The Ugly Truth About Value Based Pricing
Вставка
- Опубліковано 7 кві 2023
- There is a pricing concept called value based pricing that I think is wrong for 95% of filmmakers and videographers. Let me explain why. And then I’ll share with you what I do instead.
Here is the basic on value based pricing. You are trying to figure how much someone is willing to pay for your services. The way you go about it is by figuring out how much your video is worth to them.
Watch my UA-cam video on the pricing model I use:
• How to Price Video Pro...
If you want to turn your freelance business into a video production company, check out my free online training. www.filmmakingmentor.com/Vide...
I can confidently say these are my favorite business videos on YT. No fluff, no motivational BS, straight practical knowledge. Can't express enough gratitude, Saj. I'm sure this is how many if not most of your viewers feel too.
Awesome. Thank you
same bro
I agree, but In the website industry I have the ability to provide a lot of value by solving problems and automation for their business. In this case value based pricing has not only worked for me, but been my easiest sale thus far. I think it is because the customer feels like I am standing next to them and looking at the problem from their prospective and trying to help them, instead of sell them.
Value based pricing only works when you have good positioning and a brand. If you are starting is pointless and you should take what is coming to you to build a portfolio, then you can specialize. Only a few times in my life I was able to do VBP, and those where because I had something the client wanted and couldn't get anywhere else. Any other time, is project-based. That said, I do think one should try to go beyond the billable hour, and giving detailed cost estimates.
Wow you're the YT mentor I never had and never knew I needed. Thanks for the great content!
I was never comfortable with saying I'll get you x customers. I can't garuantee that, and saying that kind of stuff could lead to legal problems.
Well yeah you never say that, because you don't have full control over the outcome. You discount for uncertainty.
If cameras were priced based on how much a videographer can make with it we wouldn’t be able to afford new cameras lol
Lol good point
Isn't camera a commodity?
Yes, but this is how the economy works. When selling commodities, companies do not have the ability to extract the consumer surplus at scale, so they subsidize R&D with a (usually) much more expensive alternative that they first sell to a much more wealthy demographic. Think Tesla Model S vs. Model 3, or basically all pharmaceutical products.
These videos are so good. Thank you for the mentorship along the way. I'm growing!
-Daniel
Thank you so much Saj fpr clearing this up. I have recently paid alot of mpney for a course thats whole principal is about 'vbp' and it has never made sense. To be able to say you can garuntee leads or revenue margins doesnt even seem ethical of you know tou cant for sure. The more i eatch your videos the more i see your the only tutor i want to even have. Even just your youtube videos are more valuable than paid courses. Its much more straightforward offering a hreat marketing solution as you said and even if you had basic tiers of that it would be great. Everyone in the cousre also doesnt know what theyre doing the group calls are just people complaomomg that nothing is working.
Thanks for this im going to restratagise now.
THANK YOU. I myself AM 29. Ha! I feel seen, and I can’t express how much I needed to hear this. I’ve been beating myself up for months trying to learn the marketing agency concepts, just to fit the value based model, and it’s liberating to hear from someone in your position to just let it GO. I’m a creative. I’m not a marketing expert by a LONG shot. At least not right now haha. Thank you.
Saj, great video. I love your content and how you deliver it. Thank you and please keep it coming.
Thank you! Will do!
This changed my whole perspective on value based pricing. I need you as a mentor.
Good info. All the other video guys say to do value price. This makes the most sense.
This is such an excellent point. Great video Saj!
Thank Saj! I’ve seen these gurus (who used to sell crypto, seo, funnels, and other nonsense) jumping on the “videography” band wagon. They are giving terrible advice. Video Production is a real industry with real professionals who spend their lives perfecting their craft.
This hit home. I am currently in a situation where 3 years ago started a production company that I have grown and then turned into a full service marketing agency but we are still struggling with how to price our services.
Which model are you using currently? Monthly retainer or per project?
Excellent points. Help the company exceed in more ways than just providing a “vanity” video is a great practice . 🔥
Great video! I appreciate that you went after this topic; very helpful
The GOLDEN TRUTH video! Funny is how after error and trial I got to this understanding myself some time ago, made it work, and now I see the confirmation in your words. Thanks Saj!
I have also tried it and have recently came back to this same realization. The golden truth for sure!
You should do a video where you sit together with Chris Do from @thefutur and seriously talk and give examples on how "Pricing based on value" work and can't work. I quite looking forward to that video.
I just found this channel and I love it!!! Thank you sir!!!
Really good info Saj. I appreciate it
Good point about the challenges of value-based pricing with small business owners as you're starting out. As you implied in this video, people implementing value-based pricing must understand business.
I want to add…you can still be creative, running a video production company while helping your client strategize on the distribution of your videos.
Everyone must ask themselves what they are willing and interested in doing and recognize the trade-offs with both approaches.
I'm a creative that enjoys the side business and has adopted value-based pricing.
yea exactly. I think people should help consult with the client on strategy and create a very benefit oriented video package for them with the results in mind. I'm just trying to get people to know that there are other ways to price it that doesn't require pretending to know the ins and outs of every industry or trying to learn everything on a couple of phone calls with a potential client.
Great video, completely agree.
As you say, 10 years of doing a particular niche might give you a bit of credibility to ask those questions. By that stage, you should be a rock star in it.
THIS! I’ve had my business for 5 years now, and shortly after starting I learned of this pricing structure from a course. No matter how much I tried to implement it with clients, it never worked out the way they said it would. I always figured I sucked at sales.
Then I stumbled on another popular course and they took the same value based pricing structure, but then added how I have to be in charge of their funnel/ads/distribution/etc… to get results for the model to work. No matter how many times I tried, it never worked out as they said, and I kept beating myself up thinking I suck.
I’ve been doing 6 figure years for 4 of the 5 years I’ve had my company and I’ve felt like I suck on the business side because I could never charge based off value, even though I was charging killer project rates.
I feel like this is a topic that needs to be more widely discussed. The rhetoric that you must do this is really hurting people, and making people like me feel like my successful business is crap because I’m not maximizing profit, even though I’m still killing it. I don’t want to be a marketing agency, but feel like I have to, solely based on what everyone spews in all these courses.
Thanks for making this video.
I hear that. I honestly feel like lot of these courses are a copy of other courses and value based pricing is what they all teach. And I think if you want a seven figure agency, sure. But that comes with Tom of headache and overhead. Most of us would be happy with a six figure production company, working with mid size companies and brands, doing what we really want to do.
@@Filmmakingmentor amen bro! People preach that you have to have the biggest business you possibly can. That’s not right for everyone for sure yet they treat it as it’s a must in this industry.
Thanks again for making this video. Hope it spreads far and wide!
This comment actually hit me differently. You couldn't have spoken truer words. I have been on the road to trying to build a 6 figure business for the past few years now and I have not had a clear path on wether I should just sell quality video marketing packages or become a full fledged agency that controls the ads alongside creating the video. I have taken a bunch of different courses on it and you are definitely made to feel if your not offering these marketing retainers you are just at the bottom of the barrel. But your comment made me see clarity. Well done for having your successful years and may you hit 7 figures+ soon. I hope to get to 6 by end of this year 🙏
@@pdlrkpdlrk9971 glad it helped you! We start our own businesses because we want to do what we want to do. When we listen to others tell us how we have to run our business to be successful, that is only based off of what success means to them. Success is different for every person. Success isn’t even a monetary amount like 6 or 7 figures. To me it’s enough to take care of my family and do what I want to do, while being able to turn down projects that aren’t a good fit for me. If you feel like you’re better where you are now than where you were prior, you’re doing just fine. Keep striving to whatever goals you want to set for yourself, and don’t try and become something you’re not. Otherwise, you may as well just go work for someone else. Good luck!
Great work! Kudos to you bro!
Facts! Value pricing is a plague in the industry and for beginner creatives. This is a great video 👌🏻
It's only a plague if beginner creatives aren't exposed to other forms of pricing. From my POV (which could be wrong), value-based pricing has gained popularity thanks to Chris Do and The Futur and their massive reach on beginner creatives over the last 6 years.
I get it but the issue I think it doesn't address is leaving money on the table and that that reduces the value of the industry as a whole. When you start out you are happy to do videos for less but underquoting is not good long term. The best partnerships between creative and client is when the budget fits the cost plus margin model. I always ask the client questions about their budget to understand what they are expecting and willing to pay. Then I can decide if I will work for the money they are expecting to pay. I can try and increase value of the offering, but usually the best option is to say no thanks and search for a client who has a better/bigger budget.
You're right. He's right that value based pricing isn't for everyone, the problem though is that it's unlikely you'll be able to get paid as high as you could charging hourly than if you were to do value based pricing. Unless of course you become like a famous commercial or movie director or something lol. But I mean you can still get to 10k-20k per job even without value based pricing so i guess it really depends on your goals.
I alwaya thought of it. How can I guarantee that my video will increase their sales if I am just making video itself and not responsible for their marketing campaign, publishing this video, etc
Yea no real way to guarantee that when doing just the video
I thought I was going to disagree with this video but it is true. If you enact value based pricing you are no longer just a creative, you essentially have become a marketing agency. You need to understand marketing and business. A lot of people don't WANT to do that, hell a lot of us make videos to be creative usually because we don't enjoy the ''boring stuff''. Personally I actually do enjoy business and finance , (I'm in finance in my real job as I'm still only doing videography on the side) so value pricing model intrigues me and have recently started diving into it, after traditional pricing model for the last few years.
Thanks for sharing this insight. Super helpful
This was extremely well said. you are speaking the truth
Great perspective but I use value based pricing along with hundreds of other videographers in the community I’m a part of and it works.
This is why videographers will never make what they are worth, because they don’t understand the numbers. Once you have the creative done, learn the businesss side and get comfortable with understanding and asking about numbers.
This a great explanation. Great value and is very practical.
This is brilliant - thank you
Wow this is exactly what i needed to heard ! Thx
You're missing a few parts of the VBP equation that is causing you to think that it is harder than it is.
1. You don't ask prospects directly about value with the intention of charging them more. You ask them about value to understand the magnitude of the risk involved. These sorts of conversations also usually uncover much more relevant data about the project, which makes it much easier to actually resolve the problem for them.
2. If *you* are not comfortable talking about large sums of money, your prospect will pick up on that immediately.
3. You *always* start with paid discovery, that way you're not just some "stranger on the internet". This also makes it much easier to deeply understand the valuable problem.
4. VBP is not a license to print money. In your example about small business --- yes -- there is not much value there or value is unknown. This doesn't mean you cant use VBP for small businesses, but rather it reveals that most professional services projects done for small businesses are WILDLY unprofitable for the business.
5. You never guarantee results. You are not in full control of the problem, instead you discount for uncertainty.
6. Your projects do not have a "cost" to deliver. Your costs are fixed.
And please stop asking “What’s your budget?”. They will lie about the budget anyway.
How do you go about this part of meetings? Like it's tricky because you want to gauge what they expect to pay but in the same breath I feel like just saying your general price range allows the bullshit to be cut out faster. What's your take on this?
Disagree. I ask what their budget is during the first call.
@@BARKERPRODUCTIONamen
I recommend that you start to learn business in addition to your core skill. Also sales. You want to get to a point in your career where you're doing value-based pricing if you're handling a complete solution end to end just like Saj is talking about. There will come a day when your skills will peek and you won't be able to grow beyond working per hour and you will want to have better long-term security but also grow into new skills. It's totally ok to never go beyond keeping it simple too but having better late-career security and earning potential is dependent on what you're interests are and where you want to go.
I do very basic videos for my side business but my career has been as a software engineer and data scientist. I've learned a lot about running a business but also wear a few hats: Designer, web devleoper, backend engineer, NLP/LLMs, etc, etc. After 20+ years of working, I don't see why anyone at least at this stage of a career as me would keep doing hourly work exclusively. I take clients on hourly but I also target clients where value-based pricing makes the most sense. This allows me a lot more freedom and security than juggling 4-5 clients at once to maintain my security.
Thank you so much Saj. What if you reach out to a potencial client on LinkedIn or cold email what should i say to them, How will my video bring the ROI? I get so confused watching alot of videos on value base pricing.
You can talk about the benefit of the video and how they can use it to drive traffic to their website and get clients. The conversational can be very similar to the one in value based pricing. The benefit of the video package is the key focus. I just wouldn’t use it to figure out my pricing
I see here 3 different concepts 1) value based pricing as opposed to the 2) hourly rate pricing. But there is a middle thing, which I think is the most reasonable 3) total sum pricing, or how you would call it. You just think inside, what price are you ready to work for, what price you would he happy to have, and name the customer some middle thing. This way the customer would know what the total price would be and you would also know it, everyone is happy.
This kind of honesty (and lie-busting) goes a long way for trust. Thank you Saj. You moved up in my opinion of taking your course.
Also, THE FUTUR pushes value-based pricing. I took their $800 leads course and it is garbage. I took a $37 email course that was vastly superior.
Do not listen to THE FUTUR. They're shovel salesmen at a gold rush. They have no idea where the gold is.
Thanks man. I like a lot of his stuff but I have to stand my ground on this topic. And I wasn’t calling him out specifically. Every single course I seen on this topic for creators seems to only teach value based pricing model.
Wow that's great to know this comment section is actually filled with so much useful information @saj are you ever going to do the installments method for your course. I would literally start today if that was possible
Thanks for sharing
hi, the topic of the video is very interesting and i'm trying to figure out how to rate my videos. I'm 17, I have a few years of experience in the world of videomaking and I'm starting to have some small clients. I want to become a full time videographer, I like commercial videos but I don't find my niche yet. I create a lot of vertical content for small businesses that don't have a budget and who use my videos organically on social media, getting few views and seeing my videos as an expense and not as an investment for their business. the maximum I have charged for a video is around 300€. Now I'm doing the dishwasher and I'm putting money aside, I have about €2500. I thought about investing a little in equipment, but I'm afraid it wouldn't change my situation. I would like to attract customers with more budgets. advice?
Excellent video. Thank you. Can you expand on organic content? How do you describe that to clients as part of your video package?
I basically find out who their target audience is and if they could create organic content to educate that audience. Then I may ask questions in interview format during the shoot to create several organic content, so they can post them on social. Once they see how that works, they may hire me again just for the organic content strategy long term.
Excellent! Thank you again
Hit the nail on the head! Value pricing sounds good when you been in the biz for 20yrs and have hundreds of case studies of client success and results. But when you been in the biz a couple years how the hell you gonna bring business outcomes with just a video when you aren’t in charge of the entire pipeline. I been trying the value price approach last few years and i’m always met with justifiable resistantance of “okay all that sounds great on paper, but how the hell are you gonna actually do it? what past results can you show? what can you even guarantee?”
Absolutely true! It’s totally weird they recommend to ask this as a video business operator to ask and pretend to be a business manager as well. You nailed exactly what I was thinking about 💯
The value in these videos are unmatched
I loved your argumented explanation of it Saj thx for that ! However, in my experience working with communication/marketing agencies that provides me work, I am always frustrated on set because they have their Artitstic director. And he/she overwrites my choices on set wether artistic or practical on a production level (i am a director/dp/productioncompany owner). So i feel like I end up as an executive technician. Also when they give me a 10K budget they charge 100K ++ to the client and I know for a fact i can do the work they do for the client. So i feel cheated really, if you have 1 or 2 collaborators that can help you handle the marketing work (either freelance or employees) i beleive you can apply the value based pricing cause you can charge so much more money, and get great artists and technicians and gear in for the final result which will show in your portfolio and reputation. Correct me if i'm wrong but it sounds actually better for both parties.
So i am really very close to switch to a branding studio focused on the video side. what can you say to that ?
NB: i specialise in fashion/lifestyle commercials
Yea that was the focus on my last video. For a small portion of people that believe they can do what the marketing or ad agency do, they should try it. You can certainly make 10x revenue. It sounds like you are part of that 5% and that model makes sense for you
You’re in the 5%
@@shawn5210 🤣🤣 very soon mate
I feel you bro. I'm a DP who often makes like $1k/day on these types of shoots working for Fortune 500 companies with billions of dollars. They hire an agency who hires a production company who hires me. Agency making $100k, production company $10k, I make $1k, and the final product would literally be much better if they just hired me directly. Where are you based? Let's collaborate haha.
Saj, you need to read the book on value pricing and then discuss concepts. You state "You are trying to figure out how much are willing to pay for your service". This is the wrong idea. The value-based pricing is based on pricing the customer and showing them that getting your service will provide the outcome they seek. You have to ask intelligent questions. Certainly not, how much it is worth to you or how much is a new client worth to you? Nobody is hiring you to get a video or other marketing stunt. They are looking to attract certain types of customers. I would suggest you visit Ferrari or Lamborgini car dealerships and learn how they approach a customer and how they ask questions. Next, go to Walmart and do the same you will see the difference. Good luck with your business.
Value based pricing sounds very arbitrary
Yea that’s my experience with it
I feel like 20% is very low. It doesn't give enough room for unexpected expenses. I try to aim for no less than 30% margin.
Yea 20% is tight for sure. But I like to think of it as a bare minimum in order to operate. I know so many people that don’t even charge a profit margin and only think about making their hourly or day rate per project.
This is the model that I am building.
So is a lot of the business model managing the performance of these Facebook and google ads?
There are other ways to get results with video. You can help clients create an organic video campaign such as growing a UA-cam channel. But in most cases, it’s driving traffic with laid ads using the video as the main asset.
@@Filmmakingmentor sounds like the Paul Xavier model.
I think so. I haven't taken his course personally, but that's what I gathered from their ads. Nothing wrong with that. I just think it's not for the majority of people and the other way has worked very well for me and lot of other production company owners I know that never ran a single ad for a client.
You forgot the part where you discount for uncertainty. If you could guarantee results, then you could absolutely charge 10 to 20% with no problems. You could even charge more. The point is, you can’t guarantee that the full reason a customer would get a new client or business, is because of your video. You discount based on how much uncertainty there is that your videos or video strategy will produce a certain result. That also would be allocated to video effort over the course of that year. It would make more sense for that business to spend $20-$40,000 with your firm over the course of the year, not just for one video.
Value based pricing only works for strategic solution selling. Doesn’t work here imo.
1000% agree with you. Going on and on about value based pricing is just a way to tie yourself up in knots and potentially annoy the customer. Like you said - you can't guarantee results from a video where you are not doing all the follow through marketing. In my experience you can use some value based arguments to help the client see the value in your offer eg "you'd only need to get an additional 12 customers to breakeven on this video - everything beyond that is profit to you" or something similar. I've been at this for 10 years and I prefer to just charge a normal competitive rate for a job which is relatively easy to justify.
As always, you hit this video out of the park. As I mentioned a few weeks ago, I wasted a lot of money on a video business course earlier this year that basically revolves around a 2-pronged approach: 1.) Building a list of potential clients via LinkedIn, then 2.) offering a value based pricing system to them. I realized early on that this was NOT a road I wanted to take, but it was too late. As you so perfectly stated, you would have to turn yourself into a marketing agency instead of a video production company, which I am not prepared to do. As an aside, the entire FB Group for this course is only a place for everyone who is enrolled in the course to vent about how they don’t understand the value based pricing system. Wish I’d heard about your course sooner!
Is it vba by chance...because this sounds exactly like that which I'm part of sadly
I think I know the course you mean. I got out of it as soon as possible once I realised their playbook.
@@pdlrkpdlrk9971 You guessed it. I don’t even bother with the meetings or FB group anymore. They are literally of no value to me and I found it depressing to have to read and listen to how unsuccessful everyone else was except for the occasional, random gig. I really wish I had seen Sal’s course sooner. He’s by far more my style.
Most people should not do value based pricing because they don’t understand positioning. Are you on a level as a strategic thought partner with your client or are you an order taker? Most people are order takers. With that said, if you can pull it off then value based pricing makes sense.
Yep very well said
Interesting points. However your assumption that they're paying off their profits is flawed. Anything a company is paying you as well as the cost of marketing/distributing the video is part of their marketing expenses and they will make that amount back several times over. If not, their marketing is flawed. In case of getting work off an agency, you can just ask them what kind of budget they're looking at and charge an above the line amount 10%, 15% of total budget of production. As we all know the same idea can be filmed at many different scales and this concept is sometimes a little alien to fresh entrepreneurs or new small companies. I usually lead with value based pricing and if they don't know what a video asset is worth to them, or why they need the ad, it's actually a red flag for me because that sense of confusion envelopes the whole project. Still, depending on the client, one could risk pricing based on budget. If a company does not know how much they want to spend, I'd rather not work with them.
These days it feels like you need to be more than a video production company to separate yourself from everyone else with a camera. That’s why I think value based pricing is becoming a thing. I would love to just make videos, even provide some strategy on how to make them work best and move on.
I think you can still stand apart by focusing on a niche rather than make videos for everyone. That way, you can understand the benefit of video to a specific industry. Value based pricing was around 15 years ago and always will be an option. Just a really hard way to compete. Also, with value based pricing, you also complete with full blown marketing agencies that have way more experience. So it does make you stand apart in video production, but puts you in a new category with even more competition
@@Filmmakingmentor fantastic! So do you not do the brand strategy thing everyone seems to be doing? You’re giving your clients all the assets and then they handle the marketing or hire someone?
I've done it before. I didn't enjoy it. I still consult with the client on strategy. These days, I either work with mid level or large companies and nonprofits that already have marketing handle in-house and just need the assets. They bring me on as their creative partner, not as their marketing partner. When working with smaller companies, it make sense to try and offer a more comprehensive package if you don't mind that type of work. It is certainly an entirely different thing though than what a production company does. Another thing I've done is to partner with ad agencies and PR companies and just be their production wing. They still handle the delivery and result side of things. They certainly get a much bigger piece of the pie and that's why I went down that road. But wasn't worth it for me. It's very possible to get to mid-six and even seven figure in revenue, just being a production company.
This script seems almost identical to the video by Eric Thayne
I believe you're missing one critical aspect. You're not charging for the video, you're charging for the customers. The video is one pice of the puzzle. If your client comes to you for a video, you've already been commoditized.
Your offer should be more like "How much are you willing to pay me if I get you X new customers", and less like "How much are you willing to pay for a video".
I think you missed the whole point of the video. In the real world, people starting out do not have that skill. They just know how to shoot videos. I'm trying to help those people with this video to charge higher prices. Then, they will graduate to helping their clients land customers and drive results. After 10 years of trying to help people do that first, I realized most people do not want to learn that or are not at a point where that makes sense. I make plenty of videos about how to do that. That is not the answer for a lot of people.
hourly pricing is worse.
Yea I never do hourly estimates
I only use hourly to keep track of our internal costs
when a lead asks “what is your rate?” - answer: “I don’t do hourly pricing. For your specific project I can do it for (project quote)”
If I’ve differentiated my work enough from the other options , I can win the contract. If I do the same thing every other company offers, it becomes a race to the bottom and the cheap bid wins unfortunately.
Selling “time plus 25%” is still selling time.
but not my time. The staff's time. Time of the freelancers I hire, that charge day rates. Look at the P&L of the largest Ad agencies and marketing companies. Ultimately, if you look at their margins, it ends up working the exact same way. It's 20-50% profit margins. Rest is time. All you have to do is to make sure it's not your time and leverage other people's time. If the value model worked any other way, these P&Ls would have 400% profit margins. But they don't. All marketing agencies that sell and release their numbers fall in this bucket. So the conclusion is, they leverage other people's time, mark it up and add a profit margin. The majority will use complicated value based pricing, which by the way, they completely understand. But at the end of the day, look at their net profit. It falls exactly in that range. I love to see a P&L of a production company that uses value based pricing doing seven figures in revenue showing over 50% in profit.
Also, this is the model they use at PR firms, law firms, accounting firms and 95% of service based businesses. I've read the P&L and balance sheets of 100s of companies. No matter how they price it, the profit margin of a service based business will always fall under 50%.
He's confused because he's selling videos with no strategy
Didn’t say I didn’t have strategy. This is about pricing. I don’t price based on the results.
And if you use this model, what is your profit margin?
So if you don't think that the company will tell you how much a new customer is worth to them, you think they are going to reveal how big their marketing budget is?
Sorry, I think you're misunderstanding the concept of value-based pricing a bit.