How to Price Your Product
Pricing isn’t cost plus a margin. Know who you’re selling to, know your true cost — then price on the value you create, reach the real decision-maker, and time your price to the product’s life-cycle.
Executive Summary
Pricing, in one read.
Know the buyer, know the cost
Define your end-consumer profile before you price, and work out your true cost of goods sold in hard numbers. You can’t price without both.
Price on value, not cost
Charge for the value you create, not what it costs you. Quantify the benefit the customer gains, and take a share of it.
Decider, scarcity, timing
Reach the real decision-maker, charge more when options are few, and time price to the life-cycle — start high, come down later.
Visual Knowledge Map
The whole approach at a glance.
Core Concepts
The ideas behind the price.
Profile before price
Define who your end consumer is first. Without understanding the buyer, you cannot set the price.
Cost is not price
Costing tells you your floor. It’s for you alone — never the basis you reveal, and never the basis you charge on.
Value sets the price
Quantify the benefit the customer gains in money, then price as a share of it — even if your cost is far lower.
Reach the real decider
Find who truly decides the purchase and work top-down to them, and you command a premium price.
Scarcity is power
The fewer alternatives your customer has, the more you can charge. Many options, and the market sets the price.
High first, drop later
It’s hard to raise a low launch price. Launch high, capture early buyers, then lower it to reach the rest.
Frameworks & Models
Two models that frame the price.
The four market types — price against quality
Cheap products of low quality, bought purely on price.
e.g. low-cost mass-produced goods.
Good quality at a low price — customers want quality cheaply.
e.g. affordable footwear, economy cars.
Average quality at a high price — a captive, monopoly setting.
e.g. a cinema’s snack counter; stalls at a tourist landmark.
High quality sold at a high price, to buyers who value the best.
e.g. a luxury car brand.
Pricing by product life-cycle
Charge 2–3× the market
- Bought by people who want new technology, design or experience.
- They buy in small numbers but will pay up to three times more.
- First-mover advantage: low volume, high price.
Compete on share, not price
- Prices are stable; you cannot charge a higher price.
- Win with instalment plans, combo offers, marketing and good service.
- Focus shifts to growing market share.
Process Flow
The seven pricing levers, in order.
Relationship Diagram
The decision-making chain.
Dependencies & Interactions
What each pricing move leans on.
| Pricing move | Depends on | Strengthened by | Failure mode |
|---|---|---|---|
| Setting any price | Knowing the consumer profile | Matching the right market type | Pricing blind to who buys |
| A profitable floor | Accurate COGS in numbers | Working the figures with finance | Guessing your true cost |
| A premium price | Quantified customer value | Keeping costing confidential | Charging on cost, not value |
| A faster, larger sale | Reaching the veto-power person | Top-down, via the influencers | Selling bottom-up to the buyer |
| Pricing freedom | Few options for the customer | A distinct, scarce proposition | A crowded field of substitutes |
Key Takeaways
Ten lines to keep.
Define the consumer profile before you price.
Calculate COGS in hard numbers.
Quantify the value you create.
Take your cut of the customer’s benefit.
Never reveal costing to customers or sales.
Reach the veto-power person, top-down.
Fewer options mean more pricing power.
Price by life-cycle — first mover charges more.
Launch high, then decrease later.
Reach the real decider to shorten the sale.
Revision Sheet
Glance, refresh, reflect.
- Know the buyer; know your cost.
- Price on value, not cost.
- Reach the real decider.
- Scarcity and timing set the rest.
- Profile → COGS → value.
- Decision unit → options.
- Life-cycle stage sets price.
- Start high, drop later.
- Keep ~20% of the value; give ~80%.
- Top-down beats bottom-up.
- Sales cycle: 90 days → 15–20.
- First mover: 2–3× the market.
Quick Reference Table
The seven levers and their core move.
| Lever | Core move |
|---|---|
| 1 · Consumer profile | Define who buys — budget, value, opportunistic or premium — before pricing. |
| 2 · Cost of goods sold | Work out your true per-unit cost in numbers; it’s your floor, kept private. |
| 3 · Value quantification | Measure the benefit the customer gains in money, and price as a share of it. |
| 4 · Decision-making unit | Find the veto-power person and work top-down to them for a premium. |
| 5 · Customer options | The fewer the alternatives, the higher you can charge. |
| 6 · Product life-cycle | First mover charges 2–3×; mature products compete on share. |
| 7 · Drop the price later | Launch high to capture early buyers, then lower to reach the rest. |
Frequently Asked Questions
The questions this raises.
Because cost only tells you your floor. The price a customer will pay depends on the value they receive, which is often far above your cost — so price on value, not cost.
Working out, in money, how much the customer gains — productivity, revenue, profitability, market share — and pricing as a share of it. Keep roughly a fifth of the benefit you create.
Reveal it and customers bargain you down toward cost, and sales staff erode your margin to close deals. Do the pricing and the maths quietly with your finance team.
Everyone involved in deciding whether to buy. Identify the person with veto power, work top-down through their influencers, and you shorten the sale and lift the price.
Pricing power tracks scarcity. With no rivals you can charge almost anything; with many substitutes you must sell at the price the customer will accept.
High. A low launch price is very hard to raise. Start high to capture early adopters, then lower it over time to reach price-sensitive buyers.
Memory Hooks
Lines that make it stick.
Cost is your floor; value sets the price.
Give 80% of the benefit, keep about 20%.
Sell to the veto-power person first.
You can drop a price; you can’t lift it easily.
Practical Applications
Worked examples and the secrecy rules.
Worked example: costing a service per use
| Item | Cost | Uses | Per use |
|---|---|---|---|
| Cloth | 100 | 1,000 | 0.10 |
| Chair | 5,000 | 10,000 | 0.50 |
| Scissor | 100 | 1,000 | 0.10 |
| + blade, salary, power, rent… | All overheads added in the same way | ||
| Total per customer | ≈ 35 | Charges | ≈ 100 |
With few customers at first, the price can be cut (say from 100 to 50) for the first three months to attract them, then raised later — a regular customer rarely switches even at a higher price. Once you can calculate COGS, you can correct your pricing.
Value capture & the secrecy rules
One technology leader’s rule: keep 20% of the benefit the customer receives and give them 80%. If the customer gains 100K, keep ~20K — even if your cost is only 3K–5K, because the price is positioned on value, not cost.
If they know it costs you 100 and you ask 110, they bargain you down to 102–105. Quantify their gain instead, and they feel you’re helping them earn more — and pay willingly.
Knowing the cost, a salesperson sells at 102 now and 95 next time to close — steadily eroding your margin. Set price and do the maths with your finance team.
Pitch the veto-power person first, then move down. Bottom-up forces heavy discounts and small orders. Done well, the sale cycle drops from ~90 days to 15–20 and acquisition cost falls.