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I design and build fast, responsive websites structured for performance, accessibility, and real-world users.
Pricing is one of the riskiest aspects of any business model. Yet, most founders choose to defer pricing to later. They wait to first build their product, understand their cost structure, and then set pricing with customers.
As entrepreneur and author Ash Maurya explains in his pricing frameworks, this is backwards. Your pricing model should determine your product and not the other way around. The best time to set your pricing model is a lot sooner than you think.
If you have ever worried that you are leaving money on the table, or if you have experienced sticker shock when looking at your own rates, this guide is for you. We will move beyond feelings based pricing and replace it with smart, intellectual formulas that actually work.
At its simplest, a pricing strategy is the methodology you use to decide what to charge for a product or service. According to the HubSpot Pricing Strategy Guide, it is the process of finding the Goldilocks zone for your business. This is the price point that is not so high that it drives customers away, but not so low that it sacrifices your ability to grow.
A comprehensive strategy must consider five critical pillars:
Variable and Fixed Costs: The floor below which you cannot go.
Customer Demand: The market's appetite for your solution.
Competitor Pricing: The neighborhood you are living in.
Perceived Value: The emotional and practical worth in the customer's mind.
Profit Goals: Your minimum success criteria.
Shopify notes that while pricing starts with math, it is rarely a purely logical decision. Humans are creatures of emotion. What a customer is willing to pay is often detached from what the product costs to make. It is instead attached to how they perceive the value of that product.
Before you look at a spreadsheet, you must define what the price is supposed to achieve. As HubSpot details in their research on pricing objectives, your goal determines your direction.
This objective involves setting a low price to enter a competitive market. The goal is to draw attention and take away business from competitors who cannot match the price. Once you have captured a significant wallet share, you begin raising prices.
This is common for boutique service providers or premium brands. Here, you focus on the bottom line rather than volume. You would rather have ten high paying clients than 100 low paying ones.
Price is a signal. As Ashlyn Writes and Shopify both highlight, a higher price can actually change the perception of a product. If you see two bottles of water and one is 50 cents while the other is two dollars, you might assume the more expensive one is higher quality.
This involves charging the highest possible price right from the outset and then decreasing it over time. This works best when there is scarcity or when you have innovative features that competitors cannot match yet.
During market dips, your objective might simply be to cover costs and keep the lights on. This is a short term objective meant to weather a storm.
There is no single best pricing strategy for small business. Instead, experts suggest selecting a model based on your specific business type and market position.
Cost plus pricing is the most popular but often the least effective strategy. It involves calculating the cost of your product and adding a fixed markup. For retailers, this is often double the wholesale price.
Pros: It ensures a profit margin and is easy to calculate.
Cons: It ignores market demand and competition. You might be charging far less than people are willing to pay.
You check what your competitors are charging to figure out the going rate. You then price slightly lower to attract value shoppers or slightly higher to signal better quality.
Pros: It keeps you competitive in saturated markets.
Cons: You are letting competitors run your business. If their costs are lower than yours, you are at a massive disadvantage.
HBS Online defines this as setting prices based on the customer's perceived value rather than your costs. This is about the gap between your cost to produce and the customer's willingness to pay.
Best for: Specialized services and unique software.
Example: A copywriter who writes a sales page that generates $100,000 in revenue should not charge $50 an hour. They should charge based on the $100,000 outcome.
Expert Ashlyn Writes recommends the Rule of Thirds for service based business owners. This splits your revenue into three buckets:
One Third for Costs: Materials, labor, and time.
One Third for the House: Taxes, software subscriptions, and operations.
One Third for Profit: Your owner's draw and business savings.
Ash Maurya suggests that you should set business model goals before value based pricing. If your goal is a $1 million a year business, you must model the paths to get there. Can you sell 100,000 ebooks at $10, or 10 consulting packages at $100,000? This forces you to see if your price point is actually viable for your lifestyle goals.
This is the use of algorithms to change prices based on demand. It is common in e-commerce and travel. It maximizes revenue during peak times but can frustrate customers if they feel they are being treated unfairly.
If you only price based on cost, you are effectively being penalized for being efficient. As you get better and faster at your job, your "hourly rate" would actually decrease your total revenue if you stay attached to costs.
Customers pay for outcomes, convenience, and trust. As HBS Online points out, value based pricing requires you to identify your differentiating features and place a financial value on them.
The Outcome: Will this save them 10 hours a week?
The Risk: How much money will they lose if they hire someone cheaper who fails?
The Emotional Value: How much sleep will they get back by knowing this is handled?
The Harvard Business Review suggests that offering only one price point is a mistake. It forces a binary yes or no decision. Instead, use the Good–Better–Best approach.
This is your entry level offer. It provides the essential solution for price sensitive customers. It prevents them from going to a cheaper competitor.
This is your core offer. It should be the most popular choice. It contains the features that 80% of your market needs.
This is your premium, "VIP" offer. It includes everything. Even if few people buy it, it serves as an anchor that makes the "Better" tier look like a great deal.
Why this works:
It captures different levels of willingness to pay.
It makes decision making easier for the customer.
It increases the average order value (AOV).
According to research from Stripe, Maxio, and Recurly, your industry dictates your specific pricing mechanics.
Stop charging for your time. Use the Ashlyn Writes method of tracking your time in 15 minute increments to understand your costs, but price based on the package.
Day Rates: Expedited service at a premium.
Retainers: Predictable revenue for ongoing support.
Project Based: A flat fee for a specific transformation.
Software pricing is about long term retention.
Tiered Subscription: Using the Good–Better–Best model to scale with the user.
Usage-Based Pricing: Pay for what you use (common in infrastructure like AWS or Stripe).
Freemium: Using a free version to build a user base, then converting them to paid.
Anchor Pricing: Listing the MSRP next to your discount price.
Bundle Pricing: Selling complementary products together to increase value.
Loss Leader: Selling a base product cheap to sell high margin accessories later.
To move from guessing to a smart strategy, follow this actionable loop:
You must know your hard costs. This includes materials, labor, and time. As a business owner, you get paid twice: once as the worker producing the thing, and once as the CEO of the company. If you only pay yourself once, your pricing is off.
Research 3 to 5 competitors. Note their pricing, but also note their positioning. Are they the "budget" option or the "luxury" option? This helps you understand where you fit in the neighborhood.
List the top three ways your customer's life improves after they buy from you. If you are a floral designer, you are not selling flowers; you are selling the atmosphere of a once in a lifetime event. Price the atmosphere, not the stems.
Pricing is not permanent. Run your new prices for 30 days.
If everyone says yes immediately, you are too cheap.
If everyone says no, you may have a positioning or value problem.
If 20% of people say it is too expensive, you are likely in the sweet spot.
Ashlyn Writes warns against letting the voice in your head say "no one will pay that." That is a feeling, not a fact. Look at the math and the market demand instead.
Your competitors might not be making money. If you copy their price, you might be copying their path to bankruptcy.
This attracts price sensitive clients who are often the most difficult to manage. High value clients actually find comfort in a higher price point because it signals reliability.
Inflation and your increasing expertise mean your value goes up every year. If you have not raised your rates in 12 months, you have effectively taken a pay cut.
The best pricing strategy is not the cheapest price. It is the price that:
Protects your profit margins.
Matches the value you deliver.
Supports your business goals.
Makes the buying decision easy for your ideal customer.
The best time to fix your pricing was at the outset of your project. The next best time is right now. Start by reviewing just one of your offers today. Ask yourself if that price is based on your fear, your neighbor's guesswork, or the real world value you are creating.
Take one offer this week and apply the Good–Better–Best framework to it. See if you can increase your average order value simply by giving your customers a choice.
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