Value-based Pricing
Value‑based pricing sets prices according to perceived customer value, anchored by willingness‑to‑pay (WTP) while respecting margin targets. Enter WTP, cost, and target margin to reveal a margin floor and a suggested price that balances profitability with customer value.
How it works
The margin floor is calculated as cost ÷ (1 − target margin). The suggested target ensures price is not below the floor and not above average WTP.
Tips
Segment WTP by customer cohort and pair with differentiated value to create tiers that capture more surplus.
What is value‑based pricing?
Value‑based pricing sets prices according to perceived customer value rather than cost‑plus. It seeks to capture a fair share of surplus created by product benefits.
How to use this calculator
Provide average willingness‑to‑pay (survey or research), unit cost, and target margin. The tool shows a margin floor and a suggested price anchored to WTP so you meet margin goals without overshooting perceived value.
Why it matters
Prices aligned to customer value improve revenue quality and reduce churn from mispriced offerings. They also inform tiering strategies by cohort.
Example
If cost is $15 and target margin is 70%, the margin floor is $50 (15 ÷ 0.3). With average WTP of $55, a suggested target near $50–$55 balances margin and value perception.
Assumptions & limitations
WTP varies by segment and context. Use robust sampling, avoid anchoring bias, and revisit inputs as product value changes.
WTP methods
Use Van Westendorp Price Sensitivity Meter (too cheap/cheap/expensive/too expensive), Gabor‑Granger discrete choices, or conjoint analysis to estimate WTP and drivers of value.
Choosing a price metric
Align pricing units to customer value (per seat, per usage, per feature). The right metric increases fairness and improves upgrade paths.
Communicating value
Clearly tie price to outcomes (time saved, revenue gained, risk reduced). Anchoring benefits improves acceptance at value‑based price points.
Best practices
Segment by cohort, test tier ladders, set floor prices, and revisit WTP periodically as product value evolves.