How to Calculate a Value-Based Price

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Value-based price is the cost of a product or service in relation to what the value is to the customer. While there is no exact science to the value-based pricing strategy, you can follow guidelines to map out where you want to price your product or service. You will need to determine how valuable your product or service is to the customer -- how much money or grief it saves them. Other pricing strategies such as positioning the cost of your product to that of other companies need to be taken into consideration when determining your price.

Price the product according to what you think the value is to the customer. This will depend on what you are selling. For example, if you are selling electricity-efficient light bulbs and you estimate each light bulb will save your customer $100 per year, charge anything up to $100 that you think is reasonable.

Price the product to what you think the customer would be willing to pay. You can inform customers that each light bulb would save them up to $100 each year on lighting costs, but would they really be willing to pay $90 for a light bulb? This is where you will need to use your judgment.

Factor in how often they will need to replace the light bulb. If your light bulb is priced at $50, and you have to replace it an average of once every six months, then that is an annual cost of $100. If that light bulb saves the costumer $100 in electricity costs, they aren't saving anything by buying two light bulbs per year.

Price your product or service the same as your competitors if you are offering a commodity product, when the price is well-established or if there is no other way to set the price. Consider ways to lower your costs so you can be more profitable than your competition.

Establish a lower price than similar products or services in your market so you can attain a high number of customers. Lower prices can also accomplish product awareness, or convey to the public a low-cost image.

Charge a high price if your product is unique. Products that are uncommon are highly valued by customers. Determine the market supply of your product and gauge demand. Increase the price accordingly to reflect lower supply and higher demand.

Note that customers are willing to pay more for a prestigious item. For example, the cost to make a Rolex watch isn`t necessarily that much higher than the cost for a similar watch, yet the price is much higher because of the status that the wearer assumes they have.

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About the Author

Phillip Chappell has been a professional writer in Canada since 2008. He began his work as a freelancer for "Senior Living Magazine" before being hired at the "Merritt News" in British Columbia, where he wrote mostly about civic affairs. He is a temporary reporter for the "Rocky Mountain Outlook." Chappell holds a Bachelor of Journalism in computer programming from University College of the Cariboo.

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