An Introduction to Value Based Pricing

Value-based pricing is a pricing strategy where you set your price primarily on the perceived value your product or service delivers to the customer — not on your production costs or what competitors charge.

In other words, instead of asking:

“What’s the cost to make this and what margin do we want?”

you ask:

“How much is this worth to the customer in financial or strategic terms, and what price would still leave them with a clear net gain?”

Key Principles

  1. Customer-Centric – Pricing is determined by the benefit to the customer, not your internal cost structure.

  2. Value Quantification – You need to measure and communicate how much time, money, risk, or opportunity your product saves or creates.

  3. Willingness to Pay (WTP) – Often determined by customer interviews, market research, and pricing experiments.

  4. ROI Framing – Price should leave the customer with an attractive return on investment (ROI).

Basic Formula

If your product saves a customer $500,000/year in costs or generates $1M/year in additional revenue,
and you want to leave them with an ROI of at least 5x,
you could set the annual price at around $100,000–$200,000.

When It Works Best

  • You have measurable impact on customer performance (revenue increase, cost savings, risk reduction, compliance, etc.).

  • The customer’s alternatives are more expensive or less effective.

  • You can prove your value with case studies, metrics, or benchmarks.

Steps to Implement

  1. Identify tangible benefits

    • Revenue increase

    • Cost reduction

    • Risk avoidance or mitigation

    • Time saved

    • Strategic advantage

  2. Quantify those benefits

    • Translate into $ value per year, month, or unit of work.

  3. Set your ROI target

    • Example: Customer should get 3x–10x ROI after paying for your solution.

  4. Price accordingly

    • Tie the price to the measurable business outcome, not your costs.

  5. Communicate value clearly

    • Use ROI calculators, customer testimonials, and before/after case studies.

AI Solutions – Value-Based Pricing Framework

1. Define the Customer Segments

Not every customer perceives value the same way. Group them by:

  • Industry (e.g., retail, manufacturing, finance)

  • Business Size (SMB, mid-market, enterprise)

  • Use Case (AI visibility, automation, customer engagement, compliance)

  • Buying Role (CMO, Head of Digital Transformation, CTO, COO)

2. Identify Value Drivers

List the quantifiable business outcomes your AI solution delivers. Common categories:

CategoryExample for AI Visibility ToolHow to MeasureRevenue UpliftMore product SKUs recommended by AI assistants → more salesIncremental revenue from AI-driven conversionsCost ReductionLess manual data entry for PIM updatesHours saved × hourly wageTime SavingsFaster AI search inclusion for new productsDays to visibility vs baselineRisk ReductionImproved compliance in AI answers (no false claims)Risk incidents avoided × avg cost of incidentMarket AdvantageMore AI platform coverage than competitors% increase in share of AI answers

3. Quantify the Financial Impact

For each value driver:

  1. Baseline – What’s the customer’s current performance?
    (e.g., 20% SKU inclusion in AI answers, $1M/year from AI-driven sales)

  2. Post-Implementation – Project realistic uplift.
    (e.g., +40% SKU inclusion → $1.4M/year from AI-driven sales)

  3. Net Gain – New result minus baseline.
    (e.g., $400K/year increase)

4. Apply an ROI Multiplier

Decide on the ROI you want the customer to retain:

  • Conservative: 3x ROI (you capture 33% of the value created)

  • Aggressive: 5x–10x ROI (you capture 10–20% of the value created)

Example:

  • Net annual gain: $400K

  • Target ROI for customer: 5x

  • Price = $400K ÷ 5 = $80K/year

5. Set Tiered Pricing

Create tiers based on the scale of value:

  • Tier 1 – Starter: $X/year (for businesses with < $1M in AI-attributable sales)

  • Tier 2 – Growth: $Y/year (for $1M–$10M in AI-attributable sales)

  • Tier 3 – Enterprise: % of uplift or fixed + performance-based bonus

6. Build the Value Communication Toolkit

  • ROI Calculator – Plug in their numbers live in the sales call.

  • Case Studies – Show actual uplift from similar customers.

  • Before/After Graphs – Visualize visibility, revenue, or savings.

  • Competitive Benchmark – Show where they rank now vs post-solution.

7. Optional – Performance-Based Component

If the uplift is highly measurable, add:

  • Lower base fee + % of revenue uplift
    (e.g., $30K base + 10% of incremental AI-attributable revenue)

Sales, Pricing, Value Based PricingFrancesca Tabor