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The value to my clients comes in two forms: (1) amount of tax saved and (2) stress and fear eliminated.

The first is easy to quantify. It also means there is an upper cap on your income. The upper cap is the amount of tax saved. As your price approaches that number, the likelihood of a "yes" decreases.

Do not set your pricing based on easily quantifiable criteria, unless you're working on huge deals where you can take a small fraction of the value as compensation. (By small I mean low single digit percentages).

The second is where the true value sits. People are willing to exchange money for a peaceful brain. People are willing to exchange money in exchange for more time in their lives. It is here that personal value choice discontinuities work in your favor. Set your pricing based on intangibles.

A business owner is willing to throw money at a problem to not have to think about the problem at all. This frees up the owner's brain to think about stuff that really matters and will make money.

An hour spent by a CEO looking at tax returns could be an hour taken away from making a deal that brings in $1 million for the company. It's worth spending $1,000 to make the problem go away. You are happy to take the $1,000 because it takes you $125 of time input to solve that problem.

I have seen this with very large companies. There is a reason why their compensation packages include "your employer will pay for a lawyer, accountant, and personal financial planner." You don't want an executive with 10,000 employees under him/her to be sweating credit card payments, or "Is my will up to date?" or any trivia like that.

Moreso, however, I see this with entrepreneur-driven companies. The owner is the manager and this person's time is incredibly valuable and should not be spent on trivia, especially emotion-laden trivia.

> A business owner is willing to throw money at a problem to not have to think about the problem at all. This frees up the owner's brain to think about stuff that really matters and will make money.

Yes I am. As a business owner, I completely agree with this statement. After a while of running a business, one day you will calculate how many dollars per minute your expenses are and it will scare the hell out of you. Then you will understand why you throw money at problem X to make it go away, because you need to focus on opportunity Y to bring in more revenue.

> But what if you end up working on a product for a company that never makes them any money at all? You haven't provided any direct business value, although you may have done quite a lot of work--maybe months or years.

If you're being paid to do work (you're not working for free) in this situation, you can conclude that either a) you actually are providing roughly $YOUR_BILLINGS of value to your client or b) your client is a moron and is paying for zero value. You may not be able to directly quantify the value you're providing, but your client certainly is aware of the value you're bringing. The point is to try to more accurately quantify your value and capture more of it.

> Measuring value in software development is difficult.

Again, your client has a ballpark of what value they expect you to deliver. Measuring the value is difficult for the contractor. This is a great area for discussion with the client.

Summary: if you're being paid, your client perceives that you are providing business value.

> but your client certainly is aware of the value you're bringing

In a small company, probably, but in Enterprise contracting, I would be surprised if this is usually true.

I would say small companies aren't aware of the value either. If they're small and hiring software development contractors, they probably don't know enough about software development to do the work themselves, which means they have no basis for determining what software is worth. They probably also don't have the skills/metrics in place for determining ROI for individual aspects of their business. They just look at cash flow in and out, and from that standpoint all they see for the contractor is a definite and precise cost with a vague notion of some value.

So you are right, mostly. If you're going to sell yourself on "value" to such a company, you're going to have to spend some time understanding what problem they need to solve, and help them determine what value that provides.

If they can't or won't look past an hourly rate, then you probably don't want to work for them, because their other expectations may be equally as baseless.

Your point is fair, but they know order of magnitude. They know you're (likely) not bringing $10B annually of value, and they know it's more than your current billing rate (or they wouldn't waste time with you). The point is to talk with the client and try to pin the number down to bring your rate closer to the value.

Somebody in the enterprise is responsible for ensuring that projects aren't run without any expectation of creating value; that's the person/group to talk to. If you're not talking to that person/group, then you're right that value-based pricing is going to be hard/impossible to pull off.

If the buyer doesn't have any idea how much value you can/are creating, then your first task is to help them quantify the value (this is good for them no matter who they hire).

I would grant that they know within three orders of magnitude. If they think you're bringing $10m in value, you're probably bringing at least $100k. I'm not sure I'd concede anything more specific than that, though. A lot of enterprise consulting is the blind hiring the blind, or people hiring partisans for some kind of internecine battle. I haven't even sought it out, but I've seen, at pretty close proximity, millions of consulting dollars go directly down the drain.

The question I still don't see answered is — are you proposing to charge based on the value you might deliver, or the value you actually deliver?

If Apple ask you to bid on creating the iPhone, how would value that? (The world hasn't seen an iPhone.) If you're capable of designing the iPhone and the best your competitor is capable of is creating a Galaxy, would the two bids be equal under the assumption of ideal value pricing?

"But what if you end up working on a product for a company that never makes them any money at all?"

This isn't something that happens to you, this is something you choose. It's your responsibility as a consultant to pick your clients carefully.

If you're talking about a project that everyone expects to have an enormous upside, but doesn't, and it's not your fault, you base your rates from the outset on the client's expectation of value returned, not what the actual result is.

> It's your responsibility as a consultant to pick your clients carefully.

In the mobile industry, (and the web dev industry as well), the market functions on the basis that 90% or so of projects won't make the return, and the industry is carried by the 10%. In some sectors (consumer) this is higher, in others (B2B) it's lower, but it's about the right frame of reference give or take for most projects that ordinary people on HN perform.

Now if you are a professional investor a 90% failure rate is easy because you just do 20 projects at once and you're fine. Similarly, if you are a large size consulting shop you're basically an investor with other people's time, so same story, just do 20 projects and 2 or so blow it out of the park and the rest are a waste and you get the quarterly bonus.

However, if you're an individual or a couple of guys in a broom closet somewhere, 20 projects is a very long time. Unless you are independently wealthy and can just float many years of work, you can't make any money. And if you are independently wealthy, you have a higher chance of success becoming the large consulting shop or being a professional investor (or starting your own startup) than you have doing lots of free projects for other people.

So what you are saying is nice in theory but for the average mobile/web developer thinking about contracting they don't have the volume necessary to assume the risk that the market ordinarily bears for development projects.

"So what you are saying is nice in theory but for the average mobile/web developer thinking about contracting they don't have the volume necessary to assume the risk that the market ordinarily bears for development projects."

I know VERY "average" mobile web / mobile app developers who can charge well in excess of $100/hr. People without a single major hit. Seeing the quality of their output, I would never pay that much, and yet somehow they have all the work they need. (Note: they're not marketing geniuses either.)

Just look at the rates people ask for, and get. They're way up there. Because there are so few of these people around, relative to demand, and because every Joe Schmo who wants to do a mobile app expects to strike it big, they can charge anything they want.