Saturday, December 24, 2011

Value Based Pricing and Revenue Sharing Pricing for Website Design

Source Knol
How to Price Your Web Design Work
Accessed on 10.9.2011

Value-based Pricing

Value-based pricing takes a different approach because the final price is rests not on you, but on your client. Instead of extracting the price you will tell your client from your salary, your hourly rate, or your desired profit and return, you will take a cue from how much value your client puts on the benefits of the website you will be building. Yeah, it's a bit less proactive than the previous two methods, but it has the biggest potential.

Let's imagine that your client is book publisher and they want a website to sell their latest release, a sequel to a successful teen romantic novel about vampires and werewolves (What cool novel doesn't have vampires and werewolves these days?). The book costs $15 and they're expecting a boost in sales because of the movie version of the first novel is coming soon. You estimate that the new website that you will design will get a monthly traffic of 1,000 visitors per month for the first year, with a conversion rate of 1%, or 1% of people who visit the site will buy the new book:

Let's calculate the estimated amount of sales the new website will generate for your client:

1,000 visitors/month X 1% = 10 visitors buying the book per month

10 visitors X $15 per book = $150 book sales per month

$150 / month X 12 months = $1,800 book sales for 1 year

As you can see, you estimate that the website could generate $1,800 for your client, yet you only need $420 to break even. With knowledge of the benefit your client will get from the website, are you going to bill your client a price in the vicinity of $420? Of course not, except maybe when you have a handshake deal after four shots of tequila .

You can bill your client $900, and present that they'll be getting a 100% return in one year. You go home happy with a deal in hand, then that's the time you go on drinking your four shots of tequila in celebration.

The challenge with Value-based pricing is that most of the time, you have little or know information about the benefits your client is getting for the website or service you will be providing them. So this entails a lot of research and business intelligence on your part to find that valuation.

Revenue Sharing

Instead of value based pricing, a web designer can offer revenue sharing based on expected sales of the website and become a partner in the e-commerce venture. The small business persons will be more willing to take up website based commerce if revenue sharing based web design services are offered to them.

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