Why understanding your business model is key to pricing for value

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If you ask a business owner if they know their business model they’ll likely say that they do. Chances are they tell you something focused more on what how they do rather than what they do for others. As a result, they fail to grasp the value they create and being able to price for it.
A business model describes the rationale of how an organization creates, delivers and captures value.
That’s how business model is defined in the bestselling Business Model Generation. A go-to book for entrepreneurs.

Returning to the hypothetical business owner answering the question about their business model, did the word value feature anywhere?

In my experience, most companies focus on the stuff they provide. If they’re in services, they focus on what they do. Ask a digital agency what their business model is and they’ll likely say “we build apps and websites.” But here’s the hard truth, neither of those things constitute value.

Yep, “apps and websites” are more or less worthless. It’s what the customer can accomplish with those deliverables that matters.

If the agency in question would consider the definition above. And, if they’d also go back to their business model and think a bit about what value in that context means they will probably realize that they have no clue what value they’re actually providing. And that is a valuable insight in itself.

The first step towards value-pricing is defining what value means in the context of your business. The reason is simple. You cannot charge for something you cannot define or understand.
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