A working guide to pricing: the three inputs every price needs, the main pricing models with when each fits, a worked example for a product and a service, and how to test a price without guessing.
Short answer: a good price sits between two walls. The floor is what it costs you to deliver plus the margin you need to stay in business. The ceiling is what the result is worth to the buyer compared with their alternatives. Your pricing strategy is simply the rule you use to choose a point between those walls, and then test it.
Most pricing advice lists a dozen named strategies. That is useful as a glossary, but it skips the part people actually get stuck on: which numbers to gather, how to choose, and how to know if you chose wrong. This guide goes in that order.
Every price needs three pieces of information. If you are missing one, you are guessing.
1. Your true unit cost. For a physical product this is materials, packaging, payment processing, shipping you absorb, returns and a share of fixed costs. For a service it is your time multiplied by a target hourly cost, plus software, subcontractors and the unpaid hours (sales calls, revisions, admin) each job drags along. Service businesses routinely forget the unpaid hours, which is why they feel busy and broke.
2. The market range. Look up five to ten direct alternatives and write down what they charge and what is included. You are not copying them; you are finding out what buyers already consider normal.
3. The value to the buyer. Ask what the purchase does for the customer in their own terms. Does it save hours, win clients, avoid a fine, replace a hire? Where you can, put a rough number on it.
The model is the shape of the price: what the customer pays for and when. Choose it before you choose the number.
| Model | How it works | Fits best when | Watch out for |
|---|---|---|---|
| Cost-plus | Cost plus a fixed markup | Commodities, wholesale, resale | Ignores value; easy to underprice |
| Competitive | Priced relative to named rivals | Crowded markets with easy comparison | Races to the bottom |
| Value-based | A share of the value delivered | B2B services, specialist products | Needs evidence of the value |
| Tiered | Good, better, best packages | Buyers with different needs and budgets | Too many tiers confuse people |
| Subscription | Recurring fee for ongoing access | Software, maintenance, memberships | Churn must be tracked |
| Usage-based | Pay per unit consumed | APIs, credits, utilities | Bills feel unpredictable |
| Project / fixed fee | One price for a defined outcome | Custom services with clear scope | Scope creep eats margin |
| Hourly / day rate | Paid for time | Open-ended or advisory work | Punishes you for getting faster |
Two notes. First, you can combine models: a fixed setup fee plus a monthly retainer is common for agencies. Second, tiered pricing is the most useful default for small businesses because it lets buyers choose instead of haggling.
Competitors of similar size and quality sell between $18 and $32. Cost-plus at 2x would give $14, which is below the market range and signals lower quality. A better choice is $24 for the single candle, $64 for a set of three (a small saving that raises order value) and a $38 gift box with a premium label. Your floor stays protected, and the gift box gives price-insensitive buyers something to spend on.
Local alternatives charge a wide range depending on transaction volume. Instead of one price, offer three tiers based on monthly transactions (for example up to 100, up to 300, and 300+), with catch-up work for past months quoted separately as a project fee. Tying tiers to a measurable driver (transactions) keeps heavy clients from quietly consuming the time of light ones.
A few effects are well documented and worth using honestly:
Do not invent fake "was" prices or countdown timers that reset. Besides eroding trust, fake reference prices can break consumer protection rules in many countries.
You do not need a data science team to test a price.
Track three numbers per price change: conversion rate, average order or contract value, and gross margin. A higher price that converts slightly worse can still earn more.
If you want to go deeper, a few free and widely used starting points: your own sales data (the most accurate source you have), competitor pricing pages saved as screenshots every quarter, and short customer interviews asking what they compared you against. For software and subscription businesses, the Van Westendorp price sensitivity survey is a simple four-question method you can run with any form tool.
If you sell services like web design, our guide on how much to charge for a website applies this approach to one specific market, and web design agency pricing covers packaging and retainers.
A price only works if people can see and understand it. That means a clear pricing page with tiers side by side, what each includes, and one obvious next step. With We.Inc you can describe your offer in a chat and get a pricing page or a full online store built for you, then adjust the tiers visually whenever you run a test.
Start with cost-plus to find your floor (the lowest price that still makes money), check competitor prices to find the market range, then pick a point inside that range that matches how you are positioned. Revisit it after your first 20 to 30 sales, not before.
Common signs: almost nobody pushes back on price, you close nearly every quote, you are fully booked but not profitable, or customers say it was 'a steal'. A healthy price produces some objections. If nobody ever says no, you are probably leaving money on the table.
For products and standardized services, yes: visible prices filter out poor-fit buyers and reduce back-and-forth. For custom work, show a 'starting at' price or a range so visitors can self-qualify. Hiding prices entirely tends to generate inquiries from people who cannot afford you.
Cost-plus starts from what it costs you and adds a margin. Value-based starts from what the result is worth to the customer and prices at a fraction of that. Cost-plus protects you from losing money; value-based is how you avoid underpricing work that saves or earns the client a lot.
Review at least once a year and whenever your costs, demand or offer change meaningfully. Many businesses raise prices for new customers first and give existing customers notice and a grace period before the change applies to them.
How we research, test and update this page: our editorial policy. We.Inc is our own product.
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