Demand Driven Pricing
Pricing is positioning made numeric. Get the position wrong and no formula saves you.
Establish value to the customer, not the cost base plus a notional amount.
Diagrams | Matrices | Thinkers
The Algorithm
Five steps. Each produces a number. Skip one and the price is a guess.
Step 1: Anchor
Map 3-7 competitors. Extract floor and ceiling.
| Competitor Type | Price Range | What They Sell |
|---|---|---|
| Below you (cheap) | Floor | Volume without strategy |
| Adjacent (similar) | Midpoint | Comparable scope |
| Above you (premium) | Ceiling | Brand premium or full-service |
Output: Anchor midpoint = average of adjacent competitors.
Step 2: Score Demand
Four factors, each 1-5. Multiply to get the demand multiplier.
| Factor | 1 (Weak) | 3 (Moderate) | 5 (Strong) |
|---|---|---|---|
| Pain intensity | Mild annoyance | Regular frustration | Hair-on-fire problem |
| Willingness to pay | Expects free | Pays grudgingly | Throws money at it |
| Alternatives | Many good options | Some options, none great | No real alternative |
| Urgency | Someday | This quarter | This week |
Demand multiplier = (Sum of 4 scores) / 12
Range: 0.33 (all 1s) to 1.67 (all 5s). Midpoint = 1.0.
Step 3: Score Supply
Three factors, each 1-5. Your right to charge.
| Factor | 1 (Weak) | 3 (Moderate) | 5 (Strong) |
|---|---|---|---|
| Expertise depth | Learning on the job | Competent practitioner | Recognized authority |
| Capacity scarcity | Wide open calendar | Selective | Waitlist |
| Track record | Zero proof | Some results | Documented case studies |
Supply multiplier = (Sum of 3 scores) / 9
Range: 0.33 to 1.67.
Step 4: Calculate
Target price = Anchor midpoint x Demand multiplier x Supply multiplier
Step 5: Validate
Run four checks before committing:
| Check | Threshold | If Fails |
|---|---|---|
| Gross margin | ≥60% | Raise price or cut delivery scope |
| Kill threshold | Delivery hours <2x estimate | Reprice or reduce scope |
| LTV:CAC | ≥3:1 | Fix acquisition channel first |
| Prospect reaction | "That's reasonable" or "tell me more" | Reframe value, don't discount |
Worked Example
Trail Builder tier from Berley Trails — a $2,500/month positioning retainer.
Step 1: Anchor
| Competitor | Monthly Price | What They Sell |
|---|---|---|
| Freelance content writers | $500-$2,000 | Blog posts without strategy |
| Boutique marketing agencies | $3,000-$15,000 | Full-service campaigns |
| Business coaches | $800-$2,000 | Advice without execution |
| HubSpot platform | $800-$3,200 | Software without strategy |
| LinkedIn lead gen | $1,000-$3,000 | Outbound automation |
Adjacent competitors (coaches + freelancers + LinkedIn): $500-$3,000.
Anchor midpoint: $1,750/month.
Step 2: Demand
| Factor | Score | Evidence |
|---|---|---|
| Pain intensity | 4 | 15-25 hrs/week on biz dev that resets monthly |
| Willingness to pay | 3 | Already spending $2,000-5,000/month on marketing (UNVALIDATED for positioning specifically) |
| Alternatives | 3 | Agencies exist but don't do positioning-first |
| Urgency | 3 | AI window 2-3 years — not urgent but timely |
Demand multiplier = 13/12 = 1.08
Step 3: Supply
| Factor | Score | Evidence |
|---|---|---|
| Expertise depth | 3 | Systems thinking background, framework documented |
| Capacity scarcity | 2 | Wide open — pre-launch |
| Track record | 1 | Zero clients, zero case studies |
Supply multiplier = 6/9 = 0.67
Step 4: Calculate
$1,750 x 1.08 x 0.67 = $1,266/month
Step 5: Validate
| Check | Result | Pass? |
|---|---|---|
| Gross margin | 60% at $2,500 (15 hrs x $67/hr delivery) | Yes at actual price |
| Kill threshold | Model breaks at 2x hours (30 hrs = 20% margin) | Flagged |
| LTV:CAC | 30:1 if referral-sourced | Yes |
| Prospect reaction | UNVALIDATED | Unknown |
The Gap
Algorithm output: $1,266/month. Actual price: $2,500/month.
The $1,234 gap is the positioning premium — the bet that fish psychology, ecosystem thinking, and framework IP justify nearly 2x the calculated price. This gap closes as supply scores improve (case studies, waitlist, authority). If it doesn't close and prospects reject $2,500, the algorithm says $1,266 is the honest price.
Context
- Business Principles — The forces that constrain pricing decisions
- Essential Algorithm — Pricing is the SETTLE phase
- Matrix Thinking — Reveals where demand exists before you price it
- Strategy — Set position before setting price
- Ecosystem — Price changes depending on which counterparty hat the buyer wears
Links
Questions
If the algorithm says $1,266 and you charge $2,500, what evidence would make you lower the price — and what evidence would confirm the premium?
- Which of the four demand factors are you most likely to overestimate because you feel the pain yourself?
- At what supply score does the positioning premium disappear — and the algorithm output becomes the actual price?
- When a prospect says "too expensive," is that a pricing problem or a positioning problem — and how do you tell the difference?