A price is only as good as the cost underneath it.
Cost-based pricing starts from the real, attributed cost of fulfilling an order, cost-to-serve included, rather than from gross margin or a flat markup. It reflects what each customer and product actually costs you to serve.
Gross margin can't tell the expensive customer from the cheap one. Cost-to-serve can.
Ignores the cost of serving the customer. Small orders, heavy support and complex delivery vanish into overhead. You systematically under-price your most expensive customers and over-price your cheapest, and never see it.
Every price reflects the order's true cost-to-serve. You raise prices exactly where the economics don't work, hold or cut where you're strong, and defend each number with the model behind it.
The same product, two very different margins.
A customer placing one large monthly order and a customer placing forty small ones can buy the identical product at the identical price, and sit on opposite sides of break-even. Gross margin can't tell them apart. Cost-to-serve can. Once you can see the difference, pricing stops being a negotiation reflex and becomes a decision grounded in numbers. The arithmetic behind that number is set out in our step-by-step guide to calculating cost to serve.
Illustrative. Same shelf price, very different true margins. Pricing on gross margin alone can't separate the green from the red.
Re-pricing where the economics didn't work halved 1.335M euros of loss.
A New Zealand distributor used exactly this. Targeted re-pricing on loss-making product-and-customer combinations, grounded in real cost-to-serve, was one of the levers that roughly halved 1.335M euros of negative contribution.
Common questions.
What is cost-based pricing?
Why is pricing on gross margin misleading?
Pricing starts with a cost-to-serve model. See also the margin cascade.
See where your prices and your costs disagree.
Take the free Profit Check, 12 to 15 minutes, or talk to a senior partner. Thirty minutes. Free. NDA on request.
