Figuring out how to price your product isn't some dark art. It really just starts with a simple, practical formula: add up all your costs, then layer your desired profit on top. It sounds almost too basic, but you’d be surprised how many people get it wrong. The secret is to be brutally honest and thorough about every single expense—from the obvious materials to the hidden marketing spend.
This is how you set a price that actually makes you money and fuels your growth.
Build Your Pricing From a Solid Financial Foundation
Before you even glance at what your competitors are charging, you have to get your own financial house in order. Pricing without knowing your numbers is like navigating without a map. You might feel like you're moving forward, but you're probably just lost.
The goal here isn't just to break even. It's to make sure every sale you make actively contributes to your bottom line and the health of your business. Nailing this first step helps you dodge the most common and dangerous pricing mistake: accidentally selling at a loss or with margins so thin you can't afford to grow.
Tally Up Your Total Business Costs
First things first, you need a crystal-clear picture of what it really costs to get your product into a customer's hands. It's easy to just count the obvious stuff, but you have to dig deeper.
Let's break it down into two main buckets:
Fixed Costs: These are the bills you have to pay every month, no matter what. They're your operational heartbeat. Think rent for your office, employee salaries, those SaaS subscriptions you can't live without, and insurance.
Variable Costs: These are the costs that move up and down with your production. The more you make, the more you spend. This includes things like raw materials, packaging, shipping fees, and any commissions you pay your sales team.
Add up all your fixed and variable costs for a set period—say, a month—to get your total cost figure. This number is the first piece of your pricing puzzle.
Calculate Your Cost Per Unit
Okay, now that you have your total costs for the month, let's figure out how much each individual item costs you to make and sell. This is your cost per unit.
The math is pretty simple:
(Total Fixed Costs + Total Variable Costs) / Total Number of Units Produced = Cost Per Unit
Let's say your total monthly costs are $10,000 and you cranked out 1,000 units last month. Your cost per unit is $10. That $10 is your absolute floor. Sell for a penny less, and you're losing money on every single sale. This isn't an optional step; it anchors your entire strategy in reality, which is a key part of the process we cover when explaining how to validate a business idea.
Set Your Target Profit Margin
With your $10 cost per unit locked in, you can finally start thinking about profit. How much do you want to make on each sale? This is your profit margin, and it's what turns your hard work into a real, profitable business.
Profit margins are all over the place depending on the industry. The apparel world, for example, often shoots for margins around 54%, while a grocery store might only see about 26%. Do a little homework to see what’s standard in your field, but don't forget to factor in your own brand. A premium product can justify a much healthier margin than a no-frills alternative.
For our example, let's aim for a 40% profit margin. Here’s the formula to find your price:
Target Price = Cost Per Unit / (1 - Desired Profit Margin as a Decimal)
Plugging in our numbers:
$10 / (1 - 0.40) = $10 / 0.60 = $16.67
That $16.67 is your starting price. It’s the minimum you should charge to cover your costs and hit your profit target. Now you have a solid, data-driven number to work with as you start looking at the market and what your customers are actually willing to pay.
Picking the Right Pricing Model
Alright, you’ve done the hard work of figuring out your costs and what kind of profit you need to make. That gives you your pricing floor—the absolute minimum you can charge. Now comes the strategic part: choosing the framework, or pricing model, you'll use to actually present that price to the world.
This isn't just about picking a number. The model you choose shapes how people see your product's value and dictates how money flows into your business. Think about it from an agency perspective: the way Softriver prices a quick logo package is going to be completely different from how they price a full-scale Brand Ecosystem® solution. The value delivered is worlds apart, and the pricing model needs to reflect that.
As you think through these models, it’s also smart to consider how to increase average order value with buyer psychology to get more from each customer relationship.
This simple decision tree gives a great visual of the core steps involved.
The key takeaway here is that profitability is the checkpoint between knowing your costs and setting your final price. Let's dig into the common models that will help you build that bridge.
Cost-Plus Pricing: The Straightforward Path
This is pricing in its most basic form. You simply take your total cost per unit and add a specific markup on top, either as a percentage or a fixed dollar amount. It's clear, predictable, and ensures you make a profit on every sale. Easy peasy.
This approach works great for businesses where costs are consistent and easy to pin down, like an e-commerce store selling coffee mugs. You know the cost of the mug, the box, and the shipping—so adding a 50% markup to get your retail price is a no-brainer.
But that simplicity is also its biggest flaw. Cost-plus pricing completely ignores two massive factors: what your customers are actually willing to pay and what your competitors are charging. You could be leaving a ton of money on the table without even realizing it.
Value-Based Pricing: The Strategic Approach
Value-based pricing flips the entire script. Instead of looking inward at your costs, you look outward to your customer. You start by asking: "What is this solution truly worth to them?" How much pain does it solve? How much time will they save? How much more money will they make because of it?
This is where the magic happens for software, consulting, and any service where the impact far outweighs the direct cost. A SaaS tool that automates a task saving a business 20 hours a month isn't priced based on server fees; it's priced based on the immense value of that reclaimed time. It takes more research to get right, but the upside is huge.
Key Takeaway: When you price on value, not cost, you anchor your price to the results you deliver. It changes the conversation from an "expense" to an "investment" in your customer's mind, which makes justifying a higher price much easier.
Tiered Pricing: Something for Everyone
Tiered pricing is all about offering a few different packages at different price points, usually with names like Basic, Pro, and Enterprise. Each tier comes with its own set of features, designed to meet different needs and budgets.
This strategy is incredibly powerful. A scrappy startup can get started on your affordable Basic plan, while a big corporation can jump straight to the feature-rich Enterprise tier. It works because it:
- Lowers the barrier to entry for new customers.
- Creates a natural upgrade path as a customer’s business grows.
- Captures maximum revenue by meeting high-value customers where they are.
The trick is to make the value difference between the tiers super obvious. You want a customer to look at the next level up and think, "Yep, that's exactly what I need next."
Comparing Common Pricing Models
To help you decide, here's a quick rundown of the most common pricing models and where they shine.
Ultimately, the best model depends entirely on what you're selling and who you're selling it to.
Subscription vs. One-Time Payment
The final piece of the puzzle is deciding how customers will pay you. Are they signing up for a recurring subscription or making a single, one-time purchase?
A Subscription Model is the holy grail for predictable revenue. It's the go-to for SaaS products and any service that provides continuous value. That steady cash flow is a massive advantage for planning and growth.
A One-Time Payment Model is more traditional. It’s used for physical goods, software licenses, or specific projects like designing a logo. You get more cash upfront, but you're constantly on the hunt for the next customer.
Your choice here boils down to how your customers get value from your product. If you're providing ongoing access, updates, and support, a subscription just makes sense. If you deliver all the value in one shot, a one-time fee is usually the better fit.
Sizing Up the Market and Your Competition
Your product doesn’t exist in a vacuum. Once you've crunched your own numbers and explored a few pricing models, it's time to look outside your own four walls. Getting a handle on the broader market isn’t just a good idea—it’s a non-negotiable step for setting a price that actually works.
This is all about figuring out what your competitors charge and, even more critically, what your customers are really willing to pay. Without that context, your price is just a shot in the dark, completely disconnected from what people actually expect and value.
Who Are You Really Competing Against?
First things first, you need a clear picture of who you're up against. Your competitors aren't always who you think they are, and they generally fall into two buckets.
Direct Competitors: These are the obvious ones. They sell something very similar to your product, to the same kind of people. If you run a branding agency, other branding agencies are your direct competition. Simple enough.
Indirect Competitors: This group is a little sneakier but just as important. They solve the same core problem for your customer, just in a different way. For that branding agency, an indirect competitor could be a freelance designer on Upwork, a DIY logo maker, or even an in-house design team.
A solid analysis has to look at both. Ignoring your indirect competition is a classic mistake that can leave you blind to how customers are getting the job done right now. We cover how to build this complete picture in our guide on how to conduct a competitive analysis that wins markets.
Deconstructing What Your Competitors Offer
Once you have your list, it's time to play detective. Don't just glance at the final price tag. You need to pull apart their entire offer to understand the real value behind that number.
Look at what features, benefits, and services they include at each price point. A competitor might have a cheaper entry-level package, but do they nickel-and-dime customers for support or key features that you include for free? That context is everything. I always recommend a simple spreadsheet to track this for your top 3-5 competitors.
By comparing what's offered against the price, you can spot gaps in the market. You might find a chance to offer more for a similar price, or maybe there's a need for a simpler, lower-cost option that no one is serving.
Figuring Out What Customers Will Actually Pay
Knowing what your rivals charge gives you a useful benchmark, but the real secret sauce is knowing what your target customer is willing to spend. This is often the toughest data to get, but it’s what separates a good pricing strategy from a great one.
Here’s a tip: simply asking "What would you pay for this?" almost never works. People are notoriously bad at predicting their own buying habits. You need to be a bit more clever to get at their perceived value.
Here are a few practical ways to do it:
Surveys with Price Ranges: Instead of asking for one number, give them options. Present your product’s features and ask them to choose a price range they feel is fair (e.g., $500-$1000, $1001-$1500). It feels less committal and gives you much more realistic feedback.
Feature-Value Trade-Offs: Ask potential customers to rank your product’s features by importance. Then, follow up by asking how much more they'd be willing to pay for their top-ranked features. This shows you which parts of your offer are driving the most value.
Understand Customer Pushback: Getting your price right is tougher than ever. According to the Global Pricing Study 2025 by Simon-Kucher, the ability to successfully implement price increases has dropped to just 43%. A massive 23% of companies say customer resistance is their biggest hurdle, while 22% blame competitive pressure. This really underscores the tightrope you have to walk.
For those who want to get deeper into the data, you might find certain estimation tools for market analysis can help structure your research.
When you combine solid competitor intel with a true understanding of what your customers value, you can finally position your product with confidence. You'll find that sweet spot where your price is both competitive in the market and profitable for your business—setting you up for long-term success.
Weaving Your Price Into Your Story
The number you land on is only half the battle. How you talk about that price—the way you frame it, present it, and justify it—is where the real magic happens. This isn't about trickery; it's about connecting the cost to the real-world value you deliver.
Your goal is to shift the customer's internal monologue from, "How much is this?" to "What is this worth to me?" It’s a subtle but powerful change. A strong price message makes customers feel like they're making a smart investment, not just another purchase.
Frame Your Price in Terms of Value
A price without a story is just a number, and numbers are easy to argue with. You need to build a strong narrative around your price by constantly highlighting the benefits and the return on investment your customer can expect. If your price feels high, it’s usually because the value context is missing.
Don't just list features on your pricing page; tell a story of transformation. Instead of saying your software includes "automated reporting," show them the outcome: "Save 10 hours of mind-numbing manual work every single week." Framing it this way makes the price feel like a small ask for a massive win. This all ties back to your core brand promise, which we dig into in our guide on how to create an effective value proposition.
Key Takeaway: Never let your price stand alone on an island. Surround it with clear, compelling language about the value, the benefits, and the positive changes your customer will see. Justify the investment before they even think to question the cost.
Put a Little Psychology to Work
You don’t have to be a psychologist to use pricing strategies that tap into how our brains work. These are research-backed methods for presenting numbers in a way that just feels better to buyers.
Here are a few proven techniques you can use right away:
Price Anchoring: This is all about setting a reference point. When you show a higher-priced option first, the other options suddenly look much more reasonable. Think about a pricing page that leads with the big "Enterprise" plan—it makes the "Pro" plan right next to it seem like a steal.
Charm Pricing: The classic move for a reason—it works. Ending prices with 9, 99, or 95 (like $99 instead of $100) leverages the "left-digit effect." Our brains latch onto that first number, making the price seem significantly lower than it really is.
Bundling: People love getting a good deal. Grouping several products or services into a single package can massively boost the perceived value. A customer might balk at buying three separate items, but package them as a "Starter Kit" for a single, slightly lower price, and it becomes an easy "yes."
Be Confident and Upfront
How you present your price says a lot about how much you believe in your product. If you hide your pricing or seem hesitant to discuss it, you create suspicion. Clear, straightforward pricing, on the other hand, builds trust and credibility right from the start.
This is more important now than ever. The economic landscape of 2025 is being shaped by shifting costs and consumer habits. One analysis showed that core goods prices were 1.9% above their pre-2025 trend, with durable goods jumping 2.3% above trend. With customers feeling the financial squeeze, transparent pricing isn't just nice—it's necessary.
For a branding agency like Softriver, this means clearly showing what's included in a basic logo package versus a full-service Brand Ecosystem® solution. This transparency helps potential clients choose the right fit and understand exactly what their investment gets them. It builds trust from the very first click. When you master your message, you stop selling a price and start selling a confident decision.
Time to Test and Refine Your Pricing
https://www.youtube.com/embed/eiIhTbFP0ls
Figuring out your pricing isn't a "set it and forget it" kind of deal. Far from it. The smartest companies I know treat pricing as a dynamic, living part of their business strategy—something that needs regular check-ups and tweaks. Your first price is really just your best-educated guess. Now it's time to see how it holds up in the real world.
This is where the real work begins. By testing and gathering actual data, you stop making assumptions and start making informed decisions. It’s a constant cycle of learning, iterating, and optimizing that keeps your pricing sharp and aligned with your goals.
Use A/B Testing to See What Actually Works
A/B testing is probably the most straightforward way to see if your pricing has legs. The idea is simple: show two different versions of your pricing page to two different groups of people and see which one converts better. And it’s not just about slapping two different price points on the page.
For example, you could test your current price against one that’s 10% higher. But you can also get more creative and test other things that influence a buyer's decision:
- What's in the box? Try shuffling the features included in each of your pricing tiers.
- How do they pay? Pit your monthly plan against an annual plan with a discount to see which one people prefer.
- How does it look? Experiment with "charm pricing" (think $49 versus $50) or even just making one plan visually pop on the page.
The trick is to only change one thing at a time. If you change the price and the features, you'll never know which one drove the results. This approach gives you solid data on what your customers really want and what they’re sensitive to, taking the guesswork out of the equation.
Run Small, Targeted Pricing Experiments
If a full-blown A/B test feels like too much, you can run smaller, more focused experiments with specific groups of customers. This is an incredible way to get qualitative feedback—the "why" behind their choices—without turning off your entire user base.
You could, for instance, offer a new pricing plan to a small batch of new sign-ups for a limited time. Once the experiment is over, send them a quick survey. Was the price fair? Did they understand the value? The insights you'll get from this are pure gold.
A word of advice: be upfront about it. Tell people they're part of a pilot program. It sets the right expectations and often makes customers feel like they're helping you build a better product, which does wonders for your brand perception.
Stay Ready to Adapt to Market Shifts
Your pricing strategy can't live in a vacuum because your market certainly doesn't. Things are always changing—supplier costs go up, the economy shifts, and your competitors make moves. Staying nimble and adapting your prices isn't just a good idea; it's essential for staying in business.
Just look at the food industry. Overall food prices are expected to climb by 3.0% in 2025. At the same time, farm-level prices for things like vegetables are projected to drop by a whopping 14.1%, and fruits by 5.2%. This is a perfect example of why you need to know your specific cost drivers inside and out. You can dig into these numbers yourself in the USDA’s Food Price Outlook.
By keeping a close watch on these kinds of trends, you can make adjustments before you're forced to. Maybe you absorb a small cost increase to keep your customers happy, or you pass on some savings to snag a competitive advantage. This constant process of testing and tweaking is how you nail down how to price your product so that you stay profitable and relevant for the long haul.
A Few Common Questions About Product Pricing
Figuring out the right price for your product can feel like a moving target. Let's tackle some of the most common questions that pop up when business owners are navigating these waters.
How Often Should I Actually Look at My Pricing?
Think of your pricing as a living part of your business, not something you set in stone and forget. A good rule of thumb is to do a thorough review at least once a year, but honestly, you should be ready to revisit it anytime something big changes.
So, what counts as a "big change"?
- Your costs jump (or drop): If your suppliers raise their prices or your overhead spikes, your pricing needs to follow suit to protect your margins.
- The market shifts: A new competitor shows up, or a major player changes their pricing? That’s your cue to reassess where you stand.
- You've improved your product: When you roll out significant new features or a major upgrade, you're delivering more value. Your price should reflect that.
- Your customers are telling you something: Are you constantly hearing "you're too expensive" or, just as telling, "wow, that's a great deal!"? Listen to that feedback. It's gold.
What's the Best Way to Announce a Price Increase?
No one loves hearing that prices are going up. But how you handle it can make all the difference between keeping a loyal customer and losing one. The key is to be transparent and focus on the value they're getting.
First off, give your existing customers a heads-up. At least 30-60 days notice is a professional courtesy that shows you respect their budget and planning. When you break the news, be direct about why it's happening. Frame it around the positive—is it to support new features? To maintain the high level of service they expect?
Here’s a pro tip that works wonders: Offer your loyal customers a legacy rate for a limited time. It's a small gesture that can turn a potentially negative announcement into a moment that strengthens their loyalty. They feel seen and appreciated, which is priceless.
Whatever you do, skip the corporate jargon. Just have an honest, human conversation with the people who support your business.
Should I Put My Prices on My Website?
Ah, the great pricing debate. To show or not to show? There isn't one right answer here; it really boils down to what you're selling.
For most straightforward products—think SaaS plans, e-commerce goods, or standardized service packages—showing your prices is almost always the best move. It builds trust right away, weeds out tire-kickers, and makes the buying process smoother for everyone. When people can see the price, they can decide for themselves if it's a fit, saving your sales team a ton of time.
On the other hand, if you sell complex, high-ticket solutions that are customized for each client (like enterprise software or in-depth consulting), hiding your pricing behind a "Contact Us" button often makes more sense. This approach gives you the chance to talk to the client, understand their unique needs, and put together a quote that truly reflects the value you’re providing.
How Can I Compete Without Getting into a Price War?
This one is critical. The moment you start competing on price, you're in a race to the bottom, and nobody wins that race (especially not your profit margins). So, what's the alternative?
Compete on value, not on price.
If a competitor undercuts you, take a breath. Resist the knee-jerk reaction to slash your own prices. Instead, get louder and clearer about what makes you the better choice. Your unique value proposition is your best defense.
Zero in on what makes you different:
- Better Quality: Is your product more durable? Does it deliver better results?
- Amazing Service: Do you offer white-glove onboarding or 24/7 support from real humans?
- Unique Features: What can customers get from you that they can't get anywhere else?
- A Rock-Solid Guarantee: Do you stand behind your product with a stronger warranty or a no-questions-asked refund policy?
When you focus on these things, you attract customers who are looking for the best overall solution, not just the cheapest option. That’s how you build a healthy, sustainable business for the long haul.
Ready to build a brand that commands its price? Softriver specializes in creating custom logos and complete brand identities that communicate undeniable value. Our team of top-tier designers delivers strategic, market-aligned branding that helps you stand out and justify your worth. Get your custom brand identity today.
