![]() ![]() But what if customers think your product is worth $100? You’ll be losing money by choosing cost-plus.Ĭustomers often value SaaS products well beyond what they cost to make. Using cost-based pricing, you mark that up to a price of $40 to cover some of your other operating costs as well. ![]() That might be because it solves a certain problem in their business or a variety of other reasons. They’ll pay more for a product they value highly. The amount that customers are willing to pay has nothing to do with your cost of production. However, cost-based pricing has limitations, especially for SaaS companies. This method of pricing also guarantees, by definition, that you’re covering your cost and also adding a profit margin. It doesn’t involve as much research and analysis as value-based pricing - you just calculate your costs, tack on a “little extra” - typically at least 50% - and you’re good to go. Cost-Based PricingĬost-based pricing, also called cost-plus pricing, involves calculating the cost of producing a product and then setting the price of the product a bit higher than that.Ĭost-based pricing has a few upsides. This sets it apart from cost-based pricing, which focuses on what your product costs to make, and competitor pricing, which focuses on the existing price points in the market. ![]() Value-based pricing is differentiated from other pricing strategies because it's exclusively focused on the benefits your product offers a customer. This isn’t because the materials used to create the art or the food were costly - it’s because consumers believe the final product and experience attached to it to be worth a lot. The more your audience thinks your product or service is worth, the more you can charge.įor example, a famous painting or a meal at a fine dining restaurant might come with a high price tag. Value-based pricing, also known as value-added pricing or value pricing, is a method of setting prices based on your customers and how they perceive the value of your product. This article introduces value-based pricing and shows you how to create a value-based pricing strategy. Luckily, there’s a way to give your customers what they want for the price they’re willing to pay: value-based pricing. They don't accurately reflect the value that your product brings to your customers. These methods work perfectly for some types of products, but they're not ideal for SaaS. Another is to base your prices on competitor pricing. One is to determine your price point by calculating the cost of supplies and labor and adding an additional cost on top - what's known as cost-plus pricing. You’ve created a unique and valuable SaaS product that customers are sure to love. ![]()
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