What is Value-Based Pricing?
Value-based pricing sets the price based on the value the product delivers to the customer, not on the cost to produce it or competitive pricing.
Value-based pricing sets the price based on the value the product delivers to the customer, not on the cost to produce it or competitive pricing. If your product saves a customer $1M/year, charging $100K/year is value-based pricing — regardless of whether it costs you $10K or $100K to deliver.
Determining value: Quantify the customer outcome (revenue generated, cost saved, risk reduced, time saved), apply a capture ratio (typically 10-25% of value created), and validate through willingness-to-pay research.
Value-based pricing requires understanding your customer's economics deeply. Richard Ewing's advisory services are value-based: a $15K R&D Capital Audit that identifies $2M in wasted engineering spend delivers 100x ROI — making the price trivially easy to justify.
Why It Matters
Value-based pricing captures the most revenue because it aligns price with customer willingness to pay — not your costs. Companies that price on cost leave 40-70% of potential revenue on the table.
Frequently Asked Questions
What is value-based pricing?
Setting price based on the value delivered to the customer, not cost of production. If you save a customer $1M, charging $100K (10% of value) is value-based pricing.
How do you determine value?
Quantify the customer outcome: revenue generated, costs saved, risks mitigated, time saved. Apply a capture ratio (10-25% of value). Validate through customer interviews and willingness-to-pay research.
Related Terms
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Richard Ewing is a Product Economist and AI Capital Auditor. He helps companies translate technical complexity into financial clarity.
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