Compare scope before price
Two system proposals differ by THB 100,000. One includes data checks, joint testing, and post-launch support; the other charges extra when data errors turn up. The totals at the bottom of the documents alone cannot tell us which offer is better value.
A manufacturer faces a similar question. A lower unit price may require a larger minimum order, a later delivery, or a separate tooling fee. This episode uses economics to frame pricing decisions, beginning with a clear definition of what is being bought. The numbers are hypothetical, not specific pricing advice for a business.
Look at cost, customer value, and alternatives together
Cost shows the resources an offer uses. Value as the customer sees it helps explain why they would buy. Competition shows the other ways they could solve the problem. None of these perspectives produces the right price in every situation.
Cost-plus pricing gives us a traceable calculation base, but does not promise that customers will pay it. Value-based pricing needs evidence of what a customer gains and the conditions used to estimate that gain. Do not put a savings amount into a system proposal when it has not been measured.
I start with scope and acceptance criteria before discussing price. A monthly service should state covered hours, workload, exclusions, and charges for added work. A manufactured order should specify tolerances, volume, minimum batch size, acceptable scrap, and freight responsibility before it is compared with a rival.
A 25% cost markup does not leave a 25% margin
Markup is the difference between selling price and cost divided by cost. Margin in this example divides the same difference by selling price. State what the cost base includes. Do not call the difference net profit while other expenses remain.
Suppose a job has a defined delivery cost of THB 80,000. A 25% markup yields a THB 100,000 price. The THB 20,000 difference is a 20% margin. For a 25% margin on the same cost, price must be THB 80,000 / 0.75, or about THB 106,666.67, before tax and uncounted expenses.
For a factory with a comparable cost base of THB 80 per unit, the result is the same. Add 25% to get a THB 100 price and a 20% margin. The arithmetic moves between services and goods when the cost base and unit are clear, but the desired rate should not be carried over without looking at the market.
If price rises, how much less will customers buy?
Price elasticity of demand measures the percentage change in quantity bought against the percentage change in price. Isolate the price effect from seasonality, quality, or scope changes. One before-and-after comparison cannot establish an elasticity estimate.
The midpoint method divides each change by the average of its before-and-after values for both price and quantity. The absolute size of the resulting ratio is commonly used: above 1 is elastic demand, below 1 is inelastic, and exactly 1 is unit elastic.
For contracted projects that vary in scope, a count of projects may be too crude a quantity measure. First separate services with similar scope. One customer's rejection does not show that an entire market has the same price sensitivity. Manufacturers should also separate different products and customer groups.
Hypothetical case: Revenue falls, but contribution may rise
Suppose a standard service sells 10 units a month at THB 10,000 each, with variable cost of THB 6,000 per unit. Consider a new price of THB 11,000 and assume nine units would sell. Revenue falls from THB 100,000 to THB 99,000, but sales contribution after variable costs rises from THB 40,000 to THB 45,000.
That contribution covers fixed costs and other items not yet deducted; it is "not net profit." In this hypothetical case, variable cost per unit and fixed cost do not change, advertising or service costs do not increase, and all units have the same scope.
If only seven units sell at the new price, contribution drops to THB 35,000 and the price increase is worse than the original case on that measure. Collect evidence before deciding. The shift from 10 to nine units is an assumption for a test, not a measured result or customer forecast.
For 10 units falling to nine, midpoint price elasticity has an absolute value of about 1.11. Revenue therefore falls as price rises in this example, but judging profit still requires costs; revenue alone does not decide.
Design an offer with clear ownership of risk
An SI team or Odoo Partner may price discovery separately from development whose scope remains uncertain, or schedule a data review before confirming a price. This should not be a way to make the opening figure look low. It should show the buyer what is agreed and what still needs investigation.
A custom manufacturer may separate setup or tooling charges from the unit price and show the effect at different volumes. Then customers can compare a small order with a large batch more accurately. A discount needs an actual cost reduction and a volume commitment; do not assume repeat orders are guaranteed.
Marginal revenue is the revenue change from selling another unit. For project work, include any effects on existing prices and other terms. The new job's list price does not always equal marginal revenue, and MR = MC is not an automatic instruction to accept a job when capacity, quality, or risk still constrain it.
Keep a record of price tests instead of guessing
Start with one service or product with a clear unit. Record price, scope, the number of qualifying offers, why customers did or did not choose it, and actual delivery cost. Also review "payment terms", since an offer with a high contribution may need a long period of cash funding.
The table keeps price discussions on a consistent basis. Where willingness-to-pay evidence is missing, record it as something to test. Do not fill a model with invented numbers.
| Question to answer | Software / SI / Odoo work | Manufacturing |
|---|---|---|
| What is one unit? | What scope, deliverables, testing, and support? | Which specification, quality, batch, and delivery date? |
| What does cost include? | Labor, cloud, rework, and expenses under the chosen base | Materials, setup, scrap, inspection, and freight |
| What does the customer compare? | Doing it in-house, switching systems, or another provider | Alternative suppliers, minimum orders, and late-delivery risk |
| What needs testing? | Likely purchase volume and why customers would pay | Orders at each price level and their consistency |
| When does cash arrive? | How collection milestones align with team payments | Deposits, customer credit, and cash tied up in inventory |
Common questions
Can markup and margin be used interchangeably?
No. Their denominators differ: markup divides by cost; margin divides by selling price. State which costs are included so no one mistakes the difference for net profit before all expenses are deducted.
If a price increase lowers revenue, must we always return to the old price?
Not necessarily. Consider contribution after changing costs, workload, other costs, and cash together. The article shows only a hypothetical case under defined scope and cost assumptions.
Concept sources
This episode connects the cost base, price difference, customer value, and competing alternatives with price tests. OpenStax 5.1 and 5.3 below cover elasticity and pricing; OpenStax 7.1 covers cost and profit. The software, SI, Odoo Partner, and manufacturing cases are hypothetical ways I illustrate pricing, not actual price-test results or sales forecasts.
