How Much is Your Value-Based Product or Service Worth?
You win some, you lose some. This motto works wonders for team sports, but a business can’t afford to lose many games. Estimates and profit margins need to have an accurate target from the start and be monitored to the finish—no matter what comes up during the life of a project. This is especially true for business models designed on value-based pricing.
In contrast to cost-plus pricing strategies, which focus on the cost of production and markup, value pricing is based on the unique benefits a business can provide for customers in any given marketplace, usually for distinct services or valuable features. This means that value-based pricing can be highly profitable; however, it can also be difficult to evaluate if the business does not know if it actually pays off, especially in real time. Too often, a business owner relies on a price point that serves the client. This is very enticing, but will this venture be profitable, and how do you know?
So, how much is your value-based product or service really worth? And, how much does it cost your business to get there? Time tracking can answer these two essential questions for more accurate value-based pricing and improved profitability.
Collect the Numbers
Even though value-based pricing doesn’t correlate directly with time tracking, that doesn’t mean a business isn’t bound by the same rules as everyone else. Time is universal to a business, and how employees use it makes the difference between a profit and a loss.
The first step is data collection. Excel spreadsheets or handwritten paper timesheets don’t really cut it for the 21st century—or add up to extremely accurate, usable data. Instead, find a time tracking solution that works the way employees do—on a smartphone or tablet, online or offsite.
Cloud-based time tracking technology can track everything from job codes to GPS locations for employees on the move, and managers can view who’s working and what they are working on in real time.
Add It Up
Once you have actual data, you have real numbers to work with when figuring out bottom-line strategies. With cloud-based time tracking, you can run reports based on the project, employee or other parameters. Calculate profitability for projects in two steps. Run a project report to get the total number of hours spent on it, and then divide the number of hours tracked by the project price. What do you think of that hourly rate, in general? If it makes sense, keep going and you’re on the right track. If not, change strategies and up your prices.
Even if you operate a one-person company, the better you track time and the more accurate your data, the more conclusive your business decisions can be.
Connect the Dots
When value-based pricing is the right move for a business, online time tracking is the best solution for periodically testing that model. Time tracking can be a way to validate your value-based pricing structure, as well as help you adjust to changing markets.
Tracking time on projects can also be a great way to get a bird’s eye view of the way a business runs. It improves employee flexibility, productivity and accountability, all at once. It helps managers be more realistic when evaluating what can get done, the time it gets done and which leads to generate better estimates. At the end of the business day, though, it’s all about profitability. Nothing helps you reach that magic faster than real-time, strategic decision-making on the value you put on your end product.