Why Pricing Based on Value Is Better than Pricing on Cost

Simple question: is your business making enough money? No? Are your margins vanishing as you grow? Then maybe it’s time to rethink how you price.

When we start working with clients, many are stuck in a cost-plus mindset. They calculate their inputs, tack on what feels like a reasonable margin, and call it a day. Too often, they have no real idea what their competitors are charging—or whether their pricing is competitive in their market. Worse, they don’t know which customers are the most profitable or where they should focus their efforts to grow the business.

As a result, profitability drops like a stone. Everyone’s working flat out, but the business feels stuck. Sound familiar? Add inflation to the mix, and it gets even tougher.

Or perhaps you’re grappling with imposter syndrome, doubting whether your pricing truly reflects the value you deliver.

That’s why we suggest a mindset shift. Instead of pricing based on costs, start pricing based on the value you deliver to your customers. The results can be game-changing.

Clarity on Proposition and Value

Before you can price on value, you need to be crystal clear on your proposition. Ask yourself:

• Who is your ideal core prospect (ICP)?
• What problem are they trying to solve?
• How does your product or service deliver the solution?

It’s easy to nod along to this in theory, but it’s a tough process in practice. That’s why we use a tool called attribution mapping. It gives our clients a detailed understanding of their market position and a roadmap for the next three years.

The goal? To get your business to a place where you’re no longer competing on price. Instead, you’re differentiated to the point where customers are happy to pay a premium for the value you offer. After all, if price is the only thing prospects are focusing on, it’s likely because you haven’t given them anything else to measure you by. Without a clear, compelling differentiation, they’ll default to comparing on cost—because it’s the only metric they can see.

Position Yourself as the Expert

Blair Enns makes a powerful point in The Win Without Pitching Manifesto: “Expertise is the only valid basis for differentiating ourselves from the competition.” It’s not about personality, process, or price—it’s about being the expert your customers can’t do without.

That’s the foundation of value-based pricing. You need to quantify the worth of solving your customer’s problem and position yourself as the only one who can deliver. When a CEO calls me for help, one of my first questions is, “What’s it worth to you to solve this?” If they agree my fee will deliver a 10x return, my pricing becomes an investment, not a cost.

Be the Most Expensive in Your Market

There’s real power in being the most expensive option in your market. Andrew Griffiths’ book Someone Has To Be The Most Expensive—Why Not Make It You? highlights this beautifully. Charging more forces you to obsess about creating enough value to justify your prices.

I interviewed Hermann Simon for our Mind Your F**king Business podcast. His book, Hidden Champions, profiles 3,000 market leaders who charge 15% more than their competitors and see triple the profitability. Their secret? Relentless focus and expertise.

Reframe Your Business Model

Switching to value-based pricing often requires rethinking how you position and sell your offerings. Your customers likely have fixed price expectations if you’re dealing with commoditised products. But by shifting focus upstream—engaging with customers earlier in their buying journey—you can position yourself as a strategic partner rather than just another vendor.

For instance, many of our clients operate in crowded markets where their products look similar to the competition’s. To break out of this trap, we use April Dunford’s positioning framework to help them identify and clarify what sets them apart. Combined with targeted Ideal Customer Profile (ICP) work, often developed in employee workshops, this ensures they can focus on the right prospects—the ones who truly value their expertise.

By helping customers diagnose their internal problems earlier in the process, you’re building credibility and influencing the conversation about value. This approach enables you to align with customers’ needs before they start comparing prices, giving you more control and allowing you to charge for the value you deliver.

Tailor Pricing to Your Customer

Airlines don’t charge every passenger the same, and neither should you. Pricing should reflect the value your customer receives—and different customers will value your offering differently.

Most businesses we work with have a mix of products and services. Some customers consume far more support than others, eroding profitability. Do you know which customers deliver the most margin? Which parts of your service do they value most?

Stop giving one-size-fits-all pricing. Instead, offer tiered options. Think of it like a restaurant wine list: a range of prices for different tastes and occasions.

Give Customers a Choice

Psychology plays a big role in pricing. Most people prefer having options. When you offer multiple pricing tiers—high, medium, and low—most will gravitate toward the middle, and some will pick the premium. This not only boosts your profits but also shifts the comparison. Instead of weighing you against competitors, customers weigh your pricing tiers against each other.

Use Psychology

Buying decisions are driven by psychology—so why not use that to your advantage? If you’re negotiating a new contract, remember this: customers want to feel like they’ve won something. So, give them the chance to “win.”

Here’s how: include a term or condition so bold it grabs their attention—something like an automatic 10% annual uplift. You already know they’ll push back on it, and that’s fine. In fact, that’s the point. It distracts them from going after your actual price.

When they call to say, “We’re not happy with this uplift,” you respond, “Fair enough, let’s remove it. Now, which option works best for you—number two? Brilliant, let’s get started!” And just like that, you’ve closed the deal, kept your price intact, and ensured your profitability stays where it should be.

It’s a little psychological judo—letting them feel they’ve landed a win while you keep control of what really matters.

Your Pricing, Your Power

Pricing isn’t just a financial decision; it’s a strategic one. When you price based on value, you stop being a commodity and start being a necessity. You create the freedom to invest in your business, the confidence to charge what you’re worth, and the margins to weather market challenges.

So, here’s the challenge: stop apologising for your prices. Know your worth, deliver value, and let your pricing reflect the impact you bring. After all, someone has to be the most expensive—why not make it you?

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Written by business coach and CEO mentor Dominic Monkhouse. Read his new book, Mind Your F**king Business here.