How to set a price for your product or service the first time
Price too low and you struggle to survive. Price too high and nobody buys. A practical way to find a starting price and improve it.
By Yeem Team ·
Pricing is one of the hardest decisions for a new business. Many first-time founders set prices too low because they are nervous, and then struggle to cover their costs. Others copy a competitor's price without knowing whether it works for them.
There is no perfect formula, but there is a sensible way to find a good starting point and improve it as you learn.
Know your costs first
Before choosing a price, understand what it costs you to deliver your product or service.
- Direct costs: materials, packaging, delivery, payment fees and anything spent on each sale
- Your time: how many hours each order or client takes, and what that time is worth
- Fixed costs: rent, tools, phone, internet and other monthly costs that do not change with each sale
Your price must cover the direct cost of each sale, plus a share of your fixed costs, plus a profit. If it does not, every sale moves you backwards.
Look at the alternatives
What do your customers do today instead of buying from you? They might use a competitor, do it themselves or simply live with the problem. Knowing these alternatives and their prices tells you the range customers already accept.
You do not need to be the cheapest. Being the cheapest is a hard position to hold, and it often attracts customers who will leave for a slightly lower price elsewhere.
Think about value, not just cost
Customers do not pay for your costs. They pay for the value they get. Ask:
- How much time or money does this save them?
- How much does the problem cost them today?
- How important is the result to them?
If your service saves a shop owner five hours a week, it may be worth far more to them than your costs suggest.
Choose a starting price
Combine the three views: your costs, the alternatives and the value to the customer. Choose a price that covers your costs comfortably, sits sensibly against alternatives, and reflects the value you deliver.
When in doubt, start a little higher than feels comfortable. It is easier to offer a discount or an introductory price than to raise prices later.
Keep your pricing simple
Customers should understand your price in seconds. A few clear options work well:
- Basic: the essential service at an accessible price
- Standard: the option most people choose
- Premium: extra features or faster service for those who want more
Many people choose the middle option, so make it the one you most want to sell.
Test and learn
Your first price is a hypothesis. Watch what happens:
- If almost everyone says yes immediately, your price may be too low
- If almost everyone says no because of price, it may be too high, or your value may not be clear
- If people hesitate but many still buy, you may be close to right
Talk to customers who did not buy. Was it really the price, or something else, such as trust, timing or understanding what they would get?
Raising prices later
As you improve your product, build a reputation and gather reviews, you can raise prices for new customers. Give existing customers notice, explain what has improved, and consider keeping their price for a while as a thank-you.
Do not compete on price alone
Small businesses rarely win by being the cheapest. They win by being more personal, more reliable, faster or better suited to a specific type of customer. Price is important, but it works best alongside a clear reason why customers should choose you.