Pricing calculator: cost-plus, margin-target, and value-based pricing models
Three pricing models in one tool. Cost-plus for commodity. Margin-target for disciplined operations. Value-based for premium positioning. Compare side-by-side to find the right price for your business.
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How to read this calculation
Cost-Plus Price = Unit Cost × (1 + Markup%)
Margin-Target Price = Unit Cost ÷ (1 − Target Margin%)
Value-Based Price = Customer Value × Value Capture%
Gross Profit = Price − Unit Cost
Gross Margin = (Gross Profit ÷ Price) × 100
Markup = (Gross Profit ÷ Unit Cost) × 100
Three pricing models in order of pricing power. Cost-plus (cheapest, least optimal) sets price as a fixed markup over cost. Margin-target works backward from a desired margin to set price. Value-based (most powerful, hardest to execute) prices as a percentage of the economic value delivered to the customer. Most businesses use cost-plus by default and underprice systematically.
Value-based pricing requires understanding what your product/service is actually worth to the customer. A bookkeeping service that saves a customer 10 hours/week at $75/hr is worth $39K annually in time alone. Pricing that at $5K/year (13% value capture) seems reasonable to the customer (they save $34K) and generates margin you couldn't achieve through cost-plus pricing of bookkeeper labor.
The biggest pricing mistake is anchoring to cost. When you price as cost + markup, you cap your price at what your costs allow — but customers don't care about your costs. They care about the value they receive. A product costing $5 to make but worth $200 to a customer should price at $40-60 (20-30% value capture), not $10 (cost + 100% markup). Cost-plus pricing systematically undercharges in any business with significant margin between cost and customer value.
Frequently asked questions
The questions operators most commonly ask about pricing strategy.
What's the difference between cost-plus and value-based pricing?
Cost-plus prices a fixed markup over your unit cost. Value-based prices a percentage of the economic value delivered to the customer. Cost-plus is simpler but caps your price at what your costs allow. Value-based unlocks pricing power but requires understanding customer economics. A product costing $5 to make and worth $200 to a customer should price at $40-60 value-based, not $10 cost-plus. Cost-plus systematically undercharges in any business with significant margin between cost and customer value.
How do I figure out what my product is worth to a customer?
Identify the economic outcomes you deliver: revenue increased, costs reduced, time saved (× hourly rate), risk avoided (× probability × impact). Sum these into total annual value. A bookkeeping service saving 10 hours/week at $75/hr delivers $39,000 annual value. Pricing at $5,000/year captures 13% — the customer keeps $34K, a 680% ROI for them, which justifies their purchase decision. Most operators dramatically underestimate the value they deliver.
What value capture percentage should I target?
10-15% is conservative; 15-25% is aggressive but sustainable; 25-30% is premium positioning. Above 30% rarely sustainable — customers find alternatives or build internally when value capture gets too high. The right number depends on competition, switching costs, and how clearly you can prove value to the customer. Software with strong network effects (Salesforce, LinkedIn) can capture more; commodity-adjacent services capture less.
Should I raise prices, and how much?
Most operators underprice. The test: when you tell a customer your price, do they almost never push back? You're underpriced. Healthy pricing produces 20-30% pushback on first quote — that signals you're at the upper end of value capture. Test price increases of 10-20% on new customers first. If close rates drop less than the price increase percentage, you've increased revenue per customer. Repeat until close rates drop proportionally to the price increase.
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