What share of value should I capture?

Ten to thirty percent is the usual range. Below ten leaves obvious money behind; above thirty the customer starts asking why they do not do it themselves.

Businesspricing

Value-Based Pricing Calculator

Price anchored to value created rather than cost incurred. Cost sets the floor and value sets the ceiling, and cost-plus pricing ignores the ceiling entirely.

Also called: pricing strategy calculator, value pricing.

Recommended price

₹1,60,000

₹1,60,000 a year, capturing 20% of the 8,00,000 you create. The customer keeps ₹6,40,000, your margin is 71.88%, and it is below the nearest alternative.

Value left with the customer

₹6,40,000

Your gross margin

71.88%

Customer return on the price

Ceiling: all the value created

₹8,00,000

Floor: your cost to serve

₹45,000

Against the alternative

below

How this is calculated

Method and background

How this is calculated

Value-based pricing starts from what the customer gains and takes a share of it. The customer must keep enough surplus for the purchase to be obviously worth making, which is why capture rates of ten to thirty percent are the usual range. Cost-plus pricing anchors to the wrong number and leaves money on the table whenever value greatly exceeds cost, which for software is nearly always.

price = value created, times the share you capture; cost sets a floor and value sets a ceiling

V: Value created
s: Capture share

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

capturing a fifth of the value

Annual value you create for the customer: ₹8,00,000
Share of that value you capture: 20%
Your annual cost to serve: ₹45,000
What the next best option costs them: ₹2,20,000

Recommended price₹1,60,000

20% of 8 lakh

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capturing everything leaves no reason to buy

Annual value you create for the customer: ₹8,00,000
Share of that value you capture: 100%
Your annual cost to serve: ₹45,000
What the next best option costs them: ₹2,20,000

Recommended price₹8,00,000

boundary

Open this example

Method and limits

What it assumes

The value created is measurable and the customer agrees with your estimate.

What it deliberately does not model

Quantifying value is the hard part, and a customer who disputes the figure disputes the price.
Competitive alternatives cap what you can charge regardless of the value you create.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

What share of value should I capture?: Ten to thirty percent is the usual range. Below ten leaves obvious money behind; above thirty the customer starts asking why they do not do it themselves.