From the course: A Scientific Approach to Setting Your Prices

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Understanding cost-based pricing

Understanding cost-based pricing

From the course: A Scientific Approach to Setting Your Prices

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Understanding cost-based pricing

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- We've already looked at experimental pricing to find out where the 50% point is, and startup pricing to fill the order book when you first start out, but there are many other types of pricing, and here they are in the next 10 videos. First is cost-based pricing, where you add up your costs, assuming you know them, and add on 50 to 100% if it's just your direct costs, or five to 15% if it's your total costs, including overheads. Now, I don't like this at all, partly because it's hard to know your costs, but mainly because it takes no account of how much your customer will pay. Yes, have costs plus a margin as your floor, but not your ceiling. For my training courses, my costs are only some paper, maybe $10, and maybe travel, $50, and the price is way more than that plus a bit, because it's based on the value to the customer. Maybe I'm going to help them negotiate $5 million off the price of a new factory, so I'd be mad to use cost-based pricing. My price is based on what other people…

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