Value-Based Pricing: Pricing Models, Value Metrics, Escaping Commoditization

An illustrated weighing scale with price on one arm and value on the other

This is the free version of Trends PRO #0051 โ€” Value-Based Pricing

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โ“ What You’ll Learn

  • What’s value-based pricing?
  • How to avoid commoditization?
  • How to boost perceived value?
  • How to monetize authority?
  • How does competition affect your pricing power?

๐Ÿ’Ž Why It Matters

  • Flawed pricing models misalign incentives.
  • Unoptimized pricing carries huge opportunity costs. 
  • Pricing is one of the biggest levers you can pull in your business. With asymmetric effects on profit and valuation.

๐Ÿ” Problem

At best, flawed pricing limits your ability to reinvest in growth. 

At worst, it misaligns incentives, causing stakeholders to work against one another.

๐Ÿ’ก Solution

Value-based pricing sets prices based on a customerโ€™s perceived value. 

This allows you to frame offers as investments instead of expenses

๐Ÿ Players

Pricing Models

  • Cost-Based โ€ข Setting prices by adding a percentage to costs. 
  • Competition-Based โ€ข What are my competitors charging? Whatโ€™s the market rate?
  • Value-Based โ€ข How much is this worth to a client or customer?

Value Metrics

  • Productized Services

๐Ÿ”ฎ Predictions

โ˜๏ธ Opportunities

  • Build authority by writing, speaking and curating. This leads to inbound demand and pricing power. Stewart Townsend built a 7,000-person following by sharing content.
  • Buy businesses with unoptimized prices, optimize and shorten your payback period. See Micro Private Equity
  • Use social proof to boost perceived value. Donโ€™t take my word for it, listen to them. Tools like and Shoutout showcase social proof.
  • Find high-leverage ways to deliver value. Sales, recruiting and (ironically) pricing are โ€œclose-to-the-money.โ€ Results are measurable and valuable.

๐Ÿ”‘ Key Lessons

  • Competition is a commoditizing force. Pricing power drops as competition increases.
  • Value-based pricing forces clarity. What does success look like? What does failure look like? What will we measure? Cost-based pricing skips these questions. 
  • Value-based pricing forces first-principles thinking. Asking โ€œwhy?โ€ leads to core buying motives.

๐Ÿ˜  Haters

โ€œThis sounds like a lot of work.โ€
It can be. But price optimization provides asymmetric upside. 

โ€œThere are more compensation models for financial planners, fund managers, etc.โ€
Those are examples. reports are less than 1000 words. Google is your friend.

โ€œFinancial planners will be disintermediated?! What about the human touch?โ€
Software is eating the world. And software is eating software. Exceptions almost always exist.

โ€œPrice gouging is a real problem when competition is suppressed.โ€
Absolutely. Iโ€™m speaking to a future of decentralized networks with low switching costs.

๐Ÿ”— Links

  1. How did you decide on prices? โ€ข The tweet behind this report.
  2. The skills you really want canโ€™t be taught โ€ข Naval on escaping commoditization.
  3. Trends #0023 โ€” Personal Brands โ€ข On building on monetizing authority.

๐Ÿ™ Thanks

Thanks to Natwar Maheshwari (Mailchimp), Jeremy Abraham (Spiffy), Vik Duggal (Consulting Club), Wit Sumathavanit (Builders’ Sun), Yuriy Yarovoy (Warrior Made), Daniel Wulf (Wurst Circle), Ali Alsayed, Stuart Sim (FinLister), Neeraj HiraniUwe Dreissigacker (InvoiceBerry) and Shashank Agrawal. We had a great time jamming on this report.

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