Sample frameDay 046·Pricing · Value

Morning. The buyer never sees your costs. They see the outcome — and that's what they're paying for.

Pricing.

Value-Based Pricing

5 min read·Apply by lunch

The question

For the proposal you'll send this week, can you state what the result is worth to that buyer in their numbers rather than yours — and if you can't, why haven't you asked them before naming your price?

The idea

Cost-plus pricing feels prudent and is quietly a surrender: you tally the cost, add a margin, and let the number land where it may — which means your price is set by your suppliers and your own inefficiency, neither of which your buyer cares about. Thomas Nagle, whose The Strategy and Tactics of Pricing (1987) remains the standard text on the subject, argued the direction should reverse: work forwards from the buyer, not backwards from the ledger. Quantify what the outcome is worth to this customer — revenue gained, cost removed, risk retired, hours returned — and price a defensible share of it. Most operators can recite their costs to the dollar but cannot put a number on what their work is worth to the person paying for it. That is the trap, and it cuts both ways: value pricing sometimes reveals years of underpricing, and sometimes that the value isn't there to charge for.

The framework

01
Write the value equation in the buyer's numbers.
Before you quote anything, complete this equation for the specific buyer in front of you: what the problem costs them each month it stays unsolved, what solving it gains them, and over what period. The numbers come from discovery, not estimation — ask directly what a year of the status quo costs, and who inside the business feels it. If you cannot complete the equation, you are not ready to price; go back to discovery before you go near the number.
02
Price the segment, not the average — value moves buyer to buyer.
The same deliverable is worth different amounts to different buyers: a fix that removes an inconvenience for one firm removes a regulatory risk for another, and pricing both at the average undercharges one and loses the other. Build two or three versions — fenced by scale, usage or outcome, never by arbitrarily removed features — so buyers sort themselves by the value they receive. The fence only works if it tracks a genuine value driver; if a buyer can get the high-value outcome from the low-value tier, the pricing does nothing.
03
Take a defensible share — and show the surplus you leave.
Value pricing does not mean capturing everything you create; the buyer needs a visible surplus or there is no reason to transact. Set your price so their return is a clear multiple of your fee, and state the multiple in the proposal itself — the cost, the return, and the mechanism connecting them, in one sentence. The ratio is the sales argument, and the more explicitly you show it, the less the price itself gets argued.
04
Let cost set the floor — never the price.
Your costs have exactly one job in a pricing decision: they set the floor beneath which the work is not worth doing. Compute that floor once, then put the ledger away and set the price entirely by reference to value. When a buyer pushes back, negotiate scope — what is delivered and what outcome is promised — rather than margin; the moment you defend a price by explaining your costs, you have re-anchored the conversation to the reference that serves you worst.

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