How do you build a pricing model?
A core FP&A interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Start with cost-plus floor (unit cost + target margin), then layer value-based and competitive inputs. Model price elasticity — how volume responds to price. Segment customers by willingness-to-pay. Build scenarios: volume × price × margin across tiers. Test against competitor benchmarks and customer churn risk. Output: optimal price points by segment with revenue and margin sensitivity.
WHAT INTERVIEWERS LISTEN FOR
- ✓Cost-plus floor calculation
- ✓Price elasticity modeling
- ✓Customer segmentation by WTP
- ✓Scenario analysis (volume/price/margin)
- ✓Competitor benchmark testing
COMMON MISTAKES
- ✗Only cost-plus without value/competition
- ✗Ignoring price elasticity or volume response
- ✗Single price point for all segments
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