---
title: "10 Symptoms that your company needs to unlock a pricing strategy: #7: Pricing driven by cost"
description: "10 Symptoms that your company needs to unlock a pricing strategy: #7: Pricing driven by cost"
---

[Strategic Transformation Blog ](https://www.thinkingdimensions.com/blog/strategy)

# [10 Symptoms that your company needs to unlock a pricing strategy: #7: Pricing driven by cost](https://www.thinkingdimensions.com/blog/strategy/10-symptoms-that-your-company-needs-to-unlock-a-pricing-strategy-7-pricing-d)

 Written by [Tim Lewko](https://www.thinkingdimensions.com/blog/strategy/author/tim-lewko) | 10/7/13 7:08 PM

The “cost plus” model of pricing is very attractive in that it is very simple:

Add up costs, Add a margin, Add a formula for supporting services costs- and there you have an “ex works” price to present to your customers.

The simplicity of “cost plus” pricing while enticing is also quite dangerous as a cost plus model frequently leads to a series of pricing errors which impact company performance. The top 3 errors we have witnessed in organizations that use a “cost plus” pricing system (model) are:

**1) Valuable orders are lost:** Cost plus pricing does not take into account the value a customer receives from your product/service offerings

**2) Little incentive to decrease costs:** As management considers “higher cost equals higher margin” there is not the same driving desire to ruthlessly eliminate unnecessary costs

**3) The costs are not correct to begin with:** A series of assumptions built into the costing systems lead the company to incorrectly understand where they are making money and where they are not

The first error- the loss of valuable orders- is surprisingly particularly in B2B frequently misunderstood. A movement to a value based pricing system from a “Cost plus” system does not imply lowering prices and indiscriminate discounting and rather is oriented to understanding clearly:

**A) Which are the criteria that lead customers to choose your company as a supplier**

**B) What is the value you are generating for your customer that they are prepared to pay for**

**C) What type of sustainable pricing model your company can build with their customers that generates an acceptable return for both you and your customers**

Frequently the “cost plus” model was adopted years ago and certainly served the company for a number of years- what has changed now is the overall business environment in which suppliers and vendors are working together- and this means that movement towards orientation of value based pricing will serve you and your organization over time to create the performance levels you need for success.

**How does your company address pricing today and how will it address this challenging area in the future?**

[View full post](https://www.thinkingdimensions.com/blog/strategy/10-symptoms-that-your-company-needs-to-unlock-a-pricing-strategy-7-pricing-d)

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