Pricing Model Calculator

Pricing is the highest-leverage decision in business. A 1% price improvement drops straight to the bottom line, often with more impact than 1% more volume or 1% lower cost. Yet most businesses price by mark-up on cost, copying competitors, or by what felt right last year. This skill replaces that with a structured model — floor, ceiling, three strategies, sensitivity matrix, and the customer-lifetime economics that determine whether the business actually works.

Floor and ceiling come first. The floor is variable cost plus allocated fixed cost plus minimum margin to sustain operations — below this, you lose money on every sale. The ceiling is the value-based maximum (typically 10-30% of the quantifiable value delivered to the customer), the competitive ceiling, or the historical willingness-to-pay, whichever applies. The price-setting decision is finding the right point in the range between them — not picking a number and hoping.

Three strategies get modelled side by side. Cost-plus suits commodity products and wholesale. Value-based suits B2B and differentiated offers where the customer's saving or earning is quantifiable. Competitive positioning suits established markets with a clear leader, average, and budget option. Each strategy produces a recommended price, a breakeven volume, and the trade-offs it implies. The skill picks one as the lead recommendation and explains why the other two were rejected.

LTV:CAC is the master metric. Below 3:1 means the pricing or the retention is broken — and the skill flags which. 3:1 to 5:1 is healthy. Above 5:1 often means you're underpricing or under-investing in growth. Structure matters too: monthly versus annual gets modelled with the cash flow and churn implications, tiered pricing checks that no more than 60% of customers land on the cheapest tier (otherwise the structure is wrong), freemium models the conversion rate needed to sustain the free tier costs, and per-seat models the expansion revenue from growing accounts.

You get the recommended price with strategy and rationale, the full unit economics table, a sensitivity analysis showing profit (not just revenue) at three price points, a structure comparison if multiple structures apply, the LTV:CAC verdict against benchmarks, a migration plan for existing customers if a rise is proposed (with grandfather period, annual lock-in incentive, and the modelled churn impact), and a testing plan because pricing is a hypothesis until validated. The skill anchors high — research consistently shows starting high and discounting outperforms starting low and trying to raise, so the first number always sets the frame.