Cost-Plus Pricing
B2B SaaS Pricing Glossary
Cost-plus pricing is a pricing method where the selling price is determined by adding a fixed percentage or dollar markup to the total cost of delivering the product or service. It is the simplest pricing model to implement but typically the least effective for software businesses.
Definition
Cost-plus pricing works by calculating your cost to deliver the product — infrastructure, support, development amortization — and adding a target margin on top. A company spending $50 per customer per month on infrastructure that applies a 4x markup would charge $200 per month.
In B2B SaaS, cost-plus pricing fundamentally misaligns price with value because software has near-zero marginal costs. The cost to serve your 100th customer is almost identical to your 10,000th customer, but the value different customers receive can vary by orders of magnitude. A cost-plus approach leaves enormous revenue on the table for high-value segments while potentially overcharging low-value ones. Cost-plus is common in early-stage startups that have not yet done customer research, and in commoditized infrastructure products where differentiation is minimal.
Why It Matters for B2B SaaS
Cost-plus pricing is the most common pricing mistake in B2B SaaS. Because SaaS gross margins typically range from 70-85%, the cost basis is tiny relative to the value delivered. A company using cost-plus pricing in a market where competitors use value-based pricing will systematically underprice — studies from Price Intelligently show cost-plus SaaS companies capture 30-50% less revenue than value-based peers with equivalent products.
FAQs
Why is cost-plus pricing bad for SaaS companies?+
SaaS has near-zero marginal costs, so cost-plus pricing produces irrationally low prices that ignore customer willingness to pay. A product that costs $5 per user to deliver might be worth $500 per user to an enterprise buyer. Cost-plus would price it at $10-20, leaving 95% of potential revenue uncaptured.
When does cost-plus pricing make sense in software?+
Cost-plus can be appropriate for commoditized infrastructure services like cloud storage or compute where differentiation is minimal and customers comparison-shop primarily on price. It also works as a pricing floor — you should never price below your fully loaded cost to serve.
Deep Dives on Cost-Plus Pricing
Choosing the right pricing model starts with customer research.
The PACE System uses deep customer research to determine which pricing model — usage-based, tiered, hybrid, or something else — will maximize revenue for your specific product and market.
Learn About the PACE System