# Value-based pricing: start from the cost of today

> A value-based pricing example: anchor the first price to what the current workaround costs the customer and what the result is worth, not to your own costs or your fears.

- Course: [From Idea to Profitable Product: Building Without Investors](https://productovi.com/courses/bootstrapped-product.md)
- Module: Sell before you build
- Lesson 9/30, ~27 min
- Source: https://productovi.com/courses/bootstrapped-product/price-from-the-cost-of-today

## Cost-based or value-based: where did 600 come from?

**Alex Tutor:** Pricing is on today's agenda at GarageDesk, and you're helping me advise the founders: how to price a new product from the value it brings, not from your own costs.

**Sofia:** GarageDesk has cost 600 UAH a month since October. Was that a guess?

**Alex Tutor:** Mostly. Now you have facts from the shops to check it against.

**Nina:** I worked it out from our costs: 2,000 a month for tools, then what we need to live, divided by the shops we hoped to get.

**Alex Tutor:** That tells you how many shops you need, which was the question of Module 1. It doesn't tell you what a shop will pay. Dennis has never seen your hosting bill.

**Oscar:** Then we look at competitors? A general CRM costs about the same.

**Alex Tutor:** Dennis doesn't compare you with a CRM. He compares you with his niece and her notebook. Price from what the problem costs the shop today, and what solving it is worth: that's **value-based pricing**.

![A balance scale on a garage counter: a worn notebook and a pay envelope on one pan, a phone with a bell icon on the other, which rides higher.](https://productovi.com/courses/bootstrapped-product/inline/price-from-the-cost-of-today-illustration-2.webp)

*The shop compares your price with its notebook, not with other software.*

> **Exercise:** What is the best anchor for GarageDesk’s first price?

## A value-based pricing example: Dennis’s numbers

**Oscar:** I asked him. The niece gets 4,000 UAH a month. One oil change from a regular who comes back leaves him about 700 UAH margin. He reckons reminders would bring back at least three visits a month.

**Alex Tutor:** So there are two anchors. What he spends today: 4,000 a month. What the result is worth: 3 × 700 = 2,100 UAH of extra margin a month.

**Sofia:** And 600 is far below both.

**Alex Tutor:** Which is fine for a first price. A shop that has the problem can say yes without a long think, and there's room to raise it later, when the product does more.

**Sofia:** So 600 is 15% of what Dennis pays his niece?

**Alex Tutor:** Yes: 600 / 4,000 = 15%. Even if GarageDesk takes over only part of her job, the numbers still work for him.

![Dennis spends 4,000 UAH a month on the workaround and reminders are worth about 2,100 UAH of margin, so 600 UAH sits well below both anchors: an easy yes.](https://productovi.com/courses/bootstrapped-product/diagrams/m3-l1-price-anchors.png)

*Two anchors: what the problem costs today and what the result is worth.*

> **Exercise:** Dennis, a repair-shop owner who pays his niece 4,000 UAH a month to call regulars, expects reminders to bring back at least 3 visits a month, each leaving about 700 UAH margin. GarageDesk costs 600 UAH a month. How many times does the extra margin cover the price?

**Alex Tutor:** Now the same check for a shop with a smaller workaround.

> **Exercise:** A repair shop pays its administrator a **1,500 UAH** monthly bonus for calling customers back. What percentage of that bonus is GarageDesk's price of 600 UAH a month?

## Pricing a new product: too cheap or too dear?

**Nina:** Shouldn't we start at 300, to be safe?

**Alex Tutor:** Safe from what? A shop that pays 4,000 to a niece won't be stopped by 600. A shop that is stopped by 600 usually spends nothing on the problem today, like Paul.

**Oscar:** And lowering a price later is easy. Raising it means a hard talk with every shop.

**Alex Tutor:** Right. A price that's too low also tells the shop the product is a toy. Start at a price you can keep.

![On a pegboard of real tools, a tiny plastic toy wrench hangs next to a heavy steel one while a shop owner frowns at the toy.](https://productovi.com/courses/bootstrapped-product/inline/price-from-the-cost-of-today-illustration-3.webp)

> **Exercise:** **True or false:** cutting the price from 600 to 300 UAH would make shops like Paul’s, which spend nothing on the problem today, much more likely to pay.

**Alex Tutor:** Oscar's point about raising prices deserves its own check.

> **Exercise:** Lowering a price later is easy; raising it means a hard talk with every customer. What does that mean for GarageDesk's first price?

## Hours convince one person, money another

**Sofia:** What about Martha's five hours a month? Don't they count?

**Alex Tutor:** They count, but they're small next to the regulars who don't come back. Hours saved convince the administrator. Money returned convinces the owner who pays.

**Oscar:** So with Greg I start with visits and money, and let Martha talk about her evenings.

**Alex Tutor:** Yes. And add up everything the shop spends on the problem, not only the most visible part.

> **Exercise:** Which of these belong in what the forgotten-service problem costs a shop today? Select all that apply.

**Nina:** Does the same logic work for any shop, not just Dennis?

**Alex Tutor:** Yes. Ask each shop two things: what does the workaround cost you a month, and how many extra visits would pay for it? Then compare with 600.

**Oscar:** At 700 margin, one returned visit a month already covers 600.

**Alex Tutor:** That's the sentence to say out loud when a shop hesitates.

> **Exercise:** A repair-shop owner makes about 900 UAH margin on a returned service visit. At 600 UAH a month, how many returned visits a month does GarageDesk need to bring back to pay for itself? Whole visits only.

**Alex Tutor:** Greg hesitates over 600. Which sentence would you give Oscar?

> **Exercise:** Greg, owner of a six-bay repair shop, says GarageDesk's 600 UAH a month sounds like a lot. Which reply should Oscar use?

## Keeping 600

**Nina:** I still feel 600 is a lot for something that doesn't exist yet.

**Alex Tutor:** That feeling is common among founders. Next lesson you'll test it: ask shops to pay before the product exists and see what happens.

**Sofia:** Can I write Oscar's case for keeping 600, for Nina?

**Alex Tutor:** Go ahead. Use Dennis's numbers.

> **Exercise:** Nina wants to start at 300 UAH “to be safe”. Write Oscar’s case for keeping 600 UAH a month in 3–4 sentences, using Dennis’s numbers: he pays his niece 4,000 UAH a month to call regulars, and expects reminders to bring back at least 3 visits a month at about 700 UAH margin each.

> **Key ideas**
>
> - Your costs tell you how many customers you need, not what a customer will pay.
> - The real competitor is the current workaround. Price from **what the problem costs today** and **what the result is worth**.
> - Dennis: a niece at 4,000 UAH a month today; reminders worth about 3 × 700 = 2,100 UAH of extra margin a month. 600 UAH is well below both.
> - A first price should be an easy yes for shops that have the problem, and one you can keep. Too low attracts shops that spend nothing and signals a toy.
> - Hours saved convince the user; money returned convinces the owner who pays.

**Alex Tutor:** Next: asking for money before the product exists.

- Previous lesson: [Choosing one problem](https://productovi.com/courses/bootstrapped-product/choosing-one-problem.md)
- Next lesson: [Validate a SaaS idea with prepayment](https://productovi.com/courses/bootstrapped-product/prepayment-as-a-test.md)

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