Pricing Calculator
Three common pricing methods produce three different prices for the same product. Each is correct in its own logic; the right answer depends on what's scarce — cost, perceived value, or competitive pressure.
The three methods, side by side
Cost-plus pricing
Cost-plus starts from what it costs to make the product and adds a markup. It's the easiest to compute and the easiest to defend internally — every increment is justified by an input cost. It's also the worst at extracting value: if your costs are unusually low, you systematically under-price. If they're unusually high, you over-price and lose volume. Use cost-plus when costs are visible to customers (regulated industries, government contracts) or when value is genuinely difficult to estimate.
Value-based pricing
Value-based pricing starts from what the product is worth to the customer — typically measured in money saved (efficiency tools), money earned (revenue-generating tools), or risk reduced. The seller captures a share of that value, leaving enough on the table that the customer still benefits. Common capture rates: 10-30% for B2B software, 5-15% for marketplaces, lower for commodities. Value-based pricing is best at extracting margin but requires real understanding of the customer's economics — the kind of understanding only enterprise sales teams typically develop.
Competitor-based pricing
Competitor-based pricing benchmarks against the market and adjusts for differentiation. Useful in commoditized markets where customers actively shop, less useful in markets where competitive pricing is opaque or where products differ enough to be incomparable. The risk is anchoring the entire category around a leader's pricing decisions, which may have nothing to do with your cost or value.
Worked example
An invoicing tool for accountants costs $8/month per user to deliver. The competitor charges $25/user. Customer surveys suggest the tool saves a typical accountant about $400/month in time, and the company believes it can capture 15% of that value. Cost-plus at 50% markup: $12. Value-based at 15% capture: $60. Competitor-based at 10% premium: $27.50. The strategic decision: charge $12 to grab share quickly (cost-plus), $60 to maximize per-customer revenue (value-based), or $27.50 to position as a premium alternative (competitor-based). Most companies should pick value-based and use competitor pricing as a sanity check — never as the starting point.
The price floor and ceiling
Whatever method you use, two boundaries always apply: never price below your fully-loaded cost (you lose more on each sale), and never price above what customers are willing to pay even at maximum perceived value. The methods above produce a price somewhere within that band; the band itself is set by the underlying economics.