Cost, Price and Value

How much do you charge for your products or services?

Pricing is really difficult. Everyone has a different opinion.

But there are three numbers that are really important - cost, price and value.

The cost is how much it costs you to deliver the product or service. Raw materials, labour, time, delivery charges, taxes. All that kind of thing.

The value is how much it is worth to the buyer. This is where things get really complicated, because, actually, the value is different for everyone. That item that you sell for £50 might be worthless to someone who doesn't need it but invaluable to someone else. That's why so many people just revert to "cost+something" when calculating their pricing. But, while that's simple, it means you could be leaving money on the table - if you can target those people for whom you are invaluable.

And once you know how much your product cost for you to build (its cost) and you've got an idea of how much your product is worth to someone (its value), you should be able to safely set your price somewhere in-between those two values. Higher than cost means you make money on it. Lower than value means your customer thinks it's a bargain.

Rahoul Baruah

Rahoul Baruah

Rubyist since 1.8.6. Freelancer since 2007, dedicated to building incredible, low-cost, bespoke software for tiny businesses. Also CTO at Collabor8Online.
Leeds, England