My clients often ask me what they should do when buyers demand to see their costs. My recommendation is that you should not reveal this information under any circumstances.
For starters, once buyers are armed with a detailed breakdown of your costs, they will naturally question each line item.
You will find yourself being forced to justify what you’re spending on every part of your process, and possibly even whether a given line item is necessary at all. This is a time-consuming endeavor that puts you on the defensive and wears you down.
An even larger problem, however, is that showing buyers your costs shifts the pricing emphasis away from where it should be, which is on the value you provide rather than your costs to provide it.
Oftentimes, a product or service that provides a great deal of value to the end user doesn’t cost all that much to produce or provide. A pricing discussion that turns on your costs will lead to your valuable product or service being tremendously underpriced relative to the benefit it provides.
Costs do have a role in pricing, but that role should be strictly limited to establishing the price floor below which it doesn’t make sense to build or sell the product. The right way to price is to identify, quantify, and clearly articulate the value of a product to your customers, and then determine how much of that value to capture in your prices.
If a buyer starts to question your costs, the best tactic is to turn the conversation around and try to find out why he or she is seeking this information, while at the same time reiterating the value you provide. If the buyer is simply unable or unwilling to pay the asking price, you can reduce it by offering fewer services and/or offering a different version of your product (a less premium version with fewer bells and whistles). Getting into a discussion of your costs, however, is almost never a road you want to start down.