From the course: Pricing Strategy: Value-Based Pricing

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Forget variable costs, radically

Forget variable costs, radically

From the course: Pricing Strategy: Value-Based Pricing

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Forget variable costs, radically

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- Let's talk about why value-based pricing is more profitable than cost-based pricing, and why you need to know your costs nonetheless. If I'm running a summer camp on computer programming, I can calculate that I need 40 kids, each family paying $250 to cover my cost of $10,000. This will be cost-based pricing. However, being a parent myself, I know that the willingness to pay for computer programming summer camp is much higher. I can decide to set the price to $400 per student. This would lead to $10,000 in revenue with just 25 students and the record of $16,000 in revenue with 40 students. Value-based pricing is more profitable. As a pricing expert, I like it. As a parent, yeah, I don't. Let's assume that you are running a bookstore, and you bought this book for $5. The regular price is $10 and nobody bought it for a year. It was just using up shelf space. Which price should you charge for this book? Now, you can say, well, I cannot go below $5 because then, I would lose some money…

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