Last week my husband looked down at his hands and noticed that his wedding ring was gone. In nearly 20 years of marriage, it has never been off his finger. We concluded that with the change in temperature, as he had gone outside to play baseball with our son, it must have flown off his finger. Several hours of searching later and we decided to use a professional. It turns out there is a company called Ring Finders that will come out with a metal detector to help you find your ring.
And while I was excited to have them come, the way this small business prices its services blew me away.
The Ring Finder laid out his fees:
- It’s a flat $25 for the travel to your location
- And then, they won’t start the work until YOU write down what you’re willing to pay if they find your ring
The very definition of value based pricing!
The price is determined by the value the client perceives the work to be worth if it’s well done.
Value based pricing has been discussed for years, especially in professional services companies, as an alternative to the traditional labor theory of value model, which is based on the assumption that value is dependent upon how much labor goes into the product or service provided.
In value based pricing, a company will discuss with a client the value that could be achieved by performing a certain service and a project is priced according to the value that could be produced. The concept is that the professional services company may be leaving a lot of money on the table if they are only charging for labor with a profit markup, instead of charging a flat fee based on the value the customer believes he or she will get from the work being done.
Case in point – my husband who is no dummy, refused to set a price for what he would pay if the ring were found. Instead he asked me to set the price.
- My price, for sentimental value reasons, was several hundreds of dollars.
- My sister, more pragmatic, calculated the replacement cost and value of a new ring, and suggested that as her price.
- My husband would have offered less than me.
Our perceived values, as customers, were all different.
By suggesting a value-based pricing approach, the ring finder can maximize how much money he or she will make instead of simply charging an hourly rate.
We ended up setting a fee somewhere in between my number and my husband’s. I was fascinated by how differently all three of us had calculated the value and it reminded me to always consider value to the customer when discussing pricing.
Sadly, we never found the ring. But here’s another interesting question. The price we agreed to was based on the man finding the ring. He spent three hours looking and came up empty handed. What, if anything, should we have paid him?