How to price your product? Top 8

  • 8 min read

Knowing how to price your goods and services throughout your business’ lifetime is critical to its success. Price Intelligently estimates a 1% improvement in price optimisation results in an average boost of 11.1% in profits. This is a vast improvement which highlights the importance of finding a good product pricing strategy for you.

If you’re starting up, knowing your product price underscores various critical sections of your in-depth business plan, to name a few: sales forecasting, budgeting and validating your business idea. 

If your business is already established, being able to sensibly fluctuate the price of your product often protects your business from going under.

What should I look out for when pricing my product?

1. Setting your own objectives

Before choosing your pricing strategy, you should understand your business’ own objectives. What are your business’ goals? Depending on where you want your enterprise to be headed, you will want to stress different areas of your business. For example, you may want to maximise short or long term profits or increase your market share.

After you’re able to understand your objectives, you should then be able to set out on the right pricing strategy for you.

2. Price Wars

One thing you want to avoid as a small business are price wars. It is very difficult for SMEs to stay afloat when engaged in a price war, especially if they are competing against globalised pricing. 

As such, there are certain measures you can take to help avert getting trapped in a price war:

  • Develop your brand name

This will build into your business something that cheap prices can’t – trustworthiness. In fact, cheap prices often suggest a lack of reliability.

  • Highly individualised products or services

If your products are only made by your business, for example you have a patented design, then other businesses won’t be able to undercut your price.

  • Sound customer research

Determine through surveys and customer feedback what customers do and don’t want in the market. This stops you from having price wars over insignificant products. Similarly, you can cut out high maintenance products. This will protect your cash flow.

  • Business proposition

You likely began a business because you had found a gap in the market that needed to be solved. Make sure that your business still has its unique selling proposition. Maintaining attributes unique to your business will protect it if a price war comes.

3. Not settling for the lowest price

If you are a small business, using a strategy which involves having the lowest price is usually detrimental in the long run. 

Firstly, larger competitors can usually afford to undercut your price easily and with little loss to their business. If they enter your target market, your business will likely be unable to compete. 

Secondly, reducing the monetary value of your item will also reduce its worth elsewhere. It will make your product/service more of a commodity than a valued asset. 

4. Understanding your market thoroughly

This underscores much of what we have just covered. Having a solid understanding of your market should allow you to target what your customers need. This will allow you to have customer inspired products that help to secure your brand image, keep up your costs and therefore protect against competitors.

8 Pricing Strategies for your small business

1. Price Maximisation

This method of deciding your price revolves around the costs you will incur and generating as much capital from them as possible.

It begins by calculating your fixed and variable expenses, as shown in our blog How to Create a Startup Budget.

Then you figure out how to best minimise these expenses. This may be through contacting suppliers who could offer bulk deals for example. Often you stick with the same price you had without minimising your business expenses.

This should allow small businesses to maximise their profit.

2. Cost-Plus Pricing

This is a similar type of pricing to “price maximisation”. However, it doesn’t include the minimisation of expenses. It is one of the simplest ways of determining your price and is therefore used by many start-ups.

It involves calculating your costs of production and then determining your desired profit margin per unit. Next, you would put both numbers together and charge that amount per good/service. 

This type of pricing is beneficial because it requires little resources and covers your business expenses. Despite this, it is still largely ineffective at maximising your profits or meeting your business’ needs.

3. Competitive Pricing

This involves pricing your product based on your competition. This does not necessarily mean you have to price it less. However, it does include you having to objectively evaluate your products capabilities compared to theirs.

Competitive pricing can be effective in establishing a price because you have real world data and possibly many competitors you can compare yourself to. These increase the accuracy of your pricing as you have used your competitors to essentially “do the work for you”.

For advice on how to research your competitors, look at our blog Top 10 Tips and Tricks for Researching your Competitors.

4. Market Penetration

This involves pricing your product/service at a lower price than your competitors. The aim is to attract a large number of customers and establish your position in the market before raising your price.

While this strategy can be extremely useful in establishing a large portion of the market share, it can be extremely difficult for new businesses to maintain the necessary funds to protect their business. It is therefore better used by existing businesses trying to break into a new market.

5. Price Skimming

This involves pricing the product very highly as soon as it has entered the market. Then, gradually over time, reducing the price as the product gets older. Ideally the reduction in  price should attract a larger customer base. 

A good example of price skimming is Apple, who, on release, price their iPhones very highly. The price is then reduced as the phone gets older.

This strategy allows an enterprise to generate lots of profit at the beginning of its products cycle. This strategy usually works best for businesses which release multiple products/services. 

6. Economy Pricing

This pricing strategy is also similar to the “price maximisation” strategy. However, its key difference is that it minimises costs not to maximise profit, but to be able to lower the price of your product.

This method has the business try to get a larger share of the market by being cheaper than the competition. However, as outlined previously, this isn’t always the best strategy for SMEs as it can severely impact budgeting. Furthermore, often it makes the product less desirable.

7. Value-based pricing

This type of strategy targets customer research. Rather than focusing on the costs and returning a profit, you focus on how much customers would value a certain product.

Much of the customer research involves working directly with customers. Getting customer feedback, sampling your product, conducting surveys and having a customer analysis of competitor goods all help you evaluate the price of your own product using value based pricing.

The benefit of this type of pricing is that you will develop very high quality products/services with phenomenal customer service. 

A good real-world example of effective Value-based pricing is inXile which, using its vocal customer base of video gamers, managed to produce a good customer designed product. Showing the success of their product was the fact that they were able to raise $8.6 million on Kickstarter over 3 campaigns.

Unfortunately, for SMEs with less vocal customers, this type of pricing strategy requires quite a few resources.

8. Psychological pricing

This involves pricing your products at £9.99 for example. Even though everyone knows this is a marketing trick, we still subconsciously fall for it most of the time. Other psychological pricing tricks may include giving away something free with your product. For example, McDonalds toys or all the buy 1 get 1 free slogans you see.

There are many other psychological tricks you can use to give your business a competitive edge. These require a little research and a bit of common sense to see which strategies will fit your type of business.

Once you have priced your product, the next logical step may be to do a sales forecast. 


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