Pricing Strategy Guide: How to Price Your Products
Cost-Plus Pricing
The simplest method: add a markup to your cost. If a product costs £10 to make and you want a 50% markup, price it at £15.
Pros: Simple, guarantees profit margin. Cons: Ignores what customers will pay, ignores competition.
Value-Based Pricing
Price based on the perceived value to the customer, not your costs. A business consultant might charge £5,000 for advice that saves a client £50,000 — the cost of their time is irrelevant.
Pros: Can command premium prices, focuses on customer. Cons: Harder to calculate, requires deep customer understanding.
Competitive Pricing
Set prices based on what competitors charge. You can price below (budget positioning), at par (matching), or above (premium positioning).
Pros: Easy to benchmark, market-validated. Cons: Race to the bottom risk, doesn't consider your unique value.
Psychological Pricing
Charm pricing: £9.99 instead of £10 — proven to increase conversions by 8-24%. Anchor pricing: Show the original price crossed out next to the sale price. Bundle pricing: Offer three items together cheaper than buying separately — increases average order value.
How to Choose
New business with no brand: Start with cost-plus to ensure profitability. Established with loyal customers: Move towards value-based pricing. Commodity products: Competitive pricing is necessary. Premium brand: Value-based with premium positioning.
Testing Prices
A/B test different price points. Small increases (5-10%) often have zero impact on conversion but significant impact on profit. Most businesses undercharge rather than overcharge.
Related Calculators
Frequently Asked Questions
What is the best pricing strategy for a small business?
Start with cost-plus pricing to ensure profitability, then evolve towards value-based pricing as you understand customer willingness to pay. Test small price increases — most businesses undercharge.
Should I price lower than competitors?
Not necessarily. Competing on price alone leads to a race to the bottom. Focus on value, quality, and service differentiation. Customers often associate higher prices with higher quality.