To help you master the art of pricing your products or services, we’ve gathered insights from 13 industry experts, including VPs, founders, and CEOs. From researching market and competitor pricing to experimenting or asking for the client’s budget, these professionals share their top tips and best practices for effective pricing strategies.
- Research Market and Competitor Pricing
- Understand the Cost of Goods Sold
- Adopt a Value-Based Approach
- Stay Proactive and Adapt to Market
- Implement a Freemium Pricing Model
- Offer Tiered Pricing Options
- Apply a Cost-Tripled Pricing Model
- Embrace Pricing Transparency
- Find the Right Pricing Equilibrium
- Cover Expenses with Pricing
- Offer Multiple Pricing Options
- Focus on Package Pricing
- Experiment and Ask for Client Budget
Research Market and Competitor Pricing
One best practice for effectively pricing products or services is to research the market and understand the pricing of similar offerings. This will help you understand what customers will pay and ensure you are in line with the marketplace.
Additionally, consider the cost of production, customer demand, and the value of the product or service in order to set a competitive and profitable price.
Ranee Zhang, VP of Growth, Airgram
Understand the Cost of Goods Sold
To start, figure out your Cost of Goods Sold (COGS). Consider each activity that goes into the production of your good or service as you compute this number. This will cover the cost of the supplies, labor, marketing expenses, etc.
Manufacturers like Acer and Samsung establish a baseline that aids them in determining their market price when they add labor costs to the cost of materials. Any company must adhere to this standard.
Your product won’t earn a profit if you set your pricing lower than your COGS. Your business cannot survive if none of the goods in your range are profitable. Insightful information may be gained with only one COGS estimate.
John Willis, Founder, Convertfree
Adopt a Value-Based Approach
My best practice for pricing services is adopting a value-based approach. I assess the tangible and intangible benefits my work brings to clients and price accordingly. By focusing on the value delivered, I can justify my rates and ensure clients feel they are receiving excellent service for their investment, ultimately fostering long-term relationships and repeat business.
Michael Chen, Growth Director, Notta
Stay Proactive and Adapt to Market
An effective pricing strategy involves regularly monitoring your competitors’ prices and adjusting your own accordingly. To gain a strategic advantage, identify your unique value proposition and use it to justify any premium pricing. Stay aware of market trends, consumer preferences, and technological advancements to make informed pricing decisions.
Employing dynamic pricing algorithms and considering psychological pricing tactics can also help optimize your pricing for maximum profit and customer satisfaction. By staying proactive and adapting to the evolving market, you’ll ensure your products or services remain competitive and continue to drive revenue.
Jaya Iyer, Marketing Assistant, Teranga Digital Marketing
Implement a Freemium Pricing Model
I believe that offering a basic free service and a premium service with added features is an effective way to price our products or services. By offering a free service, we can attract a larger customer base and provide them with a chance to experience our product. On the other hand, by offering a premium service, we can cater to customers who will pay for additional features.
One tip that has worked well for us is to ensure that the pricing of our premium service is based on the value of the additional features that it provides. For example, if our premium service offers unlimited reviews and more powerful feedback, then the price should be set based on how much customers will pay for those features.
Another best practice is to regularly monitor and adjust pricing based on customer feedback and market trends. This can help us remain competitive in the market and ensure that our pricing is in line with industry standards.
Luciano Colos, Founder and CEO, PitchGrade
Offer Tiered Pricing Options
To effectively price products or services, offering tiered pricing options is a brilliant strategy. This means creating different pricing options that cater to different customer segments, such as offering a basic plan, a mid-tier plan, and a premium plan.
This allows customers to choose the option that best fits their budget and needs, while also giving the business an opportunity to capture different levels of value. It’s important to ensure that each tier is clearly defined with its own unique features and benefits and that the pricing structure is simple and easy to understand.
This approach can help to increase sales and customer satisfaction while also maximizing revenue.
Ben Lau, Founder, Featured SEO Company
Apply a Cost-Tripled Pricing Model
We run pay-per-click (PPC) ads and spend money on production and shipping of our products. These expenses consume the bulk of our revenue.
Our general rule at Heftyberry is pricing our products at three times the cost we source them for—i.e. if the item costs $15 to produce and ship (we offer free shipping), we price it at around $45. Keep in mind that ads may consume another $15 for one sale, fees and commissions another $5, so we end up with a 30-40% margin.
Ilia Mundut, CEO, Heftyberry
Embrace Pricing Transparency
Contractors with completely transparent pricing will always win bids for that exact reason. We outline where every single dollar is going, and exactly how much we are making on the job. People appreciate honesty, especially in a world of companies trying to hide charges.
We don’t sell materials on top of labor; customers may purchase their own. However, we can guarantee the work, but not the materials. There’s always a tradeoff. Every company can benefit by being transparent about their pricing and profit. People understand that you’re running a business, but they also don’t want hidden fees or exorbitant costs.
Rick Berres, Owner, Honey-Doers
Find the Right Pricing Equilibrium
This means setting prices that not only cover your costs and generate a profit but also allow you to invest in future expansion and innovation.
To do this, evaluate your costs, research your competitors, and determine the value your offering brings to the customers. By striking the right pricing equilibrium, you’ll be able to maintain a competitive edge while fostering long-term business success.
Ray Schultz, VP of Marketing, Liquid Rubber
Cover Expenses with Pricing
When pricing services, you need to ensure you are pricing well enough to afford your business expenses and your personal life. If this business is your primary source of income, then you need to make sure you can afford the necessities in your life and not let others influence your decisions.
Adriana Richardson, Owner and CEO, The Lazy Millennial
Offer Multiple Pricing Options
With pricing products or services, there are many factors to consider, including the cost of production, the value of the product or service to the customer, and the competition.
One effective strategy is to offer multiple packages or options that allow customers to choose the level of service that best fits their needs and budget. This approach can help businesses appeal to a broader range of customers and increase the likelihood of a sale.
When creating packages or options, it’s essential to clearly outline the differences between each level of service and what the customer can expect to receive. This can include the amount of time or resources allocated to the project, the level of expertise of the team working on the project, and any additional features or benefits included in each package.
By providing customers with clear and transparent pricing options, businesses can help build trust and establish a strong relationship with their customers.
Shane McEvoy, MD, Flycast Media
Focus on Package Pricing
When you’re pricing a service, you have three options: hourly, retainer, or package. I don’t recommend hourly pricing because it puts the focus on your time rather than on the results you offer. Also, retainer rates (charging a fixed price) can make it hard to set boundaries. But, with a package offer, you charge for a particular outcome—which is what clients ultimately want.
For example, if you’re just starting out as a coach, a good rate is $1,500 for a 3-month package—high enough to be an investment, but low enough to be accessible. Once you have clients and testimonials, though, you can charge more.
Ultimately, effectively pricing products or services comes down to the value or results you provide.
Luisa Zhou, Founder, LuisaZhou.com
Experiment and Ask for Client Budget
As a service-based business in the corporate market, all our services are priced bespoke. We experiment with pricing and see how far we can push our fees.
Another great tip is to simply ask about the client’s budget. You don’t always get it, but when you do, it is often higher than we would have quoted.
Philip Atkinson, Founder, Ignite Images