Value-Based Selling: The Ultimate Guide to What It Is and How to Do It
Value-based selling is a sales approach that puts your client front and center. It’s a way to communicate not just what you do, but what it’s worth.
By definition, value-based selling has to be about your clients: what they want, what they’re experiencing right now, and how you can help them. It’s an approach that may not be intuitive, but when done right will help you charge higher prices while keeping your clients happier because they see the value you deliver.
The rewards of value-based selling are worth it. Once you put your value-based sales process into place, you’ll have clarity into who you help, how you help them, and what your help is worth. Even better, value-based selling will provide you with a wealth of insights into the types of content, products, and services you could create in order to deliver your clients more value, and at a higher profit.
Here’s a table of contents for this article – just click one of the links to jump ahead in the article:
- What Is Value-Based Selling?
- Principles of Value-Based Selling
- Examples From the Real World
- Value-Based Selling Process and Techniques
- How to Put Value-Based Selling to Work For You
What Is Value-Based Selling, and Why Is It So Important?
When you sell something, you’re asking your buyer to make a change, and change is quite hard. Just look at the stats around diet, exercise, or how much money people save for retirement. Most of us don’t do all of the things we should, and we know it.
Selling is no different. Whatever solution you provide to clients, it solves a real problem for them. And yet selling isn’t easy, because change isn’t easy.
The equation for change management has two separate elements pulling in opposite directions: the motivation to escape the way things are now, and the resistance to change itself. Value-based selling helps you address your prospects’ resistance to change, as well as their motivation to make a change.
In the Dannemiller model for change management, change only occurs when the resistance to change is less than dissatisfaction with how things are now, there’s a compelling vision of what’s possible, and first steps can be taken toward the vision of the future.
At its core, value-based selling is a technique that enables you to show every individual client their dissatisfaction (and the cost of it), plus demonstrate a vision of the future so they can overcome their resistance to buying.
The amount of value you deliver is largely dependent upon your client. You could give the same thing to two different people (or companies) and they could experience huge differences in value.
Think about it like this. I sell sales consulting and information. Let’s say what you sell costs $1M, and what the next person sells costs $100. The same advice can help you both sell one more unit. To you, that unit is worth $1M, but to the other person, that unit is $100. My advice has more value to you.
Given this example, wouldn’t it make sense to include a discussion about value when you sell?
In order to adopt a value-based sales approach, you may need to adjust your existing process and mindset. Specifically, you’ll need to focus first and foremost on your client because it’s the only way to learn what value they’ll get if they buy from you.
Principles of Value-Based Selling
Now that you know what value-based selling is, let’s go over the principles that’ll help you get into the right mindset. You can’t flip a switch and operate on autopilot overnight – it’s going to take time to switch from your current way of selling to this new approach. There are also associated skills you’ll need to develop that go hand-in-hand with each principle, and I’ve noted them in each section.
#1: Serve Don’t Sell
I’m a bit biased on this one – it’s the name of my business after all – but I genuinely believe that the most important principle to achieve a true value-based selling approach is to focus first on serving your clients.
Unlike other sales methodologies, value-based selling is much less about what you do and much more about what your client gets from it. Serving your client in this context means helping them to better define the problems they face, how those problems are affecting them, and what they can and should do about it.
The key skill to develop here is empathy. You may have heard of emotional intelligence (or “EQ” for emotional quotient). The more attuned you are to your own emotions and feelings, the more likely you are to be attuned to the emotional experience of others. The more you’re able to understand and relate to your clients’ experience, the better you’ll serve them.
#2: Listen First
Surely you’ve had this experience, as I have: someone asks you “how’s your day going?” and before you can finish answering the question, they begin unloading all of the stress and complexity of their day on you.
How does it feel when that happens? Not particularly good, of course. We all want to be heard. We all want to feel important, and valued, and like our experience matters. But that person who unloaded on you? They also missed out on all of the information they could’ve gathered.
That’s the reason you have to listen first in a value-based sales approach. Most people listen out of a sense of obligation. They know that there’s an element of reciprocation in conversation: you listen enough, then you get to talk again.
But talking alone does you no good. What you need is the right information from your client so you can help them make an informed buying decision. You can only do that if you listen effectively.
There’s even more to listening than simply collecting information, though. You’ll build more trust by listening, too. If your goal is to sell value, you have to first understand your client to know what is valuable to them.
What you need is better active listening skills. I’ve done a lot of research on the topic, and recommendations for improving your active listening skills range from the useless – “pay attention” – to cringe-worthy advice that shouldn’t have to be said at all, like “put your phone away.”
Here’s my recommendation: listen closely enough that you’re able to summarize what your client said better than they could. Summarizing is a core active listening skill because it shows you’ve done everything else required to effectively summarize what you’ve heard.
#3: Know Your Clients Better Than They Know Themselves
“Every sale is different.”
Yes, technically speaking, that’s true. It’s true in the same sense that every snowflake or fingerprint is different. As in, it’s literally true, but that doesn’t mean we can’t study and categorize our sales opportunities, just like we do snowflakes and fingerprints.
Take the time to know your clients better than they know themselves. Whatever it is that you sell, you’ve seen patterns emerge from the clients you work with. Identify those patterns, and categorize them.
The most useful categorization comes in the problems clients have. These lead naturally to goals they’re seeking, which lead naturally to the value they’d experience when those goals come to fruition.
I know what you’re thinking. “Listen first” is all about understanding the nuance of each client, whereas now I’m asking you to find patterns in your clients’ problems. It’s true, I’m recommending both because you need to do both. Once you’re aware of the starting problems your clients are likely to have, you can develop the details around their current situation.
Let’s go back to fingerprints for a second. There are 7.8 billion people on the planet, and each has a unique fingerprint. But the Henry Classification System for fingerprints has only three basic fingerprint patterns that account for the vast majority of fingerprints. You’ll use the same approach in identifying your client problems.
Like fingerprint classification, knowing your clients better than they know themselves starts with pattern recognition. Here’s what how to find patterns:
- Identify the best clients you’ve had
- Document the problems they had that led them to work with you
- Spell out the qualitative and quantitative goals they set for your engagement
- List the ways they measure the business value you provide
- Turn that into a set of stories you can use in your client interactions
#4: Trust is Paramount
Trust is everything in value-based selling because your client must believe you when you help them determine the value you can provide.
Study after study shows the importance of trust in sales relationships. This one shows that trust is predictive of current and future buying behavior, and says likability has nothing to do with trust. This one shows that listening supports trust-building and leads to “anticipation of future interactions” – you know, another meeting.
HBR links expertise to trust – the two are so closely interlinked as to be inseparable.
Building trust isn’t a single act or approach. It’s the accumulation of many different factors that add up for your client and help them to decide whether they trust you or not.
#5: Follow a Process
Trying to build a value-based sales approach on the fly is a non-starter. It takes so much background and deep insight to work that you can only execute on it with proper planning and process. Following a sales process is critical to achieving a value-based selling approach that’ll work repeatedly, not just sometimes.
Examples of Value-Based Selling
So how does value-based selling work in practice? I’ll give you three examples, starting with a familiar example: software. From there, I’ll walk you through a relatively easy value-setting exercise based on loss avoidance in IT services, then the classically difficult example of good design.
There are three main ways to use value-based selling: gains, losses, and comparison. I’ll give examples of each below.
Value-Based Selling in Software
Most software platforms are sold using pricing tiers. Those tiers are designed to 1) help you decide which features are most important, and 2) let’s be honest – make the company more money.
Here’s a screenshot of Hubspot’s pricing page:
Notice how they’ve assigned value for you on their various offerings:
- Paying annually v. monthly gets you a discount
- Automation and CMS features will run you more money
- Advanced team management and permissions requires an Enterprise subscription
What they’ve done is associated value with features, and grouped those features into pricing tiers. If you only need the $40/mo price point, you probably don’t have much marketing infrastructure in place now. If you’re at the $800/mo price point, you’re pretty serious about marketing. And if you grow, then you’ll eventually need features that are more important to enterprise-level organizations with big teams, like advanced testing, permissions, and analytics.
ActiveCampaign goes a step further on the value approach by adding pricing that’s variable based on the number of email subscribers their customers have:
And if you have 25x more email subscribers, they assume the software will be much more valuable to you:
I used these examples because they’re relatively simple and easy to understand. This is only half of the value-based equation because they’re guessing what the software is worth to me, but they don’t actually know.
Now let’s look at a true value-based sales approach in IT services.
Value-Based Selling in IT Services
A good IT service provider will remain relatively invisible to end users. That is, if everything’s working, clients are happy and don’t call on their IT firm. The inverse of that – an outage – is one way to place a value on IT services.
So what is the value of avoiding an outage? That really depends on what we mean by outage, how large the company is, and the like. You may be thinking “my clients wouldn’t know the cost of an outage,” and you’re probably right.
So I’d turn to industry data, like a Gartner report that shows it costs about $5,600/minute, or $300k/hour for network downtime.
Of course, your client may be different. Here’s how you could guide the conversation:
You: Have you experienced any network outages or downtime?
Client: No, but it’s a concern for us.
You: How much do you think it would cost if your network was down for an hour?
Client: Not sure.
You: Yeah, it’s a tough number to calculate. There was a Gartner study a few years back that showed it typically costs about $300k/hour for network downtime. Does that sound about right?
Client: No way! That’s way too high.
You: Oh I see. What sounds more reasonable?
Client: Not sure. Probably closer to $50k…
Notice here that the cost of an outage was simply a useful starting place to facilitate the conversation about value. The value set doesn’t need to be exact or precise, but it needs to be agreed upon by your client, and it’s even better if they set it themselves. Note that value-based selling doesn’t necessarily require making a formal business case.
Sticking with the IT example, you could also value outsourced IT services based on the alternative, which is usually in-house employees taking on the IT services role. In order to do that, you’d simply need to know the number of employees it’d take for a client to execute IT themselves.
You could look for industry averages for the cost of a CTO and support folks, add 30% for employer overhead, then you’d have your number. So for a team of 5 support techs and a CTO, you might estimate a total cost of:
Selling the Value of Design
I get a lot of questions from sales podcast listeners, email subscribers, and readers. And the one I get most about value-based selling is how to value things that aren’t directly tied to dollars, like design.
But it goes back to a rule about value, which is the same as the rule about beauty: it’s in the eye of the beholder. The only value that matters is the value that your client believes.
And when it comes to design, your client may not have a specific value in mind. In fact, they’re typically not well-equipped to determine the value of design services at all. That’s why they’ll typically do some cursory internet research, or base value on firms they’ve hired in the past, which will lead them to the conclusion that “design should cost X” rather than “design is worth Y.”
What you’ll need to do is reframe the discussion. Just as ActiveCampaign has set their price based on the number of email addresses, scale matters a lot when it comes to design. Logos should cost more than book covers because logos underpin a brand and rarely change, if ever.
Value-based selling can only work when you understand your client’s problem and the context in which they’ll use your solution.
So if you’re selling a logo to Coca-Cola for a new kombucha line they’re launching, the value of your design is much higher than if you sold the same exact logo to a local tea shop. Even though the amount of work you deliver is unchanged, the value has gone up substantially.
You may help your client determine value based on a number of factors, depending on their situation:
- The importance of a logo to their brand (i.e. consumer brands typically value logos more highly than B2B brands)
- The gap between them and their competitors (i.e. “we’re perceived as less valuable than our competitor who has 20% more market share than us”)
- Access they’ll have to new or different markets based on their logo redesign (i.e. “we need to reach a younger market with our new design”)
- Timing a logo design or redesign based on a funding event (i.e. Slack got a redesigned logo a few months before they announced their IPO)
The key here is to understand the client’s situation, and help set some numbers to anchor a value. More on anchoring in the next section.
You may also find it useful to simply understand the scale of your client, and the qualitative value they’d get from working with you. So in the example of the Slack IPO, you couldn’t say whether a new logo would fetch a high stock price, but you could say “we’ll design you a logo that looks like you belong with the Fortune 100.”
Value-Based Selling Process and Techniques
Now that you understand what value-based selling is, I’ll walk you through three core techniques that you can use to put it into practice.
How to Guide a Value-Based Discussion
During your sales conversations, you’ll need a process to set value for your clients. Going into your conversations, you should have an idea of which problems your client may be facing, and therefore how they might decide to value your services. With that in mind, there are five primary ways by which they’d value the outcomes you can deliver:
- Money made
- Money saved
- Comparison to the market
- Reduced risk
- Emotional or qualitative value
For #1 and #2, all you need to know from your client is volume times dollars times time period. So if you’re in the business of helping clients win more sales, then you would ask them how many sales they’re closing now, what those sales are worth, and over what time period. That simple calculation will give you everything you need in order to help your client set a more concrete value for your services.
For #3, I don’t like to enter into these discussions because they imply that there’s a viable alternative to you and your service. Instead, you should have a clear and unique market position that makes you one-of-a-kind. As soon as a client begins comparing you to the market, selling based on value will be difficult or impossible because your client sees you as a commodity rather than a specialized partner who can provide unique value.
For #4, risk reduction is critical. If you can substantially and demonstrably reduce risk for your client, there’s a lot of value in it. Help them understand their current risks, ways you reduce those risks, and what the cost avoidance is likely to be.
For #5, by definition you can’t put a number on the emotional or qualitative value you provide. That shouldn’t diminish the importance of each, and they should be clearly stated alongside any quantitative value you’ve defined. If you can only provide emotional or qualitative value, be sure to draw it all out of your client by asking about the costs of their current situation and how they’d like things to be different.
Make an Educated Guess
Now let’s play the guessing game. But only educated guesses are acceptable here.
Think back on the example of IT and put it into the context of the categories of value, and what we might deliver to clients in each category. Here’s just one example for each type of value:
- Money made: custom software could allow a company to launch new product or service lines that generate additional revenue
- Money saved: streamlining operations could allow a company to shed unnecessary software products and expenses
- Comparison to the market: outsourcing IT could be more efficient and less risky than bringing on full time, in-house IT staff
- Reduced risk: next-gen products reduce downtime and the incidents of outages
- Emotional or qualitative value: client isn’t worried about losing her job
Certainly there are multiple options you could put into each category. If you take the time to make educated guesses about what forms of value you could deliver to your clients, then it’ll be much easier to facilitate a conversation with them when the time comes.
Anchoring Your Price to Your Client’s Value
Anchoring is a concept in psychology that says we’re influenced by existing information. So if I tell you it’ll be $1,500 for the new iPhone Pro Deluxe, suddenly the regular iPhone sounds like a steal at $800, even though you could buy a new computer for less than that.
The reason to take a value-based selling approach is that it’s entirely about your client and the value you deliver them. Assuming you’re delivering a multiple of the value you provide, your price – like the iPhone example – will sound like a bargain in comparison to the value you provide.
Think back to the calculation of alternative IT costs. Presenting a price of $30k/mo without context may sound like a lot to some people. But starting with a baseline cost of employment of $50k/mo makes $30k/mo sound like a lot less.
If you go through the value setting exercise correctly, your price is now contextualized to the value you provide.
That’s why Munro & Associates can charge $39,000 for a report with janky design:
The cost of commissioning the research is more than 6x that, and a typical buyer would spend millions on engines, amplifying the cost of mistakes. $39k isn’t so bad after all.
How to Put Value-Based Selling to Work For You
You’ve made it this far, now surely you’re wondering how to put this in place right away. Here’s your punch list:
- List the qualitative and quantitative value you could provide to each client: your list should be based upon real examples of how you’ve helped clients in the past, and the problems they experienced before coming to you
- Ask value-based sales questions: favor questions that reveal the qualitative, emotional, or direct costs your clients incur as a result of working with you, as well as the value of achieving their goals
- Determine the value you can provide to your client: based on the responses you receive from your client, you should be able to articulate the value you can provide your client
- Anchor that value against your price: whenever you talk pricing or get to the proposal phase, always present it after you’ve reminded your client of the value you’ll provide them, which is a multiple of the price you charge
Now you’re selling using a value-based approach!
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