- Use costs to find your price floor, competitors as a reference and customer value to set your target.
- Ask buyers what the problem costs them today and what they already spend on it.
- Keep your offer to three clear options with a value metric that grows with the customer.
- Test price increases on new customers first and review pricing at least once a year.
TLDR: Price a new product by starting with the value it creates for customers, then checking that the price covers your costs and makes sense next to the alternatives. Calculate your costs and target margin to find your floor, interview customers about what the problem costs them today, and keep your offer to a few clear options. Launch with a price you can say confidently, then test increases on new customers first.
Pick a number. Any number. That's how a lot of founders price their first product: a guess, a glance at a competitor's website, and a quiet hope nobody pushes back. It's an understandable approach, and an expensive one.
Price is the strongest profit lever most businesses have. In a classic Harvard Business Review analysis of 2,463 companies, McKinsey's Michael Marn and Robert Rosiello found that a 1% price improvement, with no loss of volume, raised operating profit by 11.1%. Get it wrong and the damage adds up just as fast. CB Insights' 2026 analysis of VC-backed shutdowns found unsustainable unit economics in 19% of failures with a known cause.
This guide covers the three main pricing strategies, how to find your price floor, how to learn what customers will pay, how to structure your offer, and how to test your price once it's live.
Why does pricing matter so much?
Your price does more than cover costs. It tells buyers what kind of product you are, decides which customers show up, and sets how much room you have to invest in growth. Warren Buffett put it bluntly in a 2010 interview:
"The single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business." Warren Buffett, FCIC interview
A price that's too low can quietly work against you. Buyers read it as a signal of a lightweight product, you attract the most price-sensitive customers, and your margins leave no room for support, marketing or hiring.
What are the main pricing strategies?
Cost-plus pricing
Add a set margin to what it costs you to deliver. It's simple and protects your margin, but it ignores what customers would happily pay. It works best for physical products and commodity services where buyers compare on price.
Competitor-based pricing
Set your price relative to the alternatives buyers compare you to. It's a useful reference point, though it can pull your price toward the cheapest option in the market and assumes competitors priced well in the first place.
Value-based pricing
Price according to the outcome the customer gets, such as revenue gained, costs saved or hours recovered. For most B2B products and services, this sets the highest sustainable price, because the conversation shifts from "what does it cost?" to "what is it worth?"
Pro tip: You don't have to pick just one. Use costs to set your floor, competitors as a reference point, and customer value to set your target price.
How do you find your price floor?
Your floor is the lowest price that still makes money. Add up:
- Direct cost to serve one customer, including tools, materials, payment fees and delivery time
- A fair share of fixed costs like software, rent and salaries
- Your target profit margin
Anything below that number loses money on every sale.
Example: Say a software product costs $40 a month per customer to serve, and your $12,000 in monthly fixed costs is spread across a target of 200 customers, or $60 each. That's $100 in total cost per customer. For a 30% margin, divide by 0.7. Your floor is about $143 a month.
Pro tip: Include your own time at a market rate, even if you're not paying yourself yet. A price that only works because the founder works for free won't survive your first hire.
How do you research what customers will pay?
The floor tells you where to stop. Customers tell you where to aim. Three methods cover most of what you need.
Ask what the problem costs today
In discovery calls, ask about the time, money and missed revenue tied to the problem. If a problem costs a buyer $50,000 a year, a $10,000 solution is an easy decision.
Look at current spend
Find out what buyers already pay for alternatives, including spreadsheets, staff time, freelancers and agencies. "Doing nothing" has a cost too, and it's often your real competitor.
Run a Van Westendorp survey
This four-question survey, developed by economist Peter van Westendorp, asks buyers at what price your product starts to feel too cheap, a bargain, expensive and too expensive. Where the answers overlap, you get an acceptable price range.
Pricing research questions (copy and paste):
1. At what price would [Product] be so cheap you'd doubt its quality?
2. At what price would [Product] feel like a bargain?
3. At what price would [Product] start to feel expensive, but still worth considering?
4. At what price would [Product] be too expensive to consider?
5. What do you spend on this problem today, including time and tools?
6. What would solving it be worth to you over the next year?
The first four questions give you a range. The last two give you the business case, often in words you can reuse on your sales page.
Pro tip: Ask about what people have done, not what they would do. "What did you spend on this last year?" gets a more honest answer than "Would you pay $500?"
How do you structure your pricing?
How you package a price can matter as much as the number itself.
Choose a value metric
Charge for the unit that grows as the customer gets more value, such as seats, projects, locations or usage. As customers grow, your revenue grows with them without a renegotiation.
Keep it to three options
A good, better, best structure gives buyers a clear choice without overwhelming them. Too many tiers slow decisions and send people to your inbox with questions.
Lead with your premium option
Show the most complete option first or most prominently. It frames the other options as reasonable by comparison and makes the middle tier the natural pick.
How do you test and adjust your price?
Your first price is a starting point, not a permanent decision. Raising prices is also normal. In Simon-Kucher's Global Pricing Study of 2,704 companies, 78% had raised prices in the previous year, with an average increase of 11%.
Here's a simple process for a small team:
- Launch with a confident number. Pick a price you can say on a call without flinching or explaining it away.
- Track close rate and objections. Note how many prospects buy and why the others don't. "Too expensive" from every prospect means something different from "not right now."
- Raise prices for new customers first. Test a higher price on new deals and watch whether your close rate holds.
- Give existing customers notice. When you raise prices for current customers, explain what's changed and give them time, or keep their rate for a set period.
- Review at least once a year. Revisit pricing annually and after any major product or market change.
Pro tip: If nearly every prospect says yes without hesitation, your price is probably too low. Some pushback is a healthy sign.
What pricing mistakes do founders make?
- Pricing from fear of hearing no. A low price feels safe but often attracts the hardest customers to keep happy.
- Offering too many tiers. Every extra option adds another decision and slows the sale.
- Discounting to close every deal. Regular discounts teach buyers that your list price is negotiable.
- Copying a competitor's price. Their costs, customers and positioning aren't yours.
- Never revisiting the price after launch. Your product improves, your costs change, and your price should keep up.
Frequently asked questions
Should a startup price low to win customers?
Usually not. Low prices can attract price-sensitive buyers and squeeze margins, and it's harder to raise prices later than to start in the right place. Many founders find they started out underpriced.
How often should you review pricing?
At least once a year, and after major product or market changes.
What is the Van Westendorp method?
A survey that asks customers at what prices a product feels too cheap, a bargain, expensive and too expensive, to find an acceptable price range.
How do you raise prices without losing customers?
Start with new customers, give existing customers advance notice, and tie the increase to added value. Explaining what's improved makes the change easier to accept.
Pro tip: Write down why your price is what it is, in one paragraph. If you can't explain it clearly, your buyers can't either.
Know your value but struggling to show it? Aloola builds positioning and messaging for founder-led companies in focused, fixed-scope sprints. Book a call.
