At the core of any pricing strategy lie three foundational approaches: cost-based, competition-based, and value-based. Cost-based pricing starts with internal cost structures, then adds a margin or markup to determine selling prices. Competition-based pricing looks outward, anchoring prices to what rivals charge in the market. Value-based pricing takes the customer’s perspective and sets prices based on the perceived benefit and value delivered. Each approach has its logic and limitations, and most companies use a blend of these strategies depending on their sector, sophistication, and pricing maturity.
Cost-plus pricing is the most straightforward. It creates a sense of structure and clarity by relying on known inputs, direct and indirect costs, then layering on a predetermined profit margin. It provides a quick answer to the question of “what should we charge?” with minimal confrontation or strategic discussion. In contrast, value-based pricing requires market segmentation, deep customer understanding, and often, a transformation in how commercial teams think and act. Competition-based pricing falls somewhere in between, easier to execute than value-based but more exposed to margin erosion and competitive price wars.
Why Cost-Plus Pricing Is Making a Comeback in Volatile Markets
In recent years, cost-plus pricing has regained traction in many industries. As companies faced rapid cost inflation, volatile input markets, and tariff unpredictability, they needed mechanisms to protect margins and pass through increases. Under these conditions, cost-plus formulas provided a reactive but reliable tool to preserve profitability. Price increases were easier to justify to customers when they could be tied directly to rising costs. For procurement-led buyers, such rationales also fit within acceptable boundaries of fairness.
The resurgence of cost-based formulas also coincided with supply chain disruptions and geopolitical events that introduced instability into pricing and costing models. As a result, even companies that had experimented with value or market-based pricing reverted to cost-plus for the sake of speed and alignment. Tariff pass-throughs, fuel surcharges, and inflation-based price adjustments were often justified and communicated in ways that mimicked the predictability and neutrality of cost-based thinking.
When Cost-Plus Pricing Becomes the Default (and the Risks of Staying There)
There is a notable difference between choosing cost-plus as a deliberate strategy versus adopting it because no other framework is in place. In many organizations, cost-plus pricing becomes the de facto method simply because pricing is not actively managed. Without governance, analytical support, or pricing ownership, formulas based on cost inputs offer an easy fallback. Pricing defaults to finance teams or product managers who work from spreadsheets rather than market data or value models.
The simplicity of cost-plus pricing also makes it attractive in environments where pricing must be done quickly and uniformly across thousands of SKUs or customer types. It scales with minimal cognitive or organizational effort. The margin can be embedded into ERP systems or spreadsheets and applied universally. While this reduces variability, it also suppresses opportunities for optimization or differentiation. As a result, prices may be “correct” from a cost recovery standpoint but out of sync with market willingness to pay or competitive realities.
The Hidden Psychology That Drives Cost-Plus Pricing
There is more beneath the surface of cost-plus pricing than process and simplicity. Psychological drivers also influence why this approach remains so widely adopted, especially in companies where pricing is not treated as a strategic capability.
- Risk aversion plays a central role. Cost-plus pricing creates a protective buffer, offering decision-makers a sense that their pricing decisions are objective and defensible. If a customer pushes back, the price can be explained away as the result of inputs rather than commercial intent. This removes personal accountability from the equation and shields teams from difficult conversations.
- Avoiding the anxiety of losing control is another factor. Pricing, when opened to negotiation, customer value, or competitive strategy, can feel like a risky and unpredictable domain. Relying on cost-plus formulas reduces that anxiety by bringing it back within the organization’s internal data and logic, where uncertainty is minimized.
- There is comfort in repetition. Cost-plus pricing allows companies to remain in familiar territory. It does not require rethinking the customer relationship or investing in pricing tools and analytics. In this way, it appeals to those who prefer to maintain the status quo rather than challenge it.
- Inertia in processes and relationships reinforces the pattern. Changing pricing logic requires buy-in across multiple functions—sales, finance, operations—and may disrupt long-standing agreements or habits. Rather than confront that disruption, many leaders prefer to leave pricing formulas untouched, even if they know they are suboptimal.
- Mindset also plays a role. In organizations with a fixed mindset, there is often resistance to questioning assumptions or experimenting with new models. The effort required to move to a more dynamic pricing approach is perceived as too high, with uncertain returns. Cost-plus, on the other hand, promises stability with minimal effort.
Finally, the well-worn phrase “if it ain’t broke, don’t fix it” captures a deep reluctance to change. As long as margins are stable and there is no major pricing crisis, there is little perceived incentive to invest in more strategic pricing. This complacency is especially dangerous in industries where disruption is creeping in from more agile competitors.
Why Shifting from Cost-Plus Pricing Takes Courage (But Delivers Rewards)
Moving away from cost-plus pricing and embracing more progressive strategies requires courage and effort. It means building pricing capabilities, investing in customer insights, and equipping teams to have more value-oriented conversations. It may involve conflict—internally and with customers—but it also opens the door to more sustainable profitability.
The rewards of a mature pricing strategy are not just higher margins. They include better customer alignment, greater pricing confidence, and the ability to respond to market changes with speed and precision. Companies that make this shift often discover pricing as a source of growth, not just a mechanism for cost recovery.
Conclusion: Understand the Psychology, Elevate the Strategy
Cost-plus pricing is not inherently wrong. In many contexts, it plays a necessary role, especially when cost volatility threatens profitability. But when it becomes the default due to comfort, risk aversion, or inertia, it can hold companies back. Understanding the psychology behind its adoption reveals why it persists, and what it takes to move beyond it. In today’s dynamic markets, pricing deserves more than formulas. It deserves attention, ownership, and ambition.
Texas-based and ready to move beyond cost-plus pricing? Join us on September 16 at the Zilliant Houston Roadshow to explore how B2B leaders are embracing value-based pricing and driving profitable growth.
Can’t make it? Let’s talk anyway. Zilliant can help you move beyond cost-plus pricing and turn strategy into revenue.
Stephan Liozu, Ph.D., Chief Value Officer at Zilliant, is a global expert in pricing, innovation, and value management with 20+ years of experience. He has authored 15+ books, including Pricing—The New CEO Imperative (2021) and Value-Based Pricing (2024)
