Work it through: Pricing with Confidence
A sequence for putting a number on your work without flinching: find the job customers actually hire you for, price the value rather than the hours, check the volume the price must sustain, then imagine the new price list failed and find out why before it does.
Seven steps, in the order the playbook gives them. Your work stays in this browser until you save it to a file.
Your ducks
Start with what the people believe, what the paperwork says and what actually happens. The issues where your ducks disagree are the ones to carry into the homework.
You have not filled in the ducks sheet yet.
The homework
What has to be found before any of the four frameworks is worth running. Put a name and a date against each one, and tick it when you have it in your hands.
The ducks
For Jobs to be Done
For Value-Based Pricing
For Break-even Analysis
For Pre-mortem
Step 1 of 4: Jobs to be Done
Price is a claim about value, and value lives in the job your customers hire you to do, which is often several steps away from what your product nominally does. My clients were nominally buying tax compliance; they were hiring me so that a brown envelope from the Revenue held no fear. You cannot price the second thing until you have named it. The job also corrects your competitive set, because your price is really being compared against workarounds, substitutes and the option of doing nothing at all.
Watch forA job statement that is just your product category with a verb in front gives your price nothing to anchor to.
0 of 5 steps filled · 0 of 5 inputs in hand
What comes out, and how to read it
A job statement describing the progress customers seek in a defined circumstance, a force diagram for the switching decision with evidence under each force, and a corrected competitive set that includes non-consumption and workarounds.
- The switch happens when push and pull together exceed anxiety and habit. If sales are stalling, look first at the blocking forces; most organisations over-invest in pull because it is the force they can see.
- The job defines your real competition. Whatever else gets hired for the same progress is a competitor, however unlike you it looks.
- Read the forces per circumstance, not per customer type. The same person hires differently in different circumstances, which is why demographic segments predict so little.
Step 2 of 4: Value-Based Pricing
Now put numbers on the value. The economic value you create is the ceiling, your cost is the floor, and the whole craft of pricing lives in where you land between them and why. Test willingness to pay before launch, with Van Westendorp's four questions rather than the single blunt 'what would you pay?', which mostly harvests negotiating positions. If the tested range comes back below your value estimate, the usual culprit is the story rather than the number. Fix how you communicate the value before you cut the price.
Watch forDoing the careful value analysis and then pricing at cost plus the usual margin anyway, because the old habit feels safer.
0 of 6 steps filled · 0 of 5 inputs in hand
What comes out, and how to read it
A price, a structure and a defence: an economic value estimate per segment, an evidenced acceptable price range from willingness-to-pay research, a tiered structure with fences, and the narrative and governance needed to hold the price in the market.
- The value estimate is the ceiling and cost is the floor; the whole craft of pricing lives in where you land between them and why.
- Read the Van Westendorp chart as a corridor. Prices below the point of marginal cheapness cost you money and credibility at the same time; prices above marginal expensiveness need a segment, and evidence, that the survey did not capture.
- If the tested range sits below your value estimate, the problem is usually communication of value rather than the price itself. Fix the narrative before cutting the number.
Step 3 of 4: Break-even Analysis
Confidence needs arithmetic underneath it. Work out the volume your chosen price must sustain before the venture stops losing money, using the price you will actually achieve after discounts, commissions and wastage rather than the list price. Then read the margin of safety as your tolerance for being wrong; below about twenty per cent, the plan depends on the forecast being right, and forecasts rarely are. This is also where you rehearse the trade: how far the required volume falls as the price rises, and whether you believe the demand survives.
Watch forTreating break-even as the target, when it is merely the floor at which the venture stops losing money.
Inputs
Result
- Contribution per unit
- £5.7
- Contribution margin ratio
- 60%
- Break-even point
- 600 units
- Break-even revenue
- £5,700
- Margin of safety
- 33.3%
Break-even chart
Step 4 of 4: Pre-mortem
New prices fail in ways the launch meeting never discusses. The sales team discounts back to the old level within a quarter. The anchor client rings the managing director. The middle tier cannibalises the top one. So before the price list is published, tell the team the repricing is a year old and has failed outright, and have each person write down why, independently and in silence. An hour of prospective hindsight is the cheapest insurance a pricing decision can buy.
Watch forRunning the exercise after the prices have gone out turns it into a compliance ritual, and teams can smell the difference.
0 of 4 steps filled · 0 of 4 inputs in hand
What comes out, and how to read it
A ranked list of plausible failure modes for a specific plan, generated before commitment, together with the resulting plan revisions, mitigations, owners and early-warning tripwires, and a calibrated, usually lower, level of collective confidence.
- Weight failure modes the team can influence over external catastrophes. 'The sponsor moved on' is actionable; 'a recession hit' mostly is not, though it may still deserve a tripwire.
- Reduced confidence is a success condition, not a side effect. The measured effect of the exercise in controlled comparisons is precisely the deflation of overconfidence in the plan.
- Notice what the list says about the organisation. If half the failure stories are political, the plan's biggest risk is not in the Gantt chart.
The review date
Set the date you will come back and ask whether it worked. Put it in your diary; this site will not remind you.
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