Frequent business mistake: cost-based pricing.
Example: Product cost $X. So, price will be $X + 20%.
The advantage of this approach is: It’s simple, clear and “logical”.
Why the quotes? The customer doesn’t care what the supplier’s cost of production is. He cares about how it improves his business and makes life easier.
If the stated price is low, the customer happily accepts. But if it’s higher than expected, he gets upset or just walks away. No amount of “logic” will save you.
Why is outcome-based pricing so uncommon? Due to market uncertainty and low trust, many businesses are transactional. They want quick one-time deals, not long-term relationships.
Understanding what the customer truly wants is crucial. Some find it too lazy to strain their intellect and change their behaviour.
Surprisingly, not all customers know the exact result they want. Some corporate departments or government structures focus solely on the process, such as spending the yearly budget or keeping their job.
So, is it easier to forget about the result and leave everything as is?
Yes, if your goal is a murky small business with tiny profit margins. It’s like a suitcase without a handle — hard to carry, impossible to sell. Corruption might make it big, but that’s not the right path.
An alternative is to prioritize the value of your service in the eyes of the customer and then set your price.
Sincerely yours,
-Alexander
About me:
As a business therapist, I help tech founders quickly solve dilemmas at the intersection of business and personality, and boost company value as a result.
How can I help you?
If you've long been trying to understand what is limiting you and/or your business and how to finally give important changes a push, then The Catalyst Session is designed specifically for you. Book it here.