There is an almost universal belief among people who set prices on their own, without a finance department to support the decision: if I could see my costs clearly—every cent spent on raw materials, every share of rent allocated to each product—I would stop getting prices wrong. The logic seems obvious. Wrong prices would stem from hidden costs.
An academic experiment put this belief to the test by asking real small business managers to solve the same pricing problem. The result is counterintuitive: seeing the cost alone does not improve the quality of the decision. What does make a difference is something else—something that rarely makes the priority list for those overwhelmed with running the business.
It is worth understanding the test design before discussing its findings, because the way the study isolated the variables is what makes the conclusion so compelling.
The experiment: three scenarios, seventy responses
A 2023 FIPECAFI master’s study conducted by Edson Clementino da Silva with small business managers developed a pricing case study and divided participants into three groups, each receiving a different level of information to solve the same problem.
The first group saw only the product price and the prevailing market price. The second received all of that, plus the operation’s fixed and variable costs and expenses. The third had access to the same information as the second group, along with a calculation and simulation spreadsheet designed to apply the main pricing theories to the problem. Seventy valid responses were distributed across the three scenarios, with the researcher having already calculated the technically correct answer as a benchmark.
This separation is central to the study design: it isolates the effect of “seeing the cost” from the effect of “having a method to process what you see.” These are two different things, and that is precisely where most businesses conflate the two.
The Two Hypotheses at Play
The study formally tested two hypotheses about what improves pricing accuracy.
The first was that visibility into cost information alone improves the accuracy of pricing decisions. This hypothesis was rejected. The group that only gained visibility into costs, without a calculation tool, did not perform better than the group that did not even have access to that information.
The second was that having a calculation support tool improves pricing decision accuracy. This hypothesis was accepted, by a wide margin. The group with access to the simulation spreadsheet came closer to the technically correct price and showed far less variation in responses than the other two groups. In other words, it was not only more accurate on average, but also more consistent across respondents.
This finding may be uncomfortable for anyone who has spent time organizing a detailed cost spreadsheet but has not completed the process with a calculation and simulation step. Identifying the cost alone was not the missing piece.
Why seeing the number isn't the same as using it to decide
The explanation comes down to a simple distinction: the formula a company uses to calculate a price is not the same as the information that actually determines it. A company may have every cost mapped out in a flawless spreadsheet and still apply an arbitrary margin—the same percentage across different products and customers, regardless of what the market is willing to pay for each one. In this case, the cost is visible, but it is not connected to anything beyond itself.
A calculation tool changes this by making the margin account for other variables: the break-even point, contribution margin by product, and scenario simulations at different sales volumes. Instead of a fixed, arbitrary figure, the margin becomes the link between costs and what the business knows about its competitors and customers’ willingness to pay. That link is missing when a spreadsheet merely lists expenses without calculating how to use them.
It is also worth noting what the study did not find: no manager characteristic—education, years of experience, or industry—explained why one group was more accurate than the other. The only factor separating those who got it right from those who got it wrong was the tool they used. This shifts the conversation away from “managers need more training” and toward “they lack the right tool,” which is a much easier problem to solve.
A Simple Calculation That Shows the Difference
Take a product with a unit cost of R$120. A company that focuses only on that figure, without a calculation tool, will tend to apply the same margin it uses for everything—say, a 35% markup on cost—simply because “that’s how it’s always been done”:
price = cost × (1 + markup) = 120 × 1.35 = R$162.00
Now, when the same company runs the same cost through a simulation tool, it finds that this specific product needs a higher margin for the product line to break even—because sales volume is lower and the product bears a proportionally larger share of fixed expenses. By adjusting the markup for this line to 55%, without changing the markup for the others:
price = cost × (1 + markup) = 120 × 1.55 = R$186.00
The R$24.00 difference per unit did not come from having a clearer view of the cost—the R$120 cost was known in both cases. It came from a calculation showing that this particular product could not support the company’s standard margin. This type of adjustment only becomes apparent through simulation, not visibility alone.
How to Put This into Practice
For those making pricing decisions without a dedicated pricing team, the research findings point directly to three shifts in approach:
- Treat “knowing the cost” and “calculating the price” as two separate steps—the first is data gathering, the second is methodology, and neither replaces the other.
- Be wary of applying a single margin across the entire catalog: it is the most common sign that costs are visible but not tied to anything.
- Before creating another cost spreadsheet, prioritize a tool that can simulate price, contribution margin, and break-even point using the data already available.
The pricing spreadsheet is a good starting point for anyone who has not yet created this tool. To calculate a specific price based on cost and the desired margin, the selling price calculator gives you the answer instantly.
The research does not conclude that cost is irrelevant—it concludes that cost is necessary, but never sufficient. A small business can have the most detailed cost spreadsheet in its industry and still get pricing wrong, because the problem was never seeing the number. It was lacking a method to turn that number into a decision.
