Value-based pricing—a false balance?
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In Proverbs 11:1-4, God tells us through Solomon that:
A false balance is an abomination to Yahweh, but a just weight is his delight. When pride comes, then comes disgrace, but with the humble is wisdom. The integrity of the upright guides them, but the crookedness of the treacherous destroys them. Riches do not profit in the day of wrath, but righteousness delivers from death.
I quote these verses together because they gel as a unit. There is a kind of thought sequence here, or at least a series of related thoughts, which anyone who does marketing has to think seriously about.
God really, really doesn’t approve of swindling people. He really, really hates cheating. He really, really opposes “augmenting” the weights on our scales so that customers have to put more coins down to balance them out.
When the members of the internet marketing guru “cabal” stand before the throne of God one day, they aren’t going to be able to buy him off with the profits left over from artificially inflating the prices in their product launches from $299 to $2,999.
That’s not to say that no internet marketing product can be worth that much. Just that theirs probably aren’t.
But therein lies the problem.
How do you figure out what your offerings are “really” worth?
How can you know when you’re low-balling yourself…or when you’re ripping Sam off?
It’s not just products, of course. If you’re selling services, and you can charge $150/hour, is it right to charge $150 for a ten minute job? Sam doesn’t know the difference—and he doesn’t strictly care how long it takes you. He is paying for an outcome. So if the outcome is worth $150 to him, that makes it okay, right?
And actually, this works both ways. For example, I have a standard retainer of 4 hours for a certain figure. But I recently did work for a well-known Reformed non-profit who couldn’t afford it. So I offered them the outcome for a third off, and “took the hit.” I had no problem reducing my rate because I wanted to do the work for them. I wasn’t going to go under by not making that extra money.
But if I could settle for less…is it okay for me to charge more?
We know the laborer deserves his wages (Luke 10:7; 1 Timothy 5:18). But how much is that? How can we tell?
Up front I have to warn you: how you answer will, in large part, depend on your attitude to money in general—something I’ll talk about in another article. Suffice to say the Bible grants us a great degree of freedom, a broad liberty of conscience, when it comes to how we use money. As usual, I think the wise approach lies between the extremes. Giving away everything you have is foolish; treating everything you have as an exclusive, personal blessing is equally so.
Just to put my own cards on the table, I’ll also quickly confide that I am not rich. As you may know, I live in Middle Earth (New Zealand). When my income is good, it is much higher than the average Kiwi my age. When it’s bad, it’s not! Like many solopreneurs, I’ve gone through tough times as well as good, especially when making changes to my business that produce long-term gains, but short-term dips. And I’m the sole bread-winner, with a young family to feed. So I’m not approaching this question with my silver spoon ready to eat a pie in the sky.
With that said, let’s get into the meat of the issue, and I’ll stop mixing my metaphors as we’re diving in. Here’s the problem:
Our Western economy is very unlike the economy of Israel’s agrarian theocracy
Thus, transposing biblical precepts onto our situation is difficult. Let me show you what I mean:
You deserve to be paid for your work. When you produce something that has value for someone else, they should “balance the equation” by giving you something of value in return. This is expressed in monetary terms because money is a useful way of not having to barter.
Now, this works out pretty well when, say, you’re an Israelite picking grapes for eight hours a day. Your employer can figure out about how many grapes that is, how much he can sell them for, factor in the various other production costs and required profit margin—then divvy up the remaining money between his laborers. If that works out to be enough for them to live on, a deal is struck and everyone is happy.
And we can translate this into some modern jobs with no trouble. But things get trickier and hazier with artisans—especially in consumer markets where Sam is not reselling. How do we assess the value of time in monetary terms? Of skill? Yet even here, there is at least something to ground the decision, because there are tangible materials that at least must be paid for. It gives you a baseline.
But you and I are not living in that kind of world.
We’re living in a world where we’re often selling something intangible, and Sam very well might be also.
What if, for instance, he is selling software as a service (SaaS)—and you, his laborer or artisan, are producing copy for his website which will convince more visitors to become customers? (Or swap in any kind of electronic product you might want to sell if you’re not a professional copywriter—the principles remain identical.)
Well, Sam can try to do the same thing as the fellow with the grapes, and estimate how many more customers the copy will bring, and how much extra profit that will produce, then give you your fair share. (Or he can pay you on performance, after the fact.) But that could conceivably be in the millions of dollars—surely quite disproportionate to the amount of time and skill that went into creating the copy to begin with. Moreover, an equally skilled copywriter working for a less successful SaaS company might get paid only a few hundred dollars using the same equation, if they use his copy less effectively and don’t drive enough traffic to their site.
How can the same basic copy be worth millions…and hundreds? That seems obviously contradictory.
You might think, well the way to solve this is to let the copywriter set the wage. Just let him work hourly. The value-based system is fundamentally flawed, so let’s just use time.
Okay, so a copywriter living in the US decides that $150/hour is a pretty reasonable rate. He can live comfortably on that. And…a copywriter living in the Philippines decides that $15/hour is a heck of a deal.
Turns out the value of time is also pretty arbitrary—especially in a global economy. You can set a baseline in terms of “earning a living,” but that baseline changes drastically depending where you actually are living.
So it almost seems as if copywriting doesn’t have any intrinsic value!
Which is precisely my point.
Value doesn’t exist “out there.” It exists in the mind of the copywriter, and in the mind of his client.
Value is perceived
There are any number of factors that can vastly, madly skew the perception of value for one or both parties, and the upshot is that “value-based” pricing is the only kind of pricing there is. Whether you fix that value to the outcome or to the time spent is really irrelevant in the long run to the fact that you are, nonetheless, still “inventing” a figure that your client must agree on.
There’s actually a clear example of this in the Bible itself. In Matthew 20, Jesus tells a parable about the master of a house who goes to the marketplace looking for laborers to work in his vineyard. He hires a bunch to work the whole day for a denarius, which was the de facto wage for a typical day’s work. Then, later in the morning, he goes out and finds more laborers. Then again at midday, again in the mid-afternoon, and again in the evening. You know the story—at the end of the day, he pays all the laborers a denarius, even though some of them worked the whole day and others only an hour.
But when the laborers who worked all day grumble, what does the master say?
I am doing you no wrong. Did you not agree with me for a denarius? Do you begrudge my generosity? (Matthew 20:13-15)
Jesus’ point is that what the master paid the first workers was fair. It was fair because it was agreed in advance between both parties, and it was fair because it was a reasonable wage. By contrast, what he paid the last laborers was more than fair. And the employer has complete liberty to value the work of one laborer more than another. Although it seems counterintuitive (because we tend to think everyone should be treated the same—you can thank the leftist doctrine of equality of outcome for that)…the fact is that, provided everyone is compensated fairly, we have no cause for complaint if some are compensated above and beyond what we are.
Subsequently, we should not envy copywriters like Clayton Makepeace who are immensely wealthy because they are compensated in terms of percentage of product sold—and they write for people who sell heaps of product. We might work just as hard as Makepeace; we might even be just as good as him; but if we are only compensated enough to live comfortably, we have no cause to complain.
But of course, by parity of logic, we can see that Makepeace is not doing anything wrong with his value-based pricing. Indeed, from all accounts, the people he writes for get so fabulously wealthy off his copy that they would gladly pay him a great deal more and still be laughing to the bank. His copy really is that valuable to them.
The critical question for us as Christians is not whether we charge more or less, earn more or less—but whether we are proud or humble, upright or crooked, money-grubbing or righteous.
In other words, the issue is not really value or price at all. It is our attitude to money and to God.
Which is what we should talk about next—including the question of whether earning six figures is taking “more than your share.”
Next: it all comes down to money