Value-based pricing
Build the number from what it is worth to the buyer, in their money. Then look at how much of that number you actually measured — which is the part every other guide leaves out.
Short answer
What is value-based pricing?
Pricing from the money the product makes or saves the buyer, rather than from your costs or a competitor’s list. Take what they pay for the next best alternative, add what you gain them, subtract what switching costs them, and keep a share of the difference.
The short version
- Reference value plus differentiation value gives the economic ceiling — the price at which the buyer is indifferent between you and the alternative.
- Switching costs (migration, retraining, risk) are part of the sum. Leaving them out is the most common error.
- The share of value you capture is a negotiation, not a formula. Any source that gives you a percentage is selling certainty.
- Economic value is what the buyer gets; price is what they agree to. Value you cannot demonstrate sells for nothing.
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Build the price from what it is worth to them
Start from what the buyer pays today for the next best thing, add what you save or earn them, subtract what switching costs them. Mark where each number came from — that part matters more than the total.
Value drivers · negative for what switching costs them
0% hands the buyer every penny of the advantage. 100% leaves them no reason to move. This is a negotiating decision, not a calculation.
$2,000
$2,560
$3,400
Differentiation value $1,400 = $1,800 gained − $400 cost of switching. Above the ceiling the buyer is economically better off staying where they are.
Where the money in this number came from
# VALUE-BASED PRICE Date: 2026-09-12 Next best alternative: $2,000 (Measured) ## Value drivers + $1,200 Measured Bookkeeper hours saved, 20/mo at $60 + $600 Estimated Reconciliation errors avoided − $400 Guessed Migrating two years of records Differentiation value: $1,400 Economic value ceiling: $3,400 Capturing 40% of the differentiation → price $2,560 ## How solid is this Measured 76% Estimated 14% Guessed 10% ## What this does NOT say Economic value is what the buyer GETS, not what they believe. Value you cannot demonstrate to them sells for nothing. And the capture share is a negotiating decision, not a calculation — the arithmetic cannot tell you what they will agree to. Calculated with the free tool at https://gonogo.team/value-based-pricing
What this cannot know. Economic value is what the buyer gets, not what they believe. A saving you cannot demonstrate to them sells for nothing, and the most common failure of value-based pricing is a defensible number that the buyer has no reason to accept. The capture share is a negotiation, not arithmetic.
This gives you a number to test. Gabor-Granger shows how many would accept it, and the evidence ladder says what you would actually have proven.
A price you can defend is still a price nobody has paid. A 15-minute session ends with a written GO / WAIT / NO-GO and the reasoning behind it. Free tier, no card.
Three ways to pick a number
Cost-plus
What did it cost us, plus a margin?
Charges the same for a feature that saves a customer $10 and one that saves them $10,000. Software costs almost nothing to copy, so the anchor is meaningless.
Competitor-based
What do they charge?
Copies a number whose reasoning you cannot see, set for a product that is not yours, by a company whose costs and goals are not yours. It also puts a ceiling on you that nobody agreed to.
Value-based
What is it worth to the buyer, in their money?
Only works when the value can be demonstrated to the buyer, and is easily filled with figures nobody measured. That is the trade: a defensible method with a soft floor.
Note what the third row admits. Value-based pricing is the defensible method and the easiest one to fill with fiction — which is why the calculator above asks where every figure came from and shows the mix next to the price.
The four steps
- 1
Name the next best alternative
Not “nothing” — people are solving the problem somehow today, with a competitor, a spreadsheet, or an intern. What they pay for that is your reference price, and it anchors everything downstream.
- 2
Count what you add, in their currency
Hours saved times the loaded hourly rate. Errors avoided times the cost of an error. Revenue unlocked. Every driver has to be expressible as money on their side of the table, not as a feature on yours.
- 3
Subtract what switching costs them
Migration, retraining, the risk of it not working, the month of reduced output. Founders leave this out almost universally, and it is the part buyers feel most sharply.
- 4
Decide what share you keep
The gap between the reference and the ceiling is the value you created. Splitting it is a negotiation. Keep all of it and the buyer has no reason to move; keep none and you have donated your advantage.
What this method cannot do
It cannot make the buyer believe you. Economic value is what they get; price is what they agree to. The gap between those two is filled by evidence, references and a trial — not by a better spreadsheet.
It cannot tell you the capture share. The arithmetic gives you a floor and a ceiling. Where you land between them depends on how badly they need the change and what else they could do instead, and no formula knows either.
It is only as good as the drivers. A value case is a chain of multiplications, and one invented factor multiplies through the whole thing. This is why the calculator above refuses to show a total without showing the mix.
It says nothing about volume. A price the buyer would accept tells you nothing about how many buyers exist. Gabor-Granger answers that question and this one does not.
Four ways the value case goes wrong
❌ Counting value the buyer cannot verify
Economic value is what they get; price is what they will agree to. A saving you cannot demonstrate does not enter their decision, however real it is.
✓ Instead: For each driver, ask what evidence you could show them. Drivers that survive that question are the ones you can charge for.
❌ Forgetting the cost of switching
Migration, retraining and risk are real money on the buyer’s side and invisible on yours. Omitting them is how a defensible price becomes an unwinnable negotiation.
✓ Instead: Enter them as negative drivers. If your differentiation goes negative once they are counted, you have learned something more valuable than a price.
❌ One price for every segment
The same product saves a ten-person firm two hours a week and a thousand-person firm two hundred. One value calculation across both describes neither.
✓ Instead: Run the calculation per segment. Different economic value is the textbook case for different packages.
❌ Treating the ceiling as the target
At the economic value ceiling the buyer is exactly indifferent between you and the alternative — and indifference does not sign contracts.
✓ Instead: Price below it by enough that moving is obviously worth the effort. The share you keep should reflect how badly they need you, not how clever the arithmetic is.
A defensible number is still a hypothesis
The calculation above produces a price you can explain. Whether anyone pays it is a different question, and it is one of the three critical criteria in our Go/No-Go rubric — the ones no amount of strength elsewhere compensates for.
A 15-minute session works through all seven and ends with a written verdict and the reasoning behind it.
15 min · free tier, no card
Frequently asked questions
What is value-based pricing?+
How do you calculate economic value?+
What share of the value should I capture?+
Why not just price against competitors?+
How much of a value calculation is usually made up?+
Is this calculator free, and does my data leave the browser?+
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