
“I would advise doing this on a fairly small project. It gives you a way to start to safely experience the difference in motivation between working on a project by the hour and working on a fixed-price one.”
Calculate with confidence
A key challenge in value-based pricing is determining the right price for your work. In this case, it’s best to start with your traditional project estimate and add a buffer to account for contingencies.
For example, Stark suggests adding a premium of at least 85% to your hourly-based estimate to create room for unexpected challenges and to reflect the real value delivered to the client.
Align with client goals
Value-based pricing requires a deep understanding of what the client wants to achieve, so it’s worth having a “why” conversation at the start of the project to uncover the client’s objectives.
Ask questions like:
- Why is this project important?
- What are your milestones?
- Why now?
- Why choose me?
When you learn what they want from you, you can easily align your pricing with the client’s desired outcomes, not just the deliverables.
Prepare to handle mid-project changes
One concern with fixed pricing is managing unexpected changes, but that’s where tangible success metrics step in.
You can quickly evaluate whether a change aligns with the project’s goals if you know the expected outcome upfront. If it doesn’t, defer it to a future phase:
“I don't want to jeopardize the success of the project we're working on. So I'll keep a list of good ideas that we can revisit after we declare victory on this project. But these changes — that’s a different project.”
Crafting effective proposals for value-based pricing
An effective proposal is a cornerstone of value-based pricing. It’s not just a document—it’s your opportunity to communicate the value you bring to the table, align with client goals, and set clear expectations. Here’s how to craft a proposal that resonates with clients and supports the value-based pricing model.
1. Focus on outcomes instead of tasks
Traditional proposals often emphasize deliverables and timelines, but value-based proposals should center on the results you’ll achieve. According to Jonathan, you should clearly outline the transformation your work will bring to the client’s business and how it addresses their goals:
“It’s not about scope — it’s about benefits and outcomes.”
2. Include incremental options
Another tip is to offer clients three tiers of options that provide increasing levels of value. This allows them to choose a solution that best fits their needs and budget while anchoring them to the higher-value options.
3. Highlight risks and assumptions
Transparency is key to building trust, so make sure to add a section that identifies potential risks and the assumptions you’ve made based on client discussions. This not only manages expectations but also demonstrates your expertise in foreseeing and addressing challenges.
Here’s how Jonathan explains it:
“If any of these risks blow up, you’re not caught off guard. You’ve already prepared for them, maintaining the client’s trust.”
4. Prove your credibility
If this is your first time working with a client, include a section highlighting your qualifications, past successes, and any credibility indicators, such as notable clients or awards. This reassures clients that you’re the right person to deliver the promised results.
5. Close with clear pricing and terms
The last tip is to position your pricing at the end of the proposal, after outlining the value the client will receive. As Jonathan puts it, the idea is to clarify the price as a fixed quote, not an estimate:
“Tell them openly — this is a quote, not an estimate. You won’t pay a dime more than this no matter how long it takes me.”
Final thoughts: Make pricing work for you, not against you
Value-based pricing isn’t just about charging more — it’s also about aligning your work with the true impact it delivers. By shifting away from hourly billing, you are more likely to position yourself as a trusted expert rather than a commodity, while also giving your clients predictability and confidence in their investment. Or, as Stark wisely puts it:
“If you want to be perceived as a professional and you feel like you're an expert, then stand behind your price.”
