The Myths of Value Based Pricing

I recently came across a post claiming that some salespeople use “value-based pricing” as a way to charge clients the highest possible price.

Honestly? That entire post was misleading. There’s so much misunderstanding about what value-based pricing actually is that I felt compelled to write this article to give you my thoughts on this topic.

So, let’s tackle some of the biggest myths surrounding value-based pricing and why understanding customer value is the real key to smarter pricing and higher profits.

Myth 1: Value-Based Pricing Maximizes the Price You Can Charge

The goal of any pricing strategy isn’t to charge the highest possible price—it’s to set a fair price that reflects the value being delivered.

Whether that price is £10 or £100K, it has to feel reasonable in the eyes of the buyer.

• If you manage to overcharge for a service, do you think your customer will be happy in the long run? Probably not.

VBP is not about squeezing every last penny out of a client—it’s about maximizing customer lifetime value by ensuring they see ongoing value in what they’re paying for.

Myth 2: Value-Based Pricing Ignores the Competition

Some people claim that VBP is ineffective because it doesn’t consider competitive alternatives.

Think about that for a second. If you want to charge £100 for your product, but a competitor offers something similar for £20, how likely are you to win the deal?

• The reality is, understanding what your buyer sees as competitive alternatives is the first step in developing a VBP model—because that’s how they judge the value of your offer.

If your price is higher, you need to demonstrate why your solution is worth more. If your price is lower, you need to make sure you're not undervaluing your own product.

Myth 3: Value-Based Pricing Follows a Simple Formula

A common misconception is that VBP works like this:

“If we can prove we save the customer £1M, we should charge them 10% of that (£100K).”

It sounds logical, but real life isn’t that simple. Think about what happens at the extreme ends of the scale:

• If your solution delivers £10M in value, do you really think the buyer will pay you £1M?

• If your value is £50K, do you want to limit yourself to charging just £5K?

VBP isn’t a formula—it’s a strategic approach. Your price still has to be in the right ballpark of affordability for the buyer.

Myth 4: Value-Based Pricing is the Path to Unlimited Profits

If you’re stuck using cost-plus pricing or time-sheet billing, VBP might sound like the holy grail.

• “If only we could charge for the actual value delivered, we’d make so much more money!”

But a buyer’s willingness to pay is primarily determined before the sale, not after.

You can’t just tell them what value they received after the fact and expect them to pay more. Instead, you need to use marketing, branding, sales skills, and pricing frameworks to shape their perception of value upfront.

And even then, you have to accept that you won’t always be able to capture all the value you create—but you can still price strategically to ensure a fair exchange of value.

Myth 5: Value-Based Pricing Only Works for Bespoke Services

Some argue that VBP doesn’t apply to SaaS or productized services because those have fixed prices per plan.

But have you really set your prices without considering customer value?

If so… how’s that working out for you?

• Even with productized offerings, your pricing model should reflect the perceived value for different customer segments.

If you’re not aligning your pricing with customer willingness to pay, you’re leaving money on the table—plain and simple.

When Does Value-Based Pricing Work Best?

VBP works particularly well when these conditions exist:

✅ You offer something unique or innovative

✅ Your business is well differentiated in the market

✅ You have a strong reputation

✅ Competition is limited

✅ You have strong value-based selling skills

✅ Your clients are willing to engage in value discussions

Of course, not all businesses fit these criteria—which is why VBP isn’t a one-size-fits-all approach.

Working towards a value-based approach.

VBP is a philosophy of putting “understanding customer value” at the heart of everything you do. In this context, customer value is defined as the customer’s perception of the worth of your product or service.

Every business leader will aspire to this idea in principle, but many will get it wrong in execution, especially with regard to pricing.

• One way to help you think about this is to imagine a quadrant of the 4 main commercial functions: Product, Price, Sales and Marketing.

Now put the word “value” in front of each one to create a value quadrant, with “customer value” at the heart of everything that you do.

To be really successful at value-based pricing means you also have to be great at value-based selling, develop a clear value proposition and use your marketing to influence and shape perceived value and demand.

Helping Businesses Implement Better Pricing Strategies

I don’t usually describe what I do as “value-based pricing” because of all the misconceptions we’ve just covered.

But in reality, every client I work with goes through a process where they:

• Clarify what their customers value

• Craft a clear value proposition

• Build a pricing model that aligns with the value they deliver

• Helping them value sell their products and services at the right prices

• Ensuring their marketing and communications support their price positioning.

Once you start thinking like this, pricing becomes a lot clearer—and you start to see the direct link between customer value and your bottom line.

Final Thoughts

Value-based pricing isn’t a tactic for charging higher prices. It’s about aligning everything you do with customer value—whether you call it value based pricing or not.

If you’re wondering whether your business is taking a value based approach, get in touch for a chat.

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