10 Tips for Pricing Your Product or Service

When you first start your business, figuring out what customers are willing to pay is really hard. If you charge too little, people won’t care, but if you charge too much, they won’t like it.

That’s why I asked 10 business owners from the Young Entrepreneur Council (YEC) this question:

What’s your best advice for someone starting a business who wants to know how much customers will pay for their product or service?

Here’s what the YEC members had to say:

1. Look at your competition

You know, when it comes to pricing a product, there’s a big difference between business-to-business (B2B) and business-to-consumer (B2C) offerings. But here’s something that a lot of people miss – there’s this whole indirect competition thing going on. See, customers don’t just look at your product or service on its own. They compare it to other options within your industry and beyond. It’s important to understand who your indirect competitors are and how you measure up against them.

2. Try out Different Approaches and Listen to Your Customers

When it comes to deciding on prices for your product, it’s important to use data instead of just guessing. One way to do this is by creating a landing page where you can describe your product and its price. Don’t forget to include a credit card entry form as well. After that, you can use an A/B testing tool to show different prices to different groups of people. By doing this, you can see how many credit cards you collect from each price point without actually charging the cards. This will give you valuable information to make informed decisions about your pricing strategy.

3. Try Tiered Pricing

Tiered pricing is a simple way to figure out which features are most valuable to your customers. It also helps you determine which price points will lead to the highest conversion rates. While many new customers might choose the cheapest package, you can offer upsell packages to your existing customers through targeted marketing automation. This allows you to test different price points without revealing them to the public. It’s a smart way to experiment with different pricing options and optimize your sales.

4. Using Bottom-Up Pricing

I’d rather have customers paying a lower price but still paying, rather than setting a price too high and having zero customers. Start by asking a few customers for a fair price. Once they sign up, gradually increase the price for new users. Keep doing this until you notice that fewer people are signing up. That’s when you’ll know you’ve reached the right pricing structure. – John Rampton, Due

5. Asking for the Sale

You’ll never really know how much someone is willing to pay until they actually give you money. Many founders make the mistake of asking people how much they would pay for something, but their answers don’t always reflect reality. Instead, try pre-selling your product or service by directly asking for the sale. This way, you’ll quickly find out how much people are truly willing to pay. – Laura Roeder, MeetEdgar.com

6. Avoid Underpricing Products

When you’re selling a product, it’s a good idea to set the price as high as you can without scaring away potential buyers, especially if you’re not offering an automated online service. You can always lower the price later on as you become more efficient. Instead of trying to undercut your competition at the start, focus on creating a superior product. ~ Wei-Shin Lai, AcousticSheep LLC

7. Figure Out Your Desired Profit

It’s important to consider the costs involved in developing, providing, and selling a product or service before deciding on a price. You need to make sure that your profit margins cover all these expenses. Once you have a clear idea of what your costs are, find out if customers are willing to pay that price. If they aren’t, it means that either the product isn’t right for that price and needs some improvement, or you need to find ways to reduce the production costs. ~ Mark Cenicola, BannerView.com

8. Connect with the Right People

I believe it’s important to identify your ideal customer and take effective steps to attract them. When you connect with the right kind of customers, it sets the stage for success. As your experience and customer base grow, you can even start charging higher prices.

9. Discover the Perfect Anchor

Have you ever heard of Priceless by William Poundstone? It’s a fascinating book that introduces the concept of price anchoring. Essentially, people often have no idea how much something should cost. Instead, they rely on little clues or anchors around them when making a purchase decision. So, why not take advantage of this and anchor your price right?

10. Target the Right Audience

When it comes to reaching your customers, it’s important to focus on both geography and demographics. You need to search for your target audience in specific locations and understand who they are. The key is finding that sweet spot where your product or service is valuable enough for them to spend their money, convenient enough for their needs, and ultimately worth it. This requires a good amount of research, but it’s worth the effort.