There’s nothing wrong with Cost-plus or Value-based pricing when they are done right. Both are good strategies but incomplete in my opinion.
In the case of Cost-based pricing, basically you look at the costs and then add a percentage for profit on top of that number to arrive at a price.
In my experience, those who set the prices don’t know, forget, or leave out costs that they shouldn’t. Sometimes it is the cost of the salary of the principals or putting in enough for contingencies. Just as often they don’t include all the costs involved in being able to provide this product or service before and after getting customer #1. Then there are the true total costs to support and maintain this customer with this product or service. [Read more...]