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Business & Strategy

Four Pricing Methods

Model #0610Category: Business & StrategyDepth to apply:

By Updated 3 sources

4 min read

Contents

  1. 1. Core Idea
  2. 2. How to See It
  3. 3. How to Use It
  4. 4. Founders & Leaders
  5. 5. Connected Models
  6. 6. One Key Quote
  7. 7. Summary & Further Reading
Business & Strategy
Section 1

Core Idea

Four pricing methods frame how you set price: cost-plus (markup on cost), competitive (match or beat alternatives), value-based (tied to outcome or value delivered), and customer-based (what this segment will pay). The core idea: method choice drives margin and positioning. Cost-plus is transparent but leaves money on the table; value-based captures willingness to pay when you can prove value.

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Section 2

How to See It

Pricing
You're seeing Four Pricing Methods when a team debates “we charge X because it costs Y” vs “we charge X because the customer gets Z in value” — the debate is which method is in use.
Sales
You're seeing Four Pricing Methods when sales leads with cost justification, competitor comparison, ROI story, or segment-specific offers; each reflects a different pricing method and narrative.
Strategy
You're seeing Four Pricing Methods when positioning and packaging are designed to support a chosen method (e.g. value-based requires proof and outcome language; competitive requires clear comparison set).
Section 3

How to Use It

Choose the method that fits your proof and market: use value-based when you can demonstrate outcome; use competitive when the buyer is comparing alternatives; use cost-plus only when differentiation is weak. Align sales narrative and packaging to that method.
Decision filter
"Which pricing method are we using — and do we have the proof and narrative to support it? If we're value-based but selling on cost, we're undercharging; if we're cost-plus in a differentiated market, we're leaving margin on the table."
As a founder
Pick one primary method for your main offer. Build the evidence (case studies, ROI, benchmarks) and sales language for that method. Revisit when you add segments or products; different segments can justify different methods.
Section 5

Founders & Leaders

Alex HormoziFounder, Acquisition.com; author, $100M Offers
Hormozi pushes value-based pricing: price against the value you create, not your cost or competitors. His Grand Slam Offer framework ties price to outcome, guarantee, and proof so the customer sees value first. Founders can apply this by quantifying the value they deliver, building proof (results, testimonials), and setting price as a fraction of that value while making the offer a “no-brainer” with guarantees and clarity.
Section 7

Connected Models

Reinforces
Value-Based Selling
Value-based selling prices and sells on the value delivered. The four pricing methods clarify that value-based is one choice; when you have proof of value, it’s usually the method that captures the most margin.
Tension
Ability to Raise Prices
Ability to raise prices is a test of moat and value. The tension: value-based method supports raises when value is clear; cost-plus or pure competitive pricing make raises harder. Move toward value-based to earn pricing power.
Leads-to
Price Discrimination
Once you have a method, you can vary it by segment — different methods or price points for different customers. Price discrimination is the next step: same framework, segment-specific application.
Section 8

One Key Quote

"Price is a story. If you can't tell the story of why you're worth it, you'll always be competing on price."
— Alex Hormozi, $100M Offers
Section 11

Summary & Further Reading

Four pricing methods (cost-plus, competitive, value-based, customer-based) determine how you set and justify price. Choose the method that fits your proof and market; align narrative and packaging so you capture willingness to pay.
01
$100M Offers — Alex Hormozi (2021)
Book
Value-based offer design and pricing tied to outcome and proof.
02
Pricing with Confidence — Reed Holden (2010)
Book
Value-based pricing and defending price in sales.
03
The Strategy and Tactics of Pricing — Thomas Nagle et al.
Book
Structured treatment of pricing methods and strategy.

Why this matters next

mental modelsNarrative

Four Pricing Methods applied the Narrative mental model

mental modelsPerceived Value

Four Pricing Methods applied the Perceived Value mental model

mental modelsFour Pricing Methods

Four Pricing Methods applied the Four Pricing Methods mental model

mental modelsAbility to Raise Prices

Four Pricing Methods applied the Ability to Raise Prices mental model

mental modelsPrice Discrimination

Four Pricing Methods applied the Price Discrimination mental model

mental modelsAlternatives

Four Pricing Methods applied the Alternatives mental model

Frequently asked questions

What is Four Pricing Methods?

Four Pricing Methods is a mental model used for better thinking and decision-making.

How do you apply Four Pricing Methods?

To apply Four Pricing Methods, identify situations where this framework is relevant, then use it as a lens to evaluate your options and decisions. The model is most useful when combined with other complementary mental models.

What category does Four Pricing Methods fall under?

Four Pricing Methods falls under the Business & Strategy category of mental models. Other models in this category can be found on the Business & Strategy hub page.

Why is Four Pricing Methods important?

Four Pricing Methods is important because it provides a structured way to think about problems that would otherwise be approached with intuition alone. Understanding this model helps you avoid common reasoning errors and make better decisions.

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