HOW TO Stop Leaving Money on the Table: The Power of Value-Based Pricing
Most companies underprice their products. Why? Because they set prices based on costs, not on the value customers actually receive.
Traditional cost-plus pricing feels “safe” — but it often leaves significant money on the table. That’s where Value-Based Pricing comes in.
Let’s break it down into three key frameworks…
WHAT iS Economic Value to the Customer (EVC)?
Introduced in 1979 by John L. Forbis and Nitin T. Mehta, EVC shifts the focus from your internal costs to the value customers perceive compared to their next-best alternative.
Step 1: Identify all benefits (savings, efficiency, outcomes).
Step 2: Put a €/$ value on them.
Step 3: Compare to the next-best alternative.
Here’s an example: A logistics company adds real-time tracking. Competitors update every 8 hours.
Next-best alternative: €20k/month
Additional value created: €18k/month
EVC = €38k/month
Suddenly, charging €30k instead of €20k feels not only possible — but justified.
WHAT IS Economic Value Estimation (EVE)?
EVE takes it further, tailoring the calculation to specific customers. It’s especially powerful in B2B, where each client’s benefits can be quantified differently (e.g., faster diagnostics in healthcare saving $65k annually).
Case Example – Healthcare
Current diagnostic tool: $50,000/year
Added value: faster results, lower costs, better outcomes = $65,000
EVE = $50,000 + $65,000 = $115,000/year
This EVE calculation figure includes both the reference value ($50,000—the cost of the next-best alternative) and the differentiation value ($65,000—the additional benefits such as speed, portability, and improved patient outcomes).
Determining the exact proportion of the Economic Value Estimation (EVE) that a company can charge a customer in the healthcare sector is complex and varies based on several factors, including market dynamics, regulatory environments, and the specific value proposition of the product or service.
While specific benchmarks are not universally established, in B2B markets, companies using EVE often charge 15–25% of total EVE over the product’s lifetime.
Potential Implementation Challenges
Customer perception & price sensitivity
Quantifying intangible benefits
Sales team alignment
Competitive reactions
Internal resistance
Curious about how this might apply to your industry, and how you can overcome these challenges?
WHAT IS Economic Value Added (EVA)?
EVA measures whether your business is creating profit beyond the cost of capital. It keeps managers focused on true value creation.
Formula: EVA = NOPAT – (WACC × Invested Capital)
Case Example – Manufacturing
Investment: €10m in new equipment
NOPAT: €5m
WACC: 8%
EVA: €4.2m → in economic profit after covering the cost of its capital, confirming value creation.
Conclusion
EVC, EVE, and EVA provide a powerful framework for aligning pricing strategy with both customer value and shareholder value.
💡 The takeaway: When you quantify value, you gain pricing power, customer trust, and stronger margins.
👉 Have you ever tried to calculate the full value your product delivers?
👉 Are you ready to move beyond cost-based pricing and tap into the power of value-based strategies?
Let’s work together to redefine how your business captures and communicates value—ensuring both customer satisfaction and financial success!
