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.
$160,000.00 a year, capturing 20% of the 800,000 you create. The customer keeps $640,000.00, your margin is 71.88%, and it is below the nearest alternative.
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
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 · United States · 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.