A client once asked me to help price their new SaaS product. They'd calculated costs ($12/user/month) and wanted to add 50% markup ($18/user/month). I asked one question: "What does the alternative cost your customer?" Turns out, the manual process their software replaced cost companies $85/user/month in labor. Their product was worth $85 in saved costs—they were about to price it at $18. That's the gap economic value analysis closes.
What Is Economic Value Analysis?
Economic value analysis (EVA) is a framework for quantifying the total economic value a product delivers to a customer, relative to the next best alternative. It determines the maximum price a rational buyer should be willing to pay.
Economic Value = Reference Value + Differentiation Value
Reference Value: The price of the next best alternative (the product your customer would buy if yours didn't exist).
Differentiation Value: The additional value your product provides beyond the reference product. This can be positive (your product is better) or negative (your product is worse in some dimension).
If the competing product costs $50 and your product saves the customer an additional $30 in labor costs, your economic value is $80. You can price anywhere between $50 (no premium captured) and $80 (all differentiation captured).
The EVA Calculation
Step 1: Identify the reference product (next best alternative)
Step 2: Determine the reference price
Step 3: Quantify positive differentiation value (features, savings, performance)
Step 4: Quantify negative differentiation value (missing features, risks)
Step 5: Calculate total economic value
Economic Value = Reference Price + Positive Differentiation - Negative Differentiation
Real-World Examples
Product | Reference Product | Reference Price | Differentiation Value | Economic Value | Actual Price |
Dyson V15 | Standard vacuum ($200) | $200 | +$300 (suction, filtration, cordless) | $500 | $650 (brand premium) |
Slack | Email + meetings ($0) | $0 | +$15/user/mo (time savings, searchability) | $15/user/mo | $8.75/user/mo |
Tesla Model 3 | Toyota Camry ($28K) | $28,000 | +$12K (fuel savings, tech, brand) | $40,000 | $39,990 |
HubSpot CRM | Salesforce ($150/user/mo) | $150 | -$50 (fewer features) +$80 (easier setup) | $180 | $90/user/mo |
Allbirds | Nike running shoes ($120) | $120 | +$30 (sustainability, comfort) | $150 | $135 |
Common Mistakes
1. Using cost-plus instead of economic value. Cost-plus pricing ignores what the customer gains. EVA anchors to customer value, not your costs.
2. Overestimating differentiation value. Be honest about negative differentiation. If your product lacks features the reference has, subtract that value.
3. Not quantifying in dollar terms. "Our product is faster" isn't EVA. "Our product saves 2 hours/week at $50/hour = $100/week" is EVA.
4. Ignoring switching costs. Even if your economic value is higher, switching costs (implementation, training, data migration) reduce the net value to the customer.
5. Pricing at full economic value. You rarely capture 100% of differentiation value. Customers expect a "share" of the value created. Pricing at 50-70% of economic value is standard.
How EVA Connects to Related Concepts
Value-based pricing uses EVA to set prices. Competitive pricing only considers the reference price without differentiation. Cost-plus pricing ignores customer value entirely. Willingness to pay is the customer-side equivalent. Competitive advantage is what creates positive differentiation value.
Frequently Asked Questions
Q: How do I identify the right reference product?
A: Ask customers: "If our product didn't exist, what would you use?" The most common answer is your reference product.
Q: What if there's no direct competitor?
A: The reference is the customer's current solution—even if it's manual processes, spreadsheets, or doing nothing. Quantify the cost of that status quo.
Q: Should I share EVA calculations with customers?
A: Yes, in B2B. Showing customers the math builds trust and justifies your price. In B2C, communicate value through messaging instead of spreadsheets.
Q: How do I handle subjective differentiation (brand, design)?
A: Survey customers. Ask how much more they'd pay for your brand vs. a generic. Conjoint analysis quantifies subjective value.
Q: Can EVA be negative?
A: Yes. If your product is worse than the reference on net, your economic value is below the reference price. You must price below the reference or improve differentiation.
Q: How often should I update EVA?
A: Whenever competitors change pricing, you add features, or customer needs shift. Quarterly reviews are standard in B2B.
Sources & References
- Nagle, T. T., & Müller, G. (2017). The Strategy and Tactics of Pricing. Routledge.
- Anderson, J. C., & Narus, J. A. (1998). "Business Marketing: Understand What Customers Value." HBR.
- McKinsey & Company. "Value-Based Pricing in B2B Markets." 2024.
- Simon-Kucher & Partners. "Economic Value Estimation for SaaS." 2025.
- Gartner. "Pricing Strategy and Customer Value Analysis." 2025.
Written by Conan Pesci · April 6, 2026