Relationship factor in value-based pricing

Pricing, especially in the value-based model, must result from a thorough analysis of many aspects of the entire business. There’s no value-based pricing without cost analysis, competition research, etc. While some of those factors are fairly straightforward to measure, the role of a relationship is not one of them. 

In some businesses, the way a company approaches relationships and what comes out of it can be a significant value for clients. In others, it barely plays any role. 

In this article, we’ll take a deep dive into the topic of business relationships and how much they should influence pricing. 

Why does the relationship factor matter in value-based pricing?

The short answer to this question is that everything matters in value-based pricing. In the process of creating pricing according to the value-based approach, you have to analyze each and every element that influences clients’ willingness to pay (WTP). The final goal is to understand the actual value of a product or a service for the client and set the price accordingly to maximize profits. If the relationship plays a role, it should be factored in. 

For a more detailed article about value-based pricing, you can go here. Now, let’s move on to the topic at hand. 

In what type of business the relationship aspect really matters?

It’s fair to say that a professional and customer-friendly approach is always a good thing to have. However, it doesn’t have as much impact on businesses that rely on self-service in a major way, so that includes most SaaS platforms and a large part of the entire e-commerce industry. 

Then, we have many types of businesses on the opposite side of the spectrum, such as software houses, consulting companies, and others that work closely with their clients. The same goes for many manufacturers and industrial companies that work very closely with their clients or vendors. In general, we’re talking about all companies that use account-based marketing to a large extent.

For those companies, relationship matters greatly and should always be considered in building pricing. 

What contributes to good relationship building?

There’s no such thing as a model example of how companies should manage their client relationships because it all comes down to what product or service we’re talking about. For services such as consulting or software development, there’s pretty much no ceiling. Direct and efficient communication is vital in those services, so face-to-face meetings in an informal atmosphere are very common. In many cases, even a series of workshop meetings during a workation by the French Riviera can be justified. 

For example, most car manufacturers invite prominent dealership owners for fully paid trips to exciting places when they release new models. The goal is not only to showcase cars but also to show gratitude. 

We don't expect anything of this sort for SaaS companies and other businesses that usually don’t form such close relationships with clients. However, it still doesn’t mean they don’t form relationships. They’re just more one-sided. 

Good relationship building in more self-service businesses means completely different things. It usually comes down to things like fast and effective customer support, helpful content, webinars, and general availability for the client. Of course, in a perfect world, SaaS clients never need any of those things because they have a perfect understanding of a given service and are satisfied with it.

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Relationship factor and the size of a client

In most businesses, some clients require more attention than others. They’re often enterprise-scale clients, they bring more revenue than others, and companies happily prepare individual offers in such cases to solidify relationships and show a can-do attitude. 

While there’s nothing wrong with this strategy in general, it may lead to some issues if it’s overused. 

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The more individual packages you sell, the more trouble you’ll have with further analysis. So, before you offer a tailor-made solution, ensure the client needs it. On top of that, sales specialists sometimes offer special individual treatment to clients that could be perfectly satisfied with the regular plans. Instead, they receive discounts or custom offers, which lowers MRR and increases risk. Having too many custom plans causes chaos not only within the company but may lead to problems outside, including reputation damage. 

We talk a bit more about the risks of discounting in the article:

SaaS discounting strategies and how to choose the right one?

And lastly, we can’t forget that building relationships with clients is a time-consuming and costly process. It needs to.