The Price Is RIGHT: 5 Pricing Models Explained

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The Price Is RIGHT: 5 Pricing Models Explained

Cost-Plus Pricing: This model is frequently used to maximize profits within the business. It entails adding up all of your costs associated with offering a product or delivering a service and adding on a percentage for profit.

Value-Based Pricing: This model entails setting your price for your products and services based on the perceived value to the customer. The price to one customer may be different than the price offered to another customer.

Hourly Pricing (time and expense): For businesses that offer services, you may choose to offer hourly pricing (time and expense) for your services. In such a situation, you invoice the client for all expenses (such as mileage to client site, etc.) and for each hour of work at a set hourly price depending on the services being offered.

Fixed Pricing: This model charges the client a set price for a service offered. For example, a project-based company may charge a client a price of $25,000 to complete a project regardless of how many hours are expended or how many resources are involved. Of course, in determining your fixed price model you’ll want to consider the complexity of services and, on average, how much time and resources must be committed to the project. Without a true understanding of the costs, a business can lose money on fixed-price contracts.

Performance-Based Pricing: In performance-based pricing, you invoice your customer based on the performance of the product or service you deliver. Such a pricing model might only be used for certain clients and in specific situations as it requires significant agreement (in writing) between you and your client. You must spend the time up front setting guidelines for performance-based pricing models and developing very clear and unambiguous metrics for achievement of the objectives. If you are in a rush, or getting pressure from the client to move forward, do not attempt performance-based pricing models.

Reference:https://www.vistage.com/research-center/customer-engagement/the-price-is-right-5-pricing-models-explained/