Economic Value Estimation (EVE)
HOW DO YOU SET PRICES WITH CONFIDENCE?
At a glance:
Your buyer’s Plan B is their next-best alternative (NBA) – DIY, delay (“do nothing”), hire a temp, a cheaper adjacent tool, renegotiate with an incumbent, or bundle a few partial fixes. EVE prices the difference between your offer and that Plan B.
WHAT IT IS
True Economic Value (TEV) = Reference value (price of NBA) + Differential value. Differential value = (positive drivers) time saved, revenue lifted, risk reduced, cost avoided minus (negative drivers) switching costs, learning curve, added risk, required extras. In other words, your actual price corridor sits below TEV, depending on proof, risk, and strategy.
WHY IT MATTERS
Prevents underpricing when your costs aren’t tied to customer impact.
Arms your sales team with a credible business case (hello less discounting).
De-averages WTP by segment/use case (because the delta vs. the NBA varies).
Case File — Salesforce: Advertising the Plan B to Re-anchor Value
“The End of Software.”
— Salesforce’s early positioning/tagline
Setup. In early enterprise CRM, the buyer’s Plan B was painfully concrete: buy licenses, install software in-house, stand up hardware, and staff IT to maintain it. Plus, there was a high total cost of ownership and poor ROI in traditional CRM deployments.
Move. Salesforce made the NBA the villain in its advertising. The company’s “No Software” logo was explicitly positioned against installed, on-prem software. Under the hood, this is EVE: define the reference state as in-house software ownership and sell the differential value as lower risk + lower deployment friction + avoided IT overhead.
Outcome. The model scaled fast: revenues grew from $5.4M (FY2001) → $22.4M (FY2002) and then to $51.0M (FY2003). By Oct. 31, 2003, Salesforce reported ~8,000 subscribing customers and 110,000+ paying subscribers across ~70 countries.
Lesson.
If you want value-based pricing, advertise the NBA first. Make the customer’s default option explicit (“buy + install + maintain”), quantify what that baseline really costs (time, risk, headcount), then price below the avoided baseline pain – with simple, repeatable proof.
HOW DOES ECONOMIC VALUE ESTIMATION WORK?
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EVE or EVC (Economic Value to the Customer) sets an upper bound by adding the reference value (price/performance of the NBA) to your differential value (what you add or subtract). Then you need to price below that theoretical highest price.Takeaway: Always name the NBA and quantify the delta. Don’t anchor to your cost.
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In business markets, most value propositions fail because they don’t prove quantified benefits. Credible EVE uses customer data, pilots, case math…
Takeaway: Put numbers, assumptions, and proof sources down on paper.
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When speed, compliance, or integration burdens differ, the differential value vs. NBA changes by segment – that means your corridor should too.
Takeaway: Build EVE by segment/use case, not one global model.
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“Strategic pricers do not ask ‘What prices do we need to cover our costs and earn a profit?’ Rather, they ask, ‘What costs can we afford to incur, given the prices achievable in the market, and still earn a profit?’ Strategic pricers do not ask, ‘What price is this customer willing to pay?’ but ‘What is our product worth to this customer and how can we better communicate that value, thus justifying the price?’ When value doesn’t justify price to some customers, strategic pricers do not surreptitiously discount. Instead, they consider how they can segment the market with different products or distribution channels to serve these customers without undermining the perceived value to other customers. And strategic pricers never ask, ‘What prices do we need to meet our sales or market share objectives?’ Instead they ask, ‘What level of sales or market share can we most profitably achieve?’” (Source)
Takeaway: Show the split, communicate the value, and, if necessary, change the segment, not the price.
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In the real world, the next best alternatives to your solution might be DIY, delay, temporary labor, or a bundle of partial fixes. Ignore these options to your peril.
Takeaway: List all plausible NBAs to determine the one the customer would actually choose – and what you’re really competing against.
OPERATOR CHECKLIST
◻️ We’ve clearly named the real NBA for each segment (DIY, delay, incumbent, temp labor, bundle of tools, etc.).
◻️ We’ve quantified the reference value: current cost/spend/loss per period with the NBA.
◻️ We’ve listed both positive and negative differentials (savings, lift, and risk reduction and switching, learning, integration, required extras).
◻️ We’ve built separate EVE models for at least 2-3 key segments/use cases instead of one global average.
◻️ Our proposed price corridor for each segment sits below TEV but is high enough to reflect the value we create.
◻️ Sales has a one-page “math story” they can walk through with customers (numbers, assumptions, and sources).
◻️ We can tie each major claim in the model to proof: data, pilots, benchmarks, or guarantees.
◻️ We review and update EVE inputs at least annually (or after major product/market shifts).
◻️ We’ve pressure-tested the model with a few customers to see if the NBA and value drivers match their reality.
◻️ Discounting rules reference EVE (“when the value delta is X, minimum price is Y”), not just gut feel or list minus X%.
SIGNAL TO WATCH
If your sales reps keep winning only when they discount, even though the customer admits your outcomes beat the incumbent, you’re missing (or just not showing) the value delta vs. the NBA.
ONE QUICK ACTION
Write one sentence: “Compared with [NBA], we [save X hours/avoid Y failures/lift Z revenue] per [period].” Start the corridor below that quantified delta.
COMMON TRAPS
Modeling against a rival’s list features instead of the economic drivers the buyer cares about.
Skipping negative differentials (integration costs, change-management) – it leads to trust erosion later.
Treating the NBA as “closest competitor” instead of “what they’d really do.”
Presenting a single corridor for all segments/channels.
Hiding assumptions. Buyers can’t audit, so without seeing the math, they default to price.
EXPERIMENT 1 — ONE-SHEET: EVE
Use when you need…
Clarity: Converts value into a defensible corridor, not a hunch.
Speed: Produces a usable model in one working session.
Strategic insight: Surfaces the few assumptions that truly drive pricing power.
What it’s for: Quantify a customer’s Total Economic Value (TEV) vs. their Next Best Alternative (NBA) and translate it into a defensible price corridor and tier price hypotheses.
Who it’s for: A pricing/PMM/sales leader who needs a credible value story for a segment (or big deal) without a full research program.
What it does: Puts numbers behind value and establishes the customer’s reference economics (NBA), adds/subtracts differential impacts, computes TEV, then sets a price corridor below TEV (by segment) so your price is provably “worth it.”
EXPERIMENT 2 — PROOF PACK: EVE
Use when you need…
Clarity: Proof ties directly to value drivers, not generic testimonials.
Speed: A reusable checklist for building credible evidence.
Strategic insight: Reveals where you need product/service changes to justify higher capture.
What it’s for: Build a lightweight “proof pack” that makes your EVE credible in the real world so Sales and Marketing can support higher prices without hand-waving.
Who it’s for: Sales enablement/PMM/pricing owner who needs to equip customer-facing teams with proof assets tied to the value drivers.
What it does: Attaches evidence to the 2-3 value drivers that matter most so your corridor and tier capture are persuasive.
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