• 190 Pricing Sweet Spot: Cost < Price < Value

  • May 18 2022
  • Length: 5 mins
  • Podcast
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190 Pricing Sweet Spot: Cost < Price < Value

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  • Summary

  • What is cost, what is price, what is value?

    First let us clarify how these terms can be used and what they mean.

    The seller determines the cost, and it is based on the inputs required to produce the service or product.

    The seller determines the price, and it is simply a choice.

    The buyer determines the value, which is unique to each person and highly subjective.

    You can think of designing the “equation” like this:

    Cost < Price < Value

    So that:

    When the cost is less than the price, the seller sells at a profit.

    (The seller’s profit is the price at which he sold, minus his cost, of course.)

    When the price is less than the value, the buyer buys at a profit.

    The buyer’s profit is less obvious. It’s the value to them, minus the price.

    The value to the buyer is what they would have paid.

    The buyer’s profit is what they would have paid minus what they paid.

    When you design your services such that Cost < Price < Value, you are designing your service to create mutually assured profitability.

    It’s a sweet spot worth seeking.

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