Every price you could charge sits somewhere in a triangle formed by three reference points: what it costs you, what it is worth to the buyer, and what alternatives charge. This lesson explains each lens and why value should lead while the other two set boundaries.
Cost Sets Your Floor
Cost-based pricing adds a margin to your fully loaded cost. Its virtue is safety — you know the floor below which every sale loses money. Its danger is ignoring the customer entirely. Fully loaded means everything: materials, your own labor at an honest rate, overhead, and the unbilled hours around each job. Many businesses discover their true floor sits above their current price.
Competition Sets the Context
Competitor prices tell you what buyers currently consider normal, which shapes their expectations before you say a word. But competitors may be mispricing, serving different segments, or quietly losing money. Use competitive data as context and positioning information — where you sit and why — never as an answer copied without understanding.
Value Sets the Ceiling and Should Lead
Value-based pricing asks what the outcome is worth to this buyer: revenue gained, cost avoided, risk removed, time saved, stress relieved. A hypothetical leak repair costing 300 dollars to deliver but preventing 20,000 dollars of water damage is not a 350 dollar service. Value is the only lens that rewards you for getting better at what you do.
Action Step
Take your flagship offer and write down all three numbers: fully loaded cost, the going competitive range, and your best estimate of the outcome value to a typical customer. Note where your current price sits in that triangle and what that placement says.
Educational content only — not financial, legal, or individualized business advice, and no revenue outcome is promised. Every worked example is hypothetical; apply the frameworks to your own numbers and judgment.