Should we price based on our costs or based on the value we deliver to customers (cost-plus vs. value-based pricing)?

Based on our insights in Price to Scale, you should primarily focus on pricing based on the value delivered to customers rather than simply marking up your costs (cost-plus pricing).

Key points include:

• Value-based pricing focuses on aligning the price with the customer’s perceived benefits and the competitive landscape. This approach helps capture the maximum willingness to pay and effectively communicates the product’s value.

• Cost-plus pricing, which simply adds a margin to the production costs, can be practical in commoditized markets or where hard costs are directly tied to usage (such as certain infrastructure services). However, for most software applications—especially those in the SaaS realm—this method doesn’t capture the full value your product offers.

• Our book highlights that while your cost of delivery is important to know, it should not be the driving factor behind your pricing strategy. Instead, by understanding your market and your customers’ value perceptions, you can better position your product to optimize revenue, market share, and customer loyalty.

In summary, our pricing strategy book recommends leveraging a value-based approach for SaaS products to better match customer expectations and your competitive context, rather than relying solely on cost-plus pricing.