Value proposition
When a client asks for the cost of the project, or perhaps your daily rate, the tendency is to compare this to others.
This approach is what we call a race to the bottom of the barrel. There will always be someone who will have a lower rate.
Consider your own behavior when buying something durable, like a watch or a piece of furniture. Suppose you want to buy a table. If price were the only factor, you’d just buy a plastic table from Aliexpress and be done with it. No matter what the salesman at the store would propose, you’d have your eyes set on the lowest price and there’s no way they could beat it, considering their own operation costs.
But that’s not the only factor of course. You’d ideally want to avoid having to replace the table next month because your mother-in-law came by and dropped a heavy bag of groceries on it. Suddenly durability starts to matter.
If durability were the only factor, again, you’d see strange behavior. One of the most durable materials in the world is diamond. But having a table made of solid diamond is not feasible. There simply isn’t a chunk of diamond large enough to be processed into a size as big as a table. And I wouldn’t want to know the price if there were!
So we begin looking at tables with two main factors in mind: price and durability. Internally, we also consider its size, so make that three factors. But now our wife comes and demands it to match the interior. Style becomes important too. We can go on like this, fishing for new factors, but of course at some point, we’ll need to buy the table (now time-to-purchase become a factor too!).
During a negotiation with a client, there are these same notions. We all want the best fit for the smallest price. And we want it now.
Suppose that instead of defining all these factors separately, we’d give them a score. Each score also has a weight, determining how important it is. In our table example, we could have:
- Durability: weight 2.
- Price: weight 1.
- Size: weight 2.
- Style: weight 2.
- Delivery time: weight 1.
Then we determine the total score for each table by summing all the factors multiplied by their weight. In the above case, the score would be between 0 and 8, considering we’d give each factor a base score between 0 and 1.
This total score represents value.
In some comparisons, it’s possible to ignore price as a factor and instead use it to calculate the value-for-price ratio. As the seller, we could use this to determine our asking price. This method is known as value-based pricing. Industries like software, consulting and healthcare commonly use this and it usually results in higher profit margins for them.
Within the traditional hiring process the company (=the buyer) has a list of desired factors for the candidate (=the seller). The problem is that companies don’t list all their factors on a job listing, either because they don’t want to reveal them or because they don’t know them themselves. Sometimes the weights are listed as should-haves and nice-to-haves, but not always.
Herein lies an opportunity for the candidate: through the interview process, which is traditionally centered around the applicant, the candidate can turn roles around and begin probing for the company’s desired factors and weights.
Suppose the company has an urgent need for a new developer. They publish a job listing for a developer knowing such and such technologies. A candidate applies. During the interview phase, the candidate discovers that the company has problems with onboarding junior developers. This seems like an important problem (with a heavy weight to it). While this was not listed in the job listing, the candidate considers this is an important factor and one they can assist with. So while the budget of the company might’ve been X, the developer considers the importance of this additional factor and asks for X * 1.2. The company could in this case stretch their budget, as the value proposition is bigger too.
To drive it home with another simple example:
If your budget was 100, would you rather buy a plastic table for 100, or a wooden table for 150, given that other factors like size are irrelevant or identical?
This is the concept of upselling. This is also why software companies selling subscriptions have a low, mid and high tier. The value proposition for the mid tier is nearly always higher than the low tier, even though it is more expensive of course.
To employ the art of upselling while applying for jobs or selling projects is not a lie or a gimmick. It is a tried and true way to express value proposition. A good salesman will never lie but simply state what their prospect is looking for, whether they were conscious of it or not.
It helps us sleep well at night, knowing our intentions were good, but also lets us earn more at day by offering more value to our clients.