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In this blog you will learn about the importance of choosing the right pricing strategy for a successful business plan.

Why is a pricing strategy important for a business plan?

A business plan is a written document outlining a company’s core business practices – from products and services offered to marketing, financial planning and budget, but also pricing strategy. This business plan can be very lengthy, outlining every aspect of the business in detail. Or it can be very short and lean for start ups that want to be as agile as possible.

This plan can be used for external investors and relations or for internal purposes. A business plan can be useful for internal purposes because it can make sure that all the decision makers are on the same page about the most important aspects of the business.

A 1% price increase can lead to an 8% increase in profit margin.

A business plan could be very lengthy and detailed or short and lean, but in all instances, it should have a clear vision for how pricing is tackled. A pricing strategy ultimately greatly determines the profit margin of your product or service and how much revenue the company will make. Thorough research of consultancy agencies also show that pricing is very important. McKinsey even argues that a 1% prices increase can lead up to an 8% increase in profits. That is a real example of how small adjustments can have a huge impact!

It is clear that each business plan should have a section about pricing strategies. How detailed and complicated this pricing strategy should be depends for each individual business and challenges in the business environment. However, businesses should at least take some factors into account when thinking about their pricing strategy.

What factors to take into account?

The pricing strategy can best be explained in the marketing section of your business plan. In this section you should describe what price you will charge for your product or service to customers and your argumentation for why you ask this. However, businesses always balance the challenging scale of charging too much or too little. Ideally you want to find the middle, the optimal price point.

The following questions need to be answered for writing a well-structured pricing strategy in your business plan:

What is the cost of your product or service?

Most companies need to be profitable. They need to pay their expenses, their employees and return a reasonable profit. Unless you are a well-funded-winner-takes-all-growth-company such as Uber or Gorillas, you will need to earn more than you spend on your products. In order to be profitable you need to know how much your expenses are, to remain profitable overall.

How does your price compare to other alternatives in the market?

Most companies have competitors for their products or services, only few companies can act as a monopoly. Therefore, you need to know how your price compares to the other prices in the market. Are you one of the cheapest, the most expensive or somewhere in the middle?

Why is your price competitive?

When you know the prices of your competitors, you need to be able to explain why your price is better or different than that of your competitions. Do you offer more value for the same price? Do you offer less, but are you the cheapest? Or does your company offer something so unique that a premium pricing strategy sounds fair to your customer? You need to be able to stand out from the competition and price is an efficient differentiator.

What is the expected ROI (Return On Investment)?

When you set your price, you need to be able to explain how much you are expeciting to make. Will the price you offer attract enough customers to make your business operate profitable? Let’s say your expenses are 10.000 euros per month, what return will your price get you for your expected amount of sales?

Top pricing strategies for a business plan

Now you know why pricing is important for your business plan, “but what strategies are best for me?” you may ask. Well, let’s talk pricing strategies. There are plenty of pricing strategies and which ones are best for which business depends on various factors and the industry. However, here is a list of 9 pricing strategies that you can use for your business plan.

• Cost-plus pricing
• Competitive pricing
• Key-Value item pricing
• Dynamic pricing
• Premium pricing
• Hourly based pricing
• Customer-value based pricing
• Psychological pricing
• Geographical pricing

Most of the time, businesses do not use a single pricing strategy in their business but rather a combination of pricing strategies. Cost-plus pricing or competitor based pricing can be good starting points for pricing, but if you make these dynamic or take geographical regions into account, then your pricing becomes even more advanced!

Pricing strategies should not be left out of your business plan. Having a clear vision on how you are going to price your product(s) and service(s) helps you to achieve the best possible profit margins and revenue. If you are able to answer thoughtfully on the questions asked in this blog then you know that you have a rather clear vision on your pricing strategy.

If there are still some things unclear or vague, then it would be adviceable to learn more about all the possible pricing strategies . You can always look for inspiration to our business cases. Do you want to know more about pricing or about SYMSON? Do not hesitate to contact us!

Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!

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The Ultimate Guide to Pricing Strategies & Models

Discover how to properly price your products, services, or events so you can drive both revenue and profit.

FREE SALES PRICING CALCULATOR

Determine the best pricing strategy for your business with this free calculator and template.

Published: 08/16/23

Pricing your products and services can be tough. Set prices too high, and you miss out on valuable sales. Set them too low, and you miss out on valuable revenue.

Thankfully, pricing doesn’t have to be a sacrifice or a shot in the dark. There are dozens of pricing models and strategies that can help you better understand how to set the right prices for your audience and revenue goals.

That’s why we’ve created this guide.

Whether you’re a business beginner or a pricing pro, the tactics and strategies in this guide will get you comfortable with pricing your products. Bookmark this guide for later and use the chapter links to jump around to sections of interest.

Pricing Strategy

Types of pricing strategies, how to create a pricing strategy, pricing models based on industry or business.

Conducting a Pricing Analysis

Pricing Strategy Examples

A pricing strategy is a model or method used to establish the best price for a product or service. It helps you choose prices to maximize profits and shareholder value while considering consumer and market demand.

If only pricing was as simple as its definition — there’s a lot that goes into the process.

Pricing strategies account for many of your business factors, like revenue goals, marketing objectives, target audience, brand positioning, and product attributes. They’re also influenced by external factors like consumer demand, competitor pricing, and overall market and economic trends.

It’s not uncommon for entrepreneurs and business owners to skim over pricing. They often look at the cost of their products (COGS) , consider their competitor’s rates, and tweak their own selling price by a few dollars. While your COGS and competitors are important, they shouldn’t be at the center of your pricing strategy.

The best pricing strategy maximizes your profit and revenue.

Before we talk about pricing strategies, let’s review an important pricing concept that will apply regardless of what strategies you use.

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• Cost-Plus Pricing
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Determine the Best Pricing Strategy For Your Business

Fill out this form to access the free template., price elasticity of demand.

Price elasticity of demand is used to determine how a change in price affects consumer demand.

If consumers still purchase a product despite a price increase (such as cigarettes and fuel) that product is considered inelastic .

On the other hand, elastic products suffer from pricing fluctuations (such as cable TV and movie tickets).

You can calculate price elasticity using the formula:

% Change in Quantity ÷ % Change in Price = Price Elasticity of Demand

The concept of price elasticity helps you understand whether your product or service is sensitive to price fluctuations. Ideally, you want your product to be inelastic — so that demand remains stable if prices do fluctuate.

Cost, Margin, & Markup in Pricing

To choose a pricing strategy, it’s also essential to understand the role of cost, margin, and markup — especially if you’d like your pricing to be cost-based . Let’s dive into the definition for each.

Cost refers to the fees you incur from manufacturing, sourcing, or creating the product you sell. That includes the materials themselves, the cost of labor, the fees paid to suppliers, and even the losses. Cost doesn’t include overhead and operational expenses such as marketing, advertising, maintenance, or bills.

Margin (in this case, gross margin) refers to the amount your business earns after you subtract manufacturing costs.

Markup refers to the additional amount you charge for your product over the production and manufacturing fees.

Now, let’s cover some common pricing strategies. As we do so, it’s important to note that these aren’t necessarily standalone strategies — many can be combined when setting prices for your products and services.

• Competition-Based Pricing
• Dynamic Pricing
• High-Low Pricing
• Penetration Pricing
• Skimming Pricing
• Psychological Pricing
• Geographic Pricing

Now, let's dive into the descriptions of each pricing strategy — many of which are included in the template below — so you can learn about what makes each of them unique.

Discover how much your business can earn using different pricing strategies with HubSpot's free sales pricing calculator so you can choose the best pricing model for your business.

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1. competition-based pricing strategy.

Competition-based pricing is also known as competitive pricing or competitor-based pricing. This pricing strategy focuses on the existing market rate (or going rate ) for a company’s product or service; it doesn’t take into account the cost of their product or consumer demand.

Instead, a competition-based pricing strategy uses the competitors’ prices as a benchmark. Businesses who compete in a highly saturated space may choose this strategy since a slight price difference may be the deciding factor for customers.

With competition-based pricing , you can price your products slightly below your competition, the same as your competition, or slightly above your competition. For example, if you sold marketing automation software , and your competitors’ prices ranged from $19.99 per month to $39.99 per month, you’d choose a price between those two numbers.

Whichever price you choose, competitive pricing is one way to stay on top of the competition and keep your pricing dynamic.

Competition-Based Pricing Strategy in Marketing

Consumers are primarily looking for the best value which isn’t always the same as the lowest price. Pricing your products and services competitively in the market can put your brand in a better position to win a customer’s business. Competitive pricing works especially well when your business offers something the competition doesn’t — like exceptional customer service, a generous return policy, or access to exclusive loyalty benefits .

2. Cost-Plus Pricing Strategy

A cost-plus pricing strategy focuses solely on the cost of producing your product or service, or your COGS . It’s also known as markup pricing since businesses who use this strategy “markup” their products based on how much they’d like to profit.

To apply the cost-plus method, add a fixed percentage to your product production cost. For example, let’s say you sold shoes. The shoes cost $25 to make, and you want to make a $25 profit on each sale. You’d set a price of $50, which is a markup of 100%.

Cost-plus pricing is typically used by retailers who sell physical products. This strategy isn’t the best fit for service-based or SaaS companies as their products typically offer far greater value than the cost to create them.

Cost-Plus Pricing Strategy in Marketing

Cost-plus pricing works well when the competition is pricing using the same model. It won’t help you attract new customers if your competition is working to acquire customers rather than growing profits. Before executing this strategy, complete a pricing analysis that includes your closest competitors to make sure this strategy will help you meet your goals.

3. Dynamic Pricing Strategy

Dynamic pricing is also known as surge pricing, demand pricing, or time-based pricing. It’s a flexible pricing strategy where prices fluctuate based on market and customer demand.

Hotels, airlines, event venues, and utility companies use dynamic pricing by applying algorithms that consider competitor pricing, demand, and other factors. These algorithms allow companies to shift prices to match when and what the customer is willing to pay at the exact moment they’re ready to make a purchase.

Dynamic Pricing Strategy in Marketing

Dynamic pricing can help keep your marketing plans on track. Your team can plan for promotions in advance and configure the pricing algorithm you use to launch the promotion price at the perfect time. You can even A/B test dynamic pricing in real-time to maximize your profits.

4. High-Low Pricing Strategy

A high-low pricing strategy is when a company initially sells a product at a high price but lowers that price when the product drops in novelty or relevance. Discounts, clearance sections, and year-end sales are examples of high-low pricing in action — hence the reason why this strategy may also be called a discount pricing strategy.

High-low pricing is commonly used by retail firms that sell seasonal items or products that change often, such as clothing, decor, and furniture. What makes a high/low pricing strategy appealing to sellers? Consumers enjoy anticipating sales and discounts, hence why Black Friday and other universal discount days are so popular.

High-Low Pricing Strategy in Marketing

If you want to keep the foot traffic steady in your stores year-round, a high-low pricing strategy can help. By evaluating the popularity of your products during particular periods throughout the year, you can leverage low pricing to increase sales during traditionally slow months.

5. Penetration Pricing Strategy

Contrasted with skimming pricing, a penetration pricing strategy is when companies enter the market with an extremely low price, effectively drawing attention (and revenue) away from higher-priced competitors. Penetration pricing isn’t sustainable in the long run, however, and is typically applied for a short time.

This pricing method works best for brand new businesses looking for customers or for businesses that are breaking into an existing, competitive market. The strategy is all about disruption and temporary loss … and hoping that your initial customers stick around as you eventually raise prices.

(Another tangential strategy is loss leader pricing , where retailers attract customers with intentionally low-priced items in hopes that they’ll buy other, higher-priced products, too. This is precisely how stores like Target get you — and me.)

Penetration Pricing Strategy in Marketing

Penetration pricing has similar implications as freemium pricing — the money won’t come in overnight. But with enough value and a great product or service, you could continue to make money and scale your business as you increase prices. One tip for this pricing strategy is to market the value of the products you sell and let price be a secondary point.

6. Skimming Pricing Strategy

A skimming pricing strategy is when companies charge the highest possible price for a new product and then lower the price over time as the product becomes less and less popular. Skimming is different from high-low pricing in that prices are lowered gradually over time.

Technology products, such as DVD players, video game consoles, and smartphones, are typically priced using this strategy as they become less relevant over time. A skimming pricing strategy helps recover sunk costs and sell products well beyond their novelty, but the strategy can also annoy consumers who bought at full price and attract competitors who recognize the “fake” pricing margin as prices are lowered.

Skimming Pricing Strategy in Marketing

Skimming pricing strategy can work well if you sell products that have products with varying life cycle lengths. One product may come in and out of popularity quickly so you have a short time to skim your profits in the beginning stages of the life cycle. On the flip side, a product that has a longer life cycle can stay at a higher price for more time. You’ll be able to maintain your marketing efforts for each product more effectively without constantly adjusting your pricing across every product you sell.

7. Value-Based Pricing Strategy

A value-based pricing strategy is when companies price their products or services based on what the customer is willing to pay. Even if it can charge more for a product, the company decides to set its prices based on customer interest and data.

If used accurately, value-based pricing can boost your customer sentiment and loyalty. It can also help you prioritize your customers in other facets of your business, like marketing and service.

On the flip side, value-based pricing requires you to constantly be in tune with your various customer profiles and buyer personas and possibly vary your prices based on those differences.

Value-Based Pricing Strategy in Marketing

Marketing to your customers should always lead with value, so having a value-based pricing model should help strengthen the demand for your products and services. Just be sure that your audiences are distinct enough in what they’re willing to pay for — you don’t want to run into trouble by charging more or less based on off-limits criteria .

8. Psychological Pricing Strategy

Psychological pricing is what it sounds like — it targets human psychology to boost your sales.

For example, according to the " 9-digit effect ", even though a product that costs $99.99 is essentially $100, customers may see this as a good deal simply because of the "9" in the price.

Another way to use psychological pricing would be to place a more expensive item directly next to (either, in-store or online) the one you're most focused on selling . Or offer a "buy one, get one 50% off (or free)" deal that makes customers feel as though the circumstances are too good to pass up on.

And lastly, changing the font, size, and color of your pricing information on and around your products has also been proven, in various instances, to boost sales.

Psychological Pricing Strategy in Marketing

Psychological pricing strategy requires an intimate understanding of your target market to yield the best results. If your customers are inclined to discounts and coupons, appealing to this desire through your marketing can help this product meet their psychological need to save money. If paying for quality is important to your audience, having the lowest price on the shelf might not help you reach your sales goals. Regardless of the motivations your customers have for paying a certain price for a product, your pricing and marketing should appeal to those motivations.

9. Geographic Pricing Strategy

Geographic pricing is when products or services are priced differently depending on geographical location or market.

This strategy may be used if a customer from another country is making a purchase or if there are disparities in factors like the economy or wages (from the location in which you're selling a good to the location of the person it is being sold to).

Geographic Pricing Strategy in Marketing

Marketing a geographically priced product or service is easy thanks to paid social media advertising. Segmenting by zip code, city, or even region can be accomplished at a low cost with accurate results. Even as specific customers travel or permanently move, your pricing model will remain the same which helps you maintain your marketing costs.

Download our free guide to creating buyer personas to easily organize your audience segments and make your marketing stronger.

Like we said above, these strategies aren’t necessarily meant to stand alone. We encourage you to mix and match these methods as needed.

Below, we cover more specific pricing models for individual products.

Pricing Models

While your pricing strategy may determine how your company sets fees for its offerings overall , the below pricing models can help you set prices for specific product lines. Let's take a look.

1. Freemium

A combination of the words “free” and “premium,” freemium pricing is when companies offer a basic version of their product hoping that users will eventually pay to upgrade or access more features.

Unlike cost-plus, freemium is a pricing model commonly used by SaaS and other software companies. They choose this model because free trials and limited memberships offer a peek into a software’s full functionality — and also build trust with a potential customer before purchase.

With freemium, a company’s prices must be a function of the perceived value of their products. For example, companies that offer a free version of their software can’t ask users to pay $100 to transition to the paid version. Prices must present a low barrier to entry and grow incrementally as customers are offered more features and benefits.

Freemium Pricing in Marketing

Freemium pricing may not make your business a lot of money on the initial acquisition of a customer, but it gives you access to the customer which is just as valuable. With access to their email inboxes, phone number, and any other contact information you gather in exchange for the free product, you can nurture the customer into a brand loyal advocate with a worthwhile LTV .

2. Premium Pricing

Also known as prestige pricing and luxury pricing, a premium pricing model is when companies price their products high to present the image that their products are high-value, luxury, or premium. Prestige pricing focuses on the perceived value of a product rather than the actual value or production cost.

Prestige pricing is a direct function of brand awareness and brand perception. Brands that apply this pricing method are known for providing value and status through their products — which is why they’re priced higher than other competitors. Fashion and technology are often priced using this model because they can be marketed as luxurious, exclusive, and rare.

Premium Pricing in Marketing

Premium pricing is quite dependent upon the perception of your product within the market. There are a few ways to market your product in order to influence a premium perception of it including using influencers, controlling supply, and driving up demand.

3. Hourly Pricing

Hourly pricing, also known as rate-based pricing, is commonly used by consultants, freelancers, contractors, and other individuals or laborers who provide business services. Hourly pricing is essentially trading time for money. Some clients are hesitant to honor this pricing strategy as it can reward labor instead of efficiency.

Hourly Pricing in Marketing

If your business thrives on quick, high-volume projects, hourly pricing can be just the incentive for customers to work with you. By breaking down your prices into hourly chunks, customers can make the decision to work with you based on a low price point rather than finding room in their budget for an expensive project-based commitment.

4. Bundle Pricing

Bundle pricing is when you offer (or "bundle") two or more complementary products or services together and sell them for a single price. You may choose to sell your bundled products or services only as part of a bundle, or sell them as both components of bundles and individual products.

This is a great way to add value through your offerings to customers who are willing to pay extra upfront for more than one product. It can also help you get your customers hooked on more than one of your products faster.

Bundle Pricing in Marketing

Marketing bundle deals can help you sell more products than you would otherwise sell individually. It’s a smart way to upsell and cross-sell your offerings in a way that is beneficial for the customer and your revenue goals.

5. Project-Based Pricing

Project-based pricing is the opposite of hourly pricing — this approach charges a flat fee per project instead of a direct exchange of money for time. It is also used by consultants, freelancers, contractors, and other individuals or laborers who provide business services.

Project-based pricing may be estimated based on the value of the project deliverables. Those who choose this pricing model may also create a flat fee from the estimated time of the project.

Project-Based Pricing in Marketing

Leading with the benefits a customer will derive from working with your business on a project can make project-based pricing more appealing. Although the cost of the project may be steep, the one-time investment can be worth it. Your clients will know that they’ll be able to work with you until the project is completed rather than until their allotted hours are depleted.

6. Subscription Pricing

Subscription pricing is a common pricing model at SaaS companies, online retailers, and even agencies who offer subscription packages for their services.

Whether you offer flat rate subscriptions or tiered subscriptions, the benefits of this model are endless. For one, you have all but guaranteed monthly recurring revenue (MRR) and yearly recurring revenue. That makes it simpler to calculate your profits on a monthly basis. It also often leads to higher customer lifetime values .

The one thing to be wary of when it comes to subscription pricing is the high potential for customer churn . People cancel subscriptions all the time, so it's essential to have a customer retention strategy in place to ensure clients keep their subscriptions active.

Subscription Pricing in Marketing

When marketing your subscription products, it's essential to create buyer personas for each tier. That way, you know which features to include and what will appeal to each buyer. A general subscription that appeals to everyone won't pull in anyone.

Even Amazon, which offers flat-rate pricing for its Prime subscription, includes a membership for students. That allows them to market the original Prime more effectively by creating a sense of differentiation.

Now, let’s discuss how to build a pricing strategy of your own liking.

1. Evaluate pricing potential.

You want to make a strategy that is optimal for your unique business. To begin, you need to evaluate your pricing potential. This is the approximate product or service pricing your business can potentially achieve in regard to cost, demand, and more.

Some factors that can affect your pricing potential include:

• Geographical market specifics
• Operating costs
• Inventories
• Demand fluctuations
• Competitive advantages and concerns
• Demographic data

We’ll dive deeper into demographic data in the next step.

2. Determine your buyer personas.

You have to price your product on the type of buyer persona that’s looking for it. When you look at your ideal customer, you’ll have to look at their:

• Customer Lifetime Value
• Willingness to Pay
• Customer Pain Points

To aid in this process, interview customers and prospects to see what they do and like, and ask for your sales team’s feedback on the best leads and their characteristics.

3. Analyze historical data.

Take a look at your previous pricing strategies. You can calculate the difference in closed deals, churn data , or sold product on different pricing strategies that your business has worked with before and look at which were the most successful.

4. Strike a balance between value and business goals.

When developing your pricing strategy, you want to make sure the price is good to your bottom line and your buyer personas. This compromise will better help your business and customer pool, with the intentions of:

• Increasing profitability
• Improving cash flow
• Market penetration
• Expanding market share

5. Look at competitor pricing.

You can’t make a pricing strategy without conducting research on your competitors’ offerings. You’ll have to decide between two main choices when you see the price difference for your same product or service:

• Beat your competitors’ price - If a competitor is charging more for the same offering as your brand, then make the price more affordable.
• Beat your competitors’ value - Also known as value-based pricing , you can potentially price your offering higher than your competitors if the value provided to the customer is greater.

To see the competition’s full product or service offering, conduct a full competitive analysis so you can see their strengths and weaknesses, and make your pricing strategy accordingly.

So we’ve gone over how to create a pricing strategy, now let’s discuss how to apply these steps to different businesses and industries.

Not every pricing strategy is applicable to every business. Some strategies are better suited for physical products whereas others work best for SaaS companies. Here are examples of some common pricing models based on industry and business.

Product Pricing Model

Unlike digital products or services, physical products incur hard costs (like shipping, production, and storage) that can influence pricing. A product pricing strategy should consider these costs and set a price that maximizes profit, supports research and development, and stands up against competitors.

👉🏼 We recommend these pricing strategies when pricing physical products : cost-plus pricing, competitive pricing, prestige pricing, and value-based pricing.

Digital Product Pricing Model

Digital products, like software, online courses, and digital books, require a different approach to pricing because there’s no tangible offering or unit economics (production cost) involved. Instead, prices should reflect your brand, industry, and overall value of your product.

👉🏼 We recommend using these pricing strategies when pricing digital products: competition-based pricing, freemium pricing, and value-based pricing.

Restaurant Pricing Model

Restaurant pricing is unique in that physical costs, overhead costs, and service costs are all involved. You must also consider your customer base, overall market trends for your location and cuisine, and the cost of food — as all of these can fluctuate.

👉🏼 We recommend using these pricing strategies when pricing at restaurants: cost-plus pricing, premium pricing, and value-based pricing.

Event Pricing Model

Events can’t be accurately measured by production cost (not unlike the digital products we discussed above). Instead, event value is determined by the cost of marketing and organizing the event as well as the speakers, entertainers, networking, and the overall experience — and the ticket prices should reflect these factors.

👉🏼 We recommend using these pricing strategies when pricing live events: competition-based pricing, dynamic pricing, and value-based pricing.

Services Pricing Model

Business services can be hard to price due to their intangibility and lack of direct production cost. Much of the service value comes from the service provider’s ability to deliver and the assumed caliber of their work. Freelancers and contractors , in particular, must adhere to a services pricing strategy.

👉🏼 We recommend using these pricing strategies when pricing services: hourly pricing, project-based pricing, and value-based pricing.

Nonprofit Pricing Model

Nonprofits need pricing strategies, too — a pricing strategy can help nonprofits optimize all processes so they’re successful over an extended period of time.

A nonprofit pricing strategy should consider current spending and expenses, the breakeven number for their operation, ideal profit margin, and how the strategy will be communicated to volunteers, licensees, and anyone else who needs to be informed. A nonprofit pricing strategy is unique because it often calls for a combination of elements that come from a few pricing strategies.

👉🏼 We recommend using these pricing strategies when pricing nonprofits: competitive pricing, cost-plus pricing, demand pricing, and hourly pricing.

Education Pricing Model

Education encompasses a wide range of costs that are important to consider depending on the level of education, private or public education, and education program/ discipline.

Specific costs to consider in an education pricing strategy are tuition, scholarships, additional fees (labs, books, housing, meals, etc.). Other important factors to note are competition among similar schools, demand (number of student applications), number and costs of professors/ teachers, and attendance rates.

👉🏼 We recommend using these pricing strategies when pricing education: competitive pricing, cost-based pricing, and premium pricing.

Real Estate Pricing Model

Real estate encompasses home value estimates, market competition, housing demand, and cost of living. There are other factors that play a role in real estate pricing models including potential bidding wars, housing estimates and benchmarks (which are available through real estate agents but also through free online resources like Zillow ), and seasonal shifts in the real estate market.

👉🏼 We recommend using these pricing strategies when pricing real estate: competitive pricing, dynamic pricing, premium pricing, and value-based pricing.

Agency Pricing Model

Agency pricing models impact your profitability, retention rates, customer happiness, and how you market and sell your agency. When developing and evolving your agency’s pricing model, it’s important to take into consideration different ways to optimize it so you can determine the best way to boost the business's profits.

👉🏼 We recommend using these pricing strategies when pricing agencies: hourly pricing, project-based pricing, and value-based pricing.

Manufacturing Pricing Model

The manufacturing industry is complex — there are a number of moving parts and your manufacturing pricing model is no different. Consider product evolution, demand, production cost, sale price, unit sales volume, and any other costs related to your process and product. Another key part to a manufacturing pricing strategy is understanding the maximum amount the market will pay for your specific product to allow for the greatest profit.

👉🏼 We recommend using these pricing strategies when pricing manufacturing: competitive pricing, cost-plus pricing, and value-based pricing.

Ecommerce Pricing Model

Ecommerce pricing models are how you determine the price at which you’ll sell your online products and what it'll cost you to do so. Meaning, you must think about what your customers are willing to pay for your online products and what those products cost you to purchase and/or create. You might also factor in your online campaigns to promote these products as well as how easy it is for your customers to find similar products to yours on the ecommerce sites of your competitors.

👉🏼 We recommend using these pricing strategies when pricing ecommerce: competitive pricing, cost-based pricing, dynamic pricing, freemium pricing, penetration pricing, and value-based pricing.

Pricing Analysis

Pricing analysis is a process of evaluating your current pricing strategy against market demand. Generally, pricing analysis examines price independently of cost. The goal of a pricing analysis is to identify opportunities for pricing changes and improvements.

You typically conduct a pricing analysis when considering new product ideas, developing your positioning strategy, or running marketing tests. It's also wise to run a price analysis once every year or two to evaluate your pricing against competitors and consumer expectations — doing so preemptively avoids having to wait for poor product performance.

How to Conduct a Pricing Analysis

1. determine the true cost of your product or service..

To calculate the true cost of a product or service that you sell, you’ll want to recognize all of your expenses including both fixed and variable costs. Once you’ve determined these costs, subtract them from the price you’ve already set or plan to set for your product or service.

2. Understand how your target market and customer base respond to the pricing structure.

Surveys, focus groups, or questionnaires can be helpful in determining how the market responds to your pricing model. You’ll get a glimpse into what your target customers value and how much they’re willing to pay for the value your product or service provides.

3. Analyze the prices set by your competitors.

There are two types of competitors to consider when conducting a pricing analysis: direct and indirect.

Direct competitors are those who sell the exact same product that you sell. These types of competitors are likely to compete on price so they should be a priority to review in your pricing analysis.

Indirect competitors are those who sell alternative products that are comparable to what you sell. If a customer is looking for your product, but it’s out of stock or it’s out of their price range, they may go to an indirect competitor to get a similar product.

4. Review any legal or ethical constraints to cost and price.

There’s a fine line between competing on price and falling into legal and ethical trouble. You’ll want to have a firm understanding of price-fixing and predatory pricing while doing your pricing analysis in order to steer clear of these practices.

Analyzing your current pricing model is necessary to determine a new (and better!) pricing strategy. This applies whether you're developing a new product, upgrading your current one, or simply repositioning your marketing strategy.

Next, let’s look at some examples of pricing strategies that you can use for your own business.

Dynamic Pricing Strategy: Chicago Cubs Freemium Pricing Strategy: HubSpot Penetration Pricing Strategy: Netflix Premium Pricing: AWAY Competitive Pricing Strategy: Shopify Project-Based Pricing Strategy: Courtney Samuel Events Value-Based Pricing Strategy: INBOUND Bundle Pricing: State Farm Geographic Pricing: Gasoline

Pricing models can be hard to visualize. Below, we’ve pulled together a list of examples of pricing strategies as they’ve been applied to everyday situations or businesses.

1. Dynamic Pricing Strategy: Chicago Cubs

I live in Chicago five blocks away from Wrigley Field, and my friends and I love going to Cubs games. Finding tickets is always interesting, though, because every time we check prices, they’ve fluctuated a bit from the last time. Purchasing tickets six weeks in advance is always a different process than purchasing them six days prior — and even more sox pricing at the gate.

This is an example of dynamic pricing — pricing that varies based on market and customer demand. Prices for Cubs games are always more expensive on holidays, too, when more people are visiting the city and are likely to go to a game.

(Another prime example of dynamic pricing is INBOUND , for which tickets get more expensive as the event nears.)

2. Freemium Pricing Strategy: HubSpot

HubSpot is an example of freemium pricing at work. There's a free version of the CRM for scaling businesses as well as paid plans for the businesses using the CRM platform that need a wider range of features .

Moreover, within those marketing tools, HubSpot provides limited access to specific features. This type of pricing strategy allows customers to acquaint themselves with HubSpot and for HubSpot to establish trust with customers before asking them to pay for additional access.

3. Penetration Pricing Strategy: Netflix

Image Source

Netflix is a classic example of penetration pricing : entering the market at a low price (does anyone remember when it was $7.99?) and increasing prices over time. Since I joined a couple of years ago, I’ve seen a few price increase notices come through my own inbox.

Despite their increases, Netflix continues to retain — and gain — customers. Sure, Netflix only increases their subscription fee by $1 or $2 each time, but they do so consistently. Who knows what the fees will be in five or ten years?

4. Premium Pricing: AWAY

There are lots of examples of premium pricing strategies … Rolex, Tesla, Nike — you name it. One that I thought of immediately was AWAY luggage .

Does luggage need to be almost $500? I’d say no, especially since I recently purchased a two-piece Samsonite set for one-third the cost. However, AWAY has still been very successful even though they charge a high price for their luggage. This is because when you purchase AWAY, you’re purchasing an experience. The unique branding and the image AWAY portrays for customers make the value of the luggage match the purchase price.

5. Competitive Pricing Strategy: Shopify

Shopify is an ecommerce platform that helps businesses manage their stores and sell their products online. Shopify — which integrates with HubSpot — has a competitive pricing strategy.

There are a number of ecommerce software options on the market today — Shopify differentiates itself by the features they provide users and the price at which they offer them. They have three thoughtfully-priced versions of their product for customers to choose from with a number of customizable and flexible features.

With these extensive options tailored to any ecommerce business' needs, the cost of Shopify is highly competitive and is often the same as or lower than other ecommerce platforms on the market today.

6. Project-Based Pricing Strategy: Courtney Samuel Events

Anyone who's planned a wedding knows how costly they can be. I'm in the midst of planning my own, and I've found that the bundled, project-based fees are the easiest to manage. For example, my wedding coordinator Courtney charges one flat fee for her services. This pricing approach focuses on the value of the outcome (e.g., an organized and stressless wedding day) instead of the value of the time spent on calls, projects, or meetings.

Because vendors like Courtney typically deliver a variety of services — wedding planning, day-of coordination, physical meetings, etc. — in addition to spending time answering questions and providing thoughtful suggestions, a project-based fee better captures the value of her work. Project-based pricing is also helpful for clients and companies who'd rather pay a flat fee or monthly retainer than deal with tracked hours or weekly invoices.

7. Value-Based Pricing Strategy: INBOUND

While INBOUND doesn't leave the ultimate ticket price up to its attendees, it does provide a range of tickets from which customers can choose. By offering multiple ticket "levels," customers can choose what experience they want to have based on how they value the event.

INBOUND tickets change with time, however, meaning this pricing strategy could also be considered dynamic (like the Cubs example above). As the INBOUND event gets closer, tickets tend to rise in price.

8. Bundle Pricing: State Farm

State Farm is known for its tongue-in-cheek advertisements and its bundle deals for home and auto insurance. You can receive a quote on one or the other, but getting a quote on both can save you money on your premiums.

State Farm benefits from bundle pricing by selling more policies, and consumers benefit by paying less than they normally would if they used two different insurance providers for home and auto coverage.

9. Geographic Pricing: Gasoline

Gasoline is notorious for having a wide range of prices around the world, but even within the United States, prices can vary by several dollars depending on the state you live in. In California for example, gas prices have consistently hovered around $3 in the summer months for the past 10 years. On the other hand, gas prices in Indiana have been in the $2 range during the same time period. Laws, environmental factors, and production cost all influence the price of gasoline in California which causes the geographic disparity in the cost of the fuel.

Get Your Pricing Strategy Right

Thinking about everything that goes into pricing can make your head spin: competitors, production costs, customer demand, industry needs, profit margins … the list is endless. Thankfully, you don’t have to master all of these factors at once.

Simply sit down, calculate some numbers (like your COGS and profit goals), and figure out what’s most important for your business. Start with what you need, and this will help you pinpoint the right kind of pricing strategy to use.

More than anything, though, remember pricing is an iterative process. It’s highly unlikely that you’ll set the right prices right away — it might take a couple of tries (and lots of research), and that’s OK.

Editor's note: This post was originally published in March 2019 and has been updated for comprehensiveness.

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The pricing strategy guide: Choosing pricing strategies that grow (not sink) your business

Choosing the pricing strategy for your business requires research, calculation, and a good amount of thought. Simply guessing may put you out of business. Here's what you need to know.

Definition of pricing

What are pricing strategies.

• Importance of pricing strategy

Top 7 pricing strategies

• 3 real-world examples
• How to create your strategy
• Determine value metric
• Customer profiles & segments
• User research & experiments
• Bonus: 10 data-driven tips
• Industry differences
• Final takeaway

Pricing strategies FAQs

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Too many businesses set their pricing without putting much thought into it. This is a mistake causing them to leave money on the table from the beginning. The good news is that taking the time to get your product pricing right can act as a powerful growth lever.  If you optimize your pricing strategy so that more people are paying a higher amount, you'll end up with significantly more revenue than a business who treats pricing more passively. This sounds obvious, but it's rare for businesses to put much effort into finding the best pricing strategy.

This guide will cover everything you need to know about setting a pricing strategy that works for your business. 

Check out this introduction video made by the Paddle Studios team.

Price Intelligently is Paddle’s dedicated team of pricing and packaging experts for SaaS and subscription companies. We combine unrivaled expertise and first-party data to solve your unique pricing challenges, break the mold, and catapult your growth.  Learn more

Pricing is defined as the amount of money that you charge for your products, but understanding it requires much more than that simple definition. Baked into your pricing are indicators to your potential customers about how much you value your brand, product, and customers. It's one of the first things that can push a customer towards, or away from, buying your product. As such, it should be calculated with certainty.

Pricing strategies refer to the processes and methodologies businesses use to set prices for their products and services. If pricing is how much you charge for your products, then product pricing strategy is how you determine what that amount should be. There are different pricing strategies to choose from but some of the more common ones include:

• Value-based pricing
• Competitive pricing
• Price skimming
• Cost-plus pricing
• Penetration pricing
• Economy pricing
• Dynamic pricing

Pricing is an underutilized growth lever

Many companies focus on acquisition to grow their business, but studies have shown that small variations in pricing can raise or lower revenue by 20-50%. Despite that, even among Fortune 500 companies, fewer than 5% have functions dedicated to setting the best price possible. There's a missed opportunity in the business world to see immediate growth for relatively little effort. 

Navigating PLG billing and pricing? Read our latest guide on product-led SaaS

Because most businesses spend less than 10 hours per year thinking about pricing, there's a lot of untapped growth potential in optimizing what you charge. In fact, choosing the best pricing method is a more powerful growth lever than customer acquisition. In some cases, it can be up to 7.5 times more powerful than acquisition. 

The importance of nailing your pricing strategy

Having an  effective pricing strategy  helps solidify your position by building trust with your customers, as well as meeting your business goals. Let's compare and contrast the messaging that a strong pricing strategy sends in relation to a weaker one.

A winning pricing strategy:

• Portrays value

The word cheap has two meanings. It can mean a lower price, but it can also mean poorly made. There's a reason people associate cheaply priced products with cheaply made ones. Built into the higher price of a product is the assumption that it's of higher value.

• Convinces customers to buy 

A high price may convey value, but if that price is more than a potential customer is willing to pay, it won't matter. A low price will seem cheap and get your product passed over. The ideal price is one that convinces people to purchase your offering over the similar products that your competitors have to offer.

• Gives your customers confidence in your product 

If higher-priced products portray value and exclusivity, then the opposite follows as well. Prices that are too low will make it seem as though your product isn't well made.

A weak pricing strategy:

• Doesn't accurately portray the value of your product

If you believe you have a winning product, and you should if you are selling it, then you need to convince customers of that. Setting prices too low sends the opposite message.

• Makes customers feel uncertain about buying

Just as the right price is one that customers will pull the trigger on quickly, a price that's too high or too low will cause hesitation.

• Targets the wrong customers

Some customers prefer value, and some prefer luxury. You have to price your product to match the type of customer it is targeted towards.

Let's now take a closer look at the seven most common pricing strategies that were outlined above with more from Paddle Studios .

Click on any of the links below for a more in-depth guide to that particular pricing strategy.

1. Value-based pricing

With value-based pricing, you set your prices according to what consumers think your product is worth. We're big fans of this pricing strategy for SaaS businesses.

2. Competitive pricing

When you use a competitive pricing strategy, you're setting your prices based on what the competition is charging. This can be a good strategy in the right circumstances, such as a  business just starting out , but it doesn't leave a lot of room for growth.

3. Price skimming  

If you set your prices as high as the market will possibly tolerate and then lower them over time, you'll be using the price skimming strategy. The goal is to skim the top off the market and the lower prices to reach everyone else. With the right product it can work, but you should be very cautious using it.

4. Cost-plus pricing 

This is one of the simplest pricing strategies. You just take the product production cost and add a certain percentage to it. While simple, it is less than ideal for anything but physical products.

5. Penetration pricing

In highly competitive markets, it can be hard for new companies to get a foothold. One way some companies attempt to push new products is by offering prices that are much lower than the competition. This is penetration pricing. While it may get you customers and decent sales volume, you'll need a lot of them and you'll need them  to be very loyal  to stick around when the price increases in the future.

6. Economy pricing 

This strategy is popular in the commodity goods sector. The goal is to price a product cheaper than the competition and make the money back with increased volume. While it's a good method to get people to buy your generic soda, it's not a great fit for SaaS and subscription businesses.

7. Dynamic pricing 

In some industries, you can get away with constantly  changing your prices  to match the current demand for the item. This doesn't work well for subscription and SaaS business, because customers expect consistent monthly or yearly expenses.

Three real-world pricing strategy examples

Real-world pricing strategy examples are the best way for a business to better understand the above-listed pricing strategies. Evaluating other businesses' approaches can be a good starting point but keep in mind that the right pricing strategy is based on math, market research, and consumer insights. For now, let’s look at the pricing strategy examples of some of the biggest brands of today: 

1. Streaming services 

Have you noticed that you pay roughly the same amount for Netflix, Amazon Prime Video, Disney+, Hulu, and other streaming services? That's because these companies have adopted competitive pricing , or at least a form of it, called  market-based pricing .

2. Salesforce

When Salesforce first came out, they were the only CRM in the cloud. (It wasn't even called 'the cloud' back then!) Armed with ground-breaking deployment and a target customer of a large enterprise, Salesforce could charge what they wanted. Later, after they'd grown, they were able to lower prices so small businesses could sign up. This is a classic example of  price skimming . 

3. Dollar Shave Club

At one time, you couldn't turn on your TV without an ad for Dollar Shave Club telling you how much cheaper they were than razors at the store. Although an aggressive  marketing strategy  and advertising like that is unusual for the pricing model, they were nevertheless employing economy pricing. It worked out well for them. They were acquired by Unilever in 2016 for a reported $1 billion.

How to create a winning pricing strategy

In the beginning, the actual number you're charging isn't that important.

There are some exceptions, but for the most part, you should first be figuring out the range you're in: a $10 product, $100 product, $1k product, etc. Don't waste time debating $500 vs. $505, because this doesn't matter as much until you have a stronger foundation beneath you.

Instead, understanding the following is much more important:

• Finding your  value metric
• Setting your ideal  customer profiles and segments
• Completing  user research + experimentation

This video from Paddle Studios goes deep on mastering a winning pricing strategy.

Step 1: Determine your value metric

A “ value metric ” is essentially what you charge for. For example: per seat, per 1,000 visits, per CPA, per GB used, per transaction, etc. 

If you get everything else wrong in pricing, but you get your value metric right, you'll do ok . It's that important. Partly because it bakes lower churn and higher expansion revenue into your monetization.

A pricing strategy based on a value metric (vs. a tiered monthly fee) is important because it allows you to make sure you're not charging a large customer the same as you'd charge a small customer.

If you remember your high school or college economics class, the professor put a point on a demand curve for the perfect price and said “the revenue a firm gets is the area under that point.” The problem here is: what about all that other area under the curve?  You’re missing out on that revenue by charging a flat monthly fee.

“Good, better, best” pricing strategy is a bit more advantageous, because you end up with three points on our trusty demand curve, and thus more revenue potential. You see this problem among many eCommerce businesses and retailers whose products are constrained by being physical goods—the car with the basic package vs. the car with the stereo and sunroof vs. the car with everything. In software, it’s thankfully dying out, but you’ll still see it with mass-market products:  Netflix, Adobe Creative Cloud, etc.

A value metric, however, allows you to have essentially infinite price points—maximizing your revenue potential. In practice, you’ll never show infinite price points on your pricing page , sales deck, or mobile conversion page, but you may have a new customer come in at a certain level and then grow.

Value metrics also bake growth directly into how you charge because as usage or the amount of value received goes up (and those are not the same thing), the customer pays more. If they end up using or consuming less, they pay less (and thus avoid churning). This is why companies using value metrics are typically growing at  double the rate with half the churn and 2x the expansion revenue  when compared to companies that charge a flat fee or where the only difference between their pricing tiers are features.

To determine your value metric, think about the  ideal essence of value  for your product—what value are you directly providing your customer?

In B2B, it's likely going to be money saved, revenue gained, time saved, etc. In  DTC , it may be the joy you bring them, fitness achieved, increased efficiency, etc. Obviously, we can't measure all of these, but if you can,  and  your customer trusts your measurement (meaning you say you saved them $100 and they agree you saved them $100), that’s your value metric.

As an example, the perfect value metric for  Paddle Retain  (our churn recovery product) is how much churn we recover for you. We can measure this, and our customers agree to the measurement, so we can charge on that axis. Other pure value metric products include  MainStreet , which handles government paperwork to automatically get you back tax credits—you pay a percentage of the money saved.

Most of you won't have a pure value metric, so the next step is to find a proxy for that metric. Take for example  HubSpot ’s marketing product. Their pure value metric is the amount of revenue their tool drives for your business. This is hard to measure and hard for the customer to agree to in terms of what percentage of credit HubSpot deserves for revenue from a blog post. Proxies for HubSpot are things like the number of contacts, number of visits, number of users, etc.

To find the right proxy metric, you want to come up with 5-10 proxies and then talk to your customers and prospects. You’ll typically find 1-2 of these pricing metrics will be most preferred amongst your target customers. You then want to make sure those 1-2 also make sense from a growth perspective. Your larger customers should be using/getting more of the metric, whereas your smaller customers should be using/getting less of the metric. You also want to make sure the metric encourages retention.

When we look at HubSpot, if they were to primarily price on “number of seats”, folks could share a login and HubSpot wouldn’t make much more money on large customers vs. small. Ironically they wouldn’t get as many people invested in HubSpot, because there’d be friction to adding additional seats. Instead, if they give unlimited seats and price based on “number of contacts” there’s minimal friction to getting as many people into HubSpot as possible to do activities (e.g., blog posts,  email campaigns , landing pages, etc.) that then produce contacts.

The result: HubSpot’s marketing product’s value metric is “contacts”, which ensures growth is baked directly into how they make money. The usage drives the metric, which therein drives revenue. Most importantly customers small, medium, and large are all paying at the point they see the value and then can grow.

Some other examples:

• Wistia  charges by the number of videos or channels you use/have
• Zapier  invented the concept of zap (connection of software) and charge based on time to connect
• Theater in Barcelona charged based on the number of laughs
• Husqvarna  charges based on time for lawn care products vs. making you buy them
• Rolls Royce  charges per mile for airplane engines. They own the engines on the plane you own and do all the maintenance. Cool model.
• Fresh Patch  charges based on the amount of grass you want per month for your dog—yes they deliver grass to you monthly

As a side note, you should stop pricing based on seats for products where each seat doesn’t provide a unique experience. For instance, imagine you're an AE using a CRM. If you log into the account of the AE sitting next to you, you can’t really do your work because you are only seeing their leads and accounts. Conversely, if you were a marketing exec and were to log in to another marketing manager’s account in HubSpot, you could do all the work you need to. Thus, for the latter, seats are not the right value metric.

Per-seat pricing is a relic of the  perpetual license  era when we couldn’t measure usage or value enough within our products. We’re beyond that point, so use the above as a good litmus test.

Step 2: Determine your customer profiles and segments

The second key component of your pricing strategy is determining your target segment and ideal customer profile. We've all heard about personas, and you may be rolling your eyes at the concept, but most personas are useless because they aren’t quantitative enough. When used properly, quantified personas and segments are beautiful tools. The information needs to go beyond just cute names like “Startup Steve" with a cute avatar, and cute meetings where people tell you they’re targeting "developers."

To get quantified personas, you need to pull out a spreadsheet.  Here’s a template  you can use.

1. Columns: Customer profiles you're targeting

These can take many forms, but the ultimate goal is to be as specific as possible so that you not only know who you’re targeting but how to monetize and retain them. Pragmatically, you typically separate these customer profiles based on size or role (or both). For example, a marketing automation product may target the following profiles:

• Marketing leaders (Director and higher) at companies $1M to $10M
• Marketing leaders (Director and higher) at companies $10.01M to $50M
• Marketing leaders (Director and higher) at companies $50.01M to $100M

The point is you can’t be everything to all people and you need to understand who you’re targeting in order to make better decisions.

2. Rows: Characteristics of each profile to help you differentiate between them

• Most valued features
• Least valued features
• Willingness to pay
• Lifetime value (LTV)
• Customer acquisition costs (CAC)
• ... and any other metric or category you think could be useful

If you're just starting out or you don't have some of this data, it’s fine. Still fill it out though with your hypotheses. You know  something  about your customers.

Next, you then need to validate (or invalidate) the most pressing hypothesis in that spreadsheet based on the decisions you’re going to make. If you're going to validate a new feature for a particular segment, then that's where you should start. Price point the biggest question? Start by researching the price point with each of these roles/segments.

If you don't know who your key roles/segments are, there's no way in hell you’ll set up an efficient growth flywheel, let alone an optimized pricing strategy. Personas act as a constitution within your business to centralize your focus and arguments about direction.

If you don't do segment and persona analysis, you better be able to raise a ton of money. I guarantee you there's some persona or segment on some vision document or in that euphoric part of your entrepreneurial brain that is completely wrong for your business. I see it all the time. Even I—someone who thinks about segments and customer research all the time—fall prey to being an absolute idiot with who we should target.

When we built  ProfitWell Metrics (our free subscription metrics tool) I thought we were geniuses who were going to be billionaires. Turns out analytics products are terrible. Willingness to pay for them is terrible; retention for them is terrible; NPS is terrible. Everything is just terrible, mainly because customers don't appreciate graphs or at least aren't willing to pay much for them. When we did our research this became obvious and put us 18 months ahead of our competitors, pushing us to change up the positioning of the product to freemium, which has fueled our business ever since (oh and our NPS is 70, because we massively over-deliver a free product better than the paid competition).

Never underestimate the power of focusing on the customer through research. You should never, ever just do what they ask, but you need to be an anthropologist who knows them better than anyone else.

Step 3: User research + experimentation

Beyond your value metric and core segments, the monetization game becomes extremely tactical and research-based. Figuring out your price point involves researching those segments and then making decisions in the field. Same with discounting, add-on, and packaging strategies. The point: monetization is never finished because it’s the very essence of translating your value into an optimal framework for your target customer segments.

Practically this is why you should be experimenting with your monetization every quarter. Experimentation can get tricky and have a few quirks, but you’ll find it’s similar to most growth frameworks out there (which are all versions of the scientific method).

Here’s a good prioritization list of what business owners should attack in optimizing their  monetization strategy  once they have the core segments and value metric figured out:

Priority 1: Foundational [see above]

• Core customer segments
• Value metrics

Priority 2: Core

• Order of magnitude price point (are you a $10 product vs. a $500 product)
• Positioning and value props

Priority 3: Optimizations

• Add-on strategy
• Specific price point (are you a $10 product vs. a $11 product)
• Price localization/internationalization
• Discounting strategy
• Contract Term optimization

Priority 4: Growth accelerators

• Market expansion (going up or down market)
• Vertical expansion
• Multi-Product

Your true order of operations with monetization will vary, but for the most part, all companies should work through the foundational and core sections before moving to the optimizations and growth accelerators. If you’re larger or there’s a fire, you may start with an optimization. In fact, this is sometimes a good idea. Something more scoped like “price localization” can help get momentum, be a forcing function to clean up tech and experimentation stacks, and mitigate political conversations. Remember, monetization is something that’s important, uncomfortable, and something you likely don’t know much about, so progress is better than nothing. Start small. You can (and should) always do more.

Bonus: 10 rapid-fire pricing strategy tips rooted in data⚡

In case you're still hungry for more tips on nailing your pricing strategy and achieving maximum profitability, look no further. We've got you covered:

1. You should  localize your pricing  to the currency and willingness to pay of the prospect's region

• Revenue per customer is 30% higher when you just use the proper currency symbol
• Having different price points in different regions increases revenue per customer further, and is justified based on different consumer demands in different regions

2. Freemium is an acquisition model, not a part of pricing

• Think of  freemium  as a premium ebook driving leads, not another pricing tier
• Don't do freemium until you truly understand how to convert leads to customers, because you’ll end up increasing noise or false positives when you’re trying to figure out your segment beachheads. The best folks who deploy free typically don’t implement freemium until two to three years into their business. The exceptions to this notion are if you have a very specific need or network effect (eg., marketplaces, social networks, etc.) or if you have a top 50 growth person on your team.
• To be clear, we're not saying DON’T do freemium. we're saying it's a scalpel, not a sledgehammer that requires thought. A lot of people end up reading our articles on freemium and end up going, “Cool, let’s do freemium and we’ll be a unicorn.” I’m being pragmatic in that you need to realize freemium is fantastic, but doing freemium properly takes a lot of effort and nuance.
• Paid users who convert from free tend to have higher NPS, better retention, and much lower CAC .

3. Value propositions matter oh so much

In B2B value propositions can swing willingness to pay ±20%, in DTC it's ±15%

4. Don't discount over 20%

In some verticals discounting over 20% may be fine, but you're likely not in one of them (although you may think you are), but the size of the discount almost perfectly correlates with higher churn. Large  discounts  get people to convert, but they don't stick around.

5. For upgrades to annual discounts, don't use percentages and try offers

Percentages don't work as well as whole dollar amounts for discounts (ie., "one month" will work better than "X percent off"). Annuals see much lower churn rates.

6. Should you end your price in 9s or 0s? Depends on your price point

Ending your prices in 9s evokes a discount brand, making the customer feel like they're getting something. Ending in 0 evokes luxury or premium, making them feel like they're getting a high-end product. Studies on this for technology products are inconclusive. We have seen it increase conversion in lower-cost products, but retention isn't as good with those customers.

7. You should experiment with your pricing in some manner every quarter

This doesn't mean change you should the price point each quarter, but experiment with variable costs. More changes correlate with increasing revenue per customer. Like all things, focusing on something makes you improve it.

8. Case studies boost willingness to pay quite a bit

Social proof is important.  Case studies  that offer proof of the high quality of your products can boost willingness to pay by 10-15% in both B2B and in DTC.

9. Design helps boost willingness to pay by 20%

This graph didn't look this way 10 years ago when design didn't do much for willingness to pay. Today, affinity for a company's design can boost willingness to pay considerably.

10. Integrations boost retention and willingness to pay

The more integrations a customer is using, typically the higher their willingness to pay and the better their retention. I wouldn't charge for the integrations, but I'd use this as a tool to get people hooked in and paying more or buying different add-ons.

Pricing strategies for different industries

Pricing strategies are not one size fits all. Finding the proper pricing strategy is dependent on your industry, as well as your company's unique objectives. But to give you an idea, we've listed a couple of industries and strategies that are well suited for each other. 

SaaS/Subscriptions

For SaaS and subscription-based businesses, value-based pricing is the winner hands down. As long as your customers are willing to pay, you can charge much more than your competitors.  Because your price is based on how much customers will spend, it isn't artificially lowered like other methods that fail to account for that. 

We also like value-based pricing for B2B companies. Value-based pricing requires you to look outward and understand your customers better. This is good for finding the optimal price, but it's also good for building optimal relationships that will also help grow your company. 

No more price guessing, just pricing that works

Accurately pricing your product for maximum growth requires a lot of market research and even more expertise on how to conduct and analyze that research. Our Price Intelligently  service combines our years of experience in the field with powerful machine learning tools to understand your target customer base and what makes them tick. We know the data to collect, the questions to ask, and the people to ask them of. This is important because businesses in different stages of growth need different strategies for evaluating pricing. Additionally, every business has a unique set of potential selling points and a unique target audience to pitch to.

You need someone in your corner who knows how to evaluate pricing options for your specific businesses. With our help, you can be confident that your pricing strategy and chosen price points will unlock growth levers at your company that have been sitting idle, because they'll be tailored to finding and maximizing the value propositions that are unique to your business. 

Which pricing strategy is best? 

This depends on your business model. For SaaS and subscription companies, as well as many others, we recommend value-based pricing.

How do you determine the selling prices of a product?

First, find a pricing strategy that fits well with your business model and product. As you've seen, pricing strategies differ, but they all give clear instructions for how to use them to set prices.

What is the simplest pricing strategy?

Since you only need to add up the cost to make your product and add a percentage to it, cost-plus pricing is the simplest form of pricing to use.

What is a pricing curve?

A pricing curve is a graph that shows you the number of people who are willing to pay a given price for a product.

What are the 4 major pricing strategies?

Value-based,  competition-based , cost-plus, and  dynamic pricing are all models  that are used frequently, depending on the industry and business model in question.

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What Is a Pricing Strategy? + How To Choose One for Your Business

Explore different pricing strategies, what they offer buyers and sellers, and the steps to making the best pricing decision for your business, products, and brand.

What is a pricing strategy?

Price, one of the 4 Ps of marketing , refers to how much is charged for a product or service. A pricing strategy is the process and methodology used to determine prices for products and services. 

As we’ll explore in this article, different pricing strategies work for different products and business models. A good pricing strategy can enable several things for a business: 

Convey value to customers

Attract customers

Inspire customer trust and confidence

Boost sales

Increase revenue

Improve profit margins

But a bad pricing strategy can target the wrong customers, make them feel uncertain about trusting and buying your product, and inaccurately portray the value of your product. We'll guide you through a few ways to determine your pricing strategy to inspire your approach.

Watch the following video from IE Business School’s Marketing Mix Implementation Specialization to learn more about pricing strategy.

Types of pricing strategies 

There are several common pricing strategies to choose from to price products and services. The first step in choosing a pricing strategy is to examine the different types, review pricing strategy examples, and understand how they differ. 

How to choose your pricing strategy 

Now that you know the different types of pricing strategies, your next step is to choose one for your business. Make an effective pricing strategy with this guide.

1. Determine your value.

A value metric refers to how a company determines the value of one product unit for sale. For example, if you sell footwear, then you would determine the value of one pair of shoes. If you sell a monthly service subscription, then you would determine the value of the services and features that a customer can access during a one-month period. 

To establish your value metric, identify the basic unit of the product or service you sell. If you were to sell just one unit of your product or service to one customer, what would this be? 

2. Evaluate pricing potential.

Pricing potential refers to the approximate price you can charge for your product or service. To evaluate the pricing potential for your product or service, consider factors such as your operating costs, consumer demand, and competitive products. 

3. Review your customer base.

Another important consideration when it comes to pricing strategy is how your current customer base has responded to prices thus far. How much have they been willing to pay for products and services? Have any changes in price discouraged or boosted sales?  

Use these insights to refine your buyer personas. Creating fictional versions of your ideal customer segments can help you determine pricing.

4. Determine a price range.  

Price range refers to prices for a product or service that fall within what a customer and seller find appropriate. To determine price range, ask yourself these questions: 

What is the minimum price you can charge for a product or service and still make a profit based on the cost of production, marketing, and any overhead costs? 

What is the maximum price you can charge for a product or service without alienating your target customers? 

5. Check out your competitors.

Another factor in pricing is taking a look at your competitors’ pricing. Make a list of competitive products and how they are priced. Then, decide whether you want to beat competitors’ prices (set your products at a lower price) or communicate more value than competitors and price your products higher. 

Read more: What Is Competitor Analysis? Definition + Step-by-Step Guide

6. Consider your industry.

Different pricing strategies work for different industries, so it’s a good idea to investigate the most common ones used in your industry. For example:  

In the SaaS industry, freemium pricing with different price tiers to purchase more features is a common strategy to offer customers a path to upgrade as their software needs increase. 

In the restaurant industry, luxury brands might use premium pricing to create an image of higher quality.  

In the service provider industry, designers, consultants, and other service providers might use project-based pricing to customize the service outcomes and the price for individual customers.  

7. Consider your brand.

In addition to your industry, your brand and business model are important factors in pricing your offerings. A brand identity can affect consumers’ perception of the brand and quality of the offerings, so make sure your pricing strategy corresponds to the brand.   

For example, a brand that focuses on affordability could choose economy pricing, while a brand that offers innovative products could succeed with a price-skimming strategy.  If you are still working to build brand equity , penetration pricing could make it easier to enter a market and build a customer base. 

8. Gather feedback from customers.

When considering how to price an existing or new product, customer feedback can be invaluable. Survey current and potential customers with questions such as: 

What do you think is an appropriate price for this product? 

How much would you be willing to pay for this product?

If this product were on sale for [example price], how likely would you be to buy it?

What price is so low that you’d question its value?

What price is so high that you'd consider it too expensive? 

Conducting user research can provide quantitative insights, such as what customers currently pay, but also qualitative data. You'll be able to understand the why, such as their beliefs, opinions, and behaviors around pricing.

9. Experiment with pricing. 

Conduct a few live experiments to gather data on how your products will perform at different prices. For example, you could A/B test—introduce a product at two different prices to separate audiences—to find out which price is favored. You could also position your products next to competitive products in your marketing messaging, to find out how consumers respond. 

Live experiment results combined with feedback from customers can supply you with insights for successful product launches. You may even be able to reduce the trial and error that often comes with introducing offers to the marketplace. 

Optimize your pricing strategy with UVA

Taking online courses can be a great way to learn more about pricing strategies, marketing, business operations, and career opportunities. The University of Virginia's Darden School of Business has partnered with Boston Consulting Group to deliver a Pricing Strategy Optimization Specialization that will show you how to increase price realization and maximize your profits in approximately four months.

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Business growth

Business tips

16 pricing strategies and examples (and how to set yours)

Hopefully, you enjoy what you do, and that's why you do it. But if you're running a business, I'd guess that part of why you love doing it is because it allows you to make a living. And making money means pricing your products or services correctly.

For your business to be sustainable, you'll need a pricing strategy that generates adequate income while also being attractive to customers. A good pricing strategy can keep your customers coming back for more, while a poor or nonexistent strategy can send them running for the hills.

Here's a guide to creating a pricing strategy that will keep your profits moving up and to the right.

Table of contents:

Why is it important to pick a pricing strategy?

A pricing strategy is a plan for setting the best price for your products or services. The goal is to set a price that will entice customers to buy but that isn't so low that you're not making a profit.

An effective pricing strategy is an extension of your marketing. It affects customers' perception of your product and contributes to their willingness to buy. Savvy businesses know that pricing is just as important as the product itself, and an effective strategy can boost revenue, increase customer loyalty, and help your business stand out in the marketplace.

An ineffective pricing strategy makes your customers confused at best and offended at worst. If you went to the Porsche dealership and saw the brand-new 911 priced at $25,000, your first thought might be, "What's wrong with it?" Similarly, if you went to the Toyota dealership and saw the new Corolla priced at $90,000, you'd probably laugh your way out of the building. Poor pricing strategies can hurt your brand reputation, lower profit margins, reduce overall sales volume, and increase customer churn.

Sure, you could just trial-and-error a bunch of prices until you find the price that maximizes profit without deterring potential customers—and there will probably still be some of that even after you choose a pricing strategy for your business. But you'll spend a lot less time and money starting with a pricing analysis than you will taking a complete shot in the dark.

16 common pricing strategies

Your core pricing strategy has to do with what you're selling: a luxury, a bargain, or just a good product for a good price. Once you have that figured out, you'll move on to choosing a pricing method, which is the how of your pricing strategy.

Pricing methods are sort of like plays in a playbook. Your product probably isn't going to switch from being a luxury to a bargain and back again, but you can (and, in some cases, should) switch up the pricing method you're using to better meet your market demands.

Here, we'll look at 16 of the most common pricing methods, plus how and when to use them.

1. Value-based pricing

The first pricing method is probably the one you're most familiar with: value-based pricing. You might think of it as the "default" pricing method since it consists of finding what the customer is willing to pay (the WTP price), making sure it's higher than the cost of production, and setting your price somewhere in between.

If you need to make a price adjustment, you can do so as long as the new price falls within the WTP range. If the new price surpasses this range, you'll need to explore avenues to expand the WTP range. You can do this by incorporating additional value into your product or service to increase the customer's willingness to pay the new price.

Take Rolex, for example. While they also fall into a premium pricing model—a concept we'll touch on later—they absolutely utilize value-based pricing. It doesn't cost $10,000 (or more) to make a watch, but the business knows that's what their customers are willing to pay.

Takeaway: Charge what you can without turning off the customer to your product. 

2. Cost-plus pricing

A very similar method to value-based pricing is cost-plus pricing. Instead of basing prices on what the customer is willing to pay, businesses set prices by determining the cost of production and their ideal profit margin. For example, if a product costs $100 to make and a company's target margin is 15%, then the product will sell for $115. 

Cost-plus prices still need to fall within the WTP range, but they're not chosen based specifically on what the customer is willing to pay. If the cost-plus price falls outside the WTP range, the company either needs to adjust its target margin or find a way to lower production costs.

Takeaway: Ensure all costs are covered and don't keep you from reaching your desired profit margin.

3. Competitive pricing

One of the things he tried early on was offering the first 15 minutes of work free of charge—if he solved the issue within that first quarter of an hour, the job would be completely free. It worked. Clients told him they wanted to pay even if he solved the issue in under 15 minutes because they didn't feel good about paying nothing for a service that involved someone coming to their home. It was an attractive offer that increased his competitive edge without negatively impacting his bottom line.

Takeaway: Maintain or gain market share from your competitors.  

4. Economy pricing

Similar to competitive pricing, economy pricing involves setting the lowest prices among your competitors to attract bargain buyers. But unlike competitive pricing, economy pricing specifically targets people who will consciously sacrifice quality in exchange for a cheaper price. Knowing this, you can source cheaper supplies, eliminate extra features, and make other changes to lower your production costs so that you can offer extremely low prices while continuing to make a profit. 

Takeaway: Attract price-sensitive customers while achieving high sales volume and cost efficiencies.

5. Penetration pricing

Takeaway: Gain market share and attract customers quickly with low initial prices, then raise prices once you've established a strong customer base. 

6. Dynamic pricing

Have you ever pulled out your phone intending to grab a rideshare on a busy weekend night or (I wince just thinking about it) a holiday? Those jaw-dropping price surges are the result of what's called dynamic pricing, or pricing that changes fluidly according to availability and demand.

Truly dynamic pricing requires an algorithm that can automatically adjust prices according to purchasing activity. Uber's CEO isn't sitting behind a Wizard of Oz curtain declaring price surges; the app automatically increases prices when demand is higher than the number of drivers on the road. A less immediate version of dynamic pricing can be seen at the gas pump, where prices change frequently in response to demand but aren't automatic (in some states, like New Jersey, they can't change more than once per day). 

For small businesses, dynamic pricing works best with services or custom products that require a price quote, since customers expect prices to be different depending on the project and circumstances. If your prices are listed on your site and you change them constantly, you'll drive away potential customers who perceive you as unpredictable or unreliable.

7. Price skimming

Price skimming is the opposite of penetration pricing, where you start by setting the maximum price and gradually lower it over time. This strategy works best with products that have major releases, like laptops or cars. By price skimming, you'll be able to capture early buyers willing to pay top dollar for the latest and greatest; then, as you gradually lower the price, you'll be able to sell the maximum number of products at each price before dropping it again. 

One of the most well-known price skimmers is Apple, which has made its product launches into full events with tickets and fans to build as much hype as humanly possible. Mega-fans buy the newly unveiled products the moment they're available, even waiting in lines overnight outside Apple Stores to do so. As each new product is released, the older models get shunted down the pricing ladder to capture buyers with lower WTP points. 

Takeaway: Capture early adopters and maximize revenue with high initial prices before gradually reducing prices to attract more price-sensitive customers.

8. Hourly pricing

Often used in service-based industries, hourly pricing establishes prices based on the time spent on a particular task or service. This aligns the price directly with the effort or resources dedicated to the project. It's a straightforward method for you and the client to understand and agree upon the service's value.

Having said that, if your projects' complexity or required resources vary quite a bit, a flat hourly rate may not be best for your business.

Takeaway:   Ensure customers are billed fairly based on the actual hours worked.

9. Project-based pricing

This pricing model is common for architects. When a client approaches an architecture firm with a request to design and construct a building, the firm will assess the project's scale, complexity, materials, and other specific requirements to provide a project-based quote. Obviously, the process and requirements for designing a public bathroom vs. a skyscraper will be very different, beyond just time discrepancies. 

Takeaway: Make sure profitability and effort are accounted for in your pricing structure.  

10. High-low pricing

I've taught all my loved ones that we don't walk into Michael's without a coupon or buy anything at JOANN that hasn't been marked down to at least 40% off.

These stores use high-low pricing, where they offer products or services at a higher price initially and periodically discount them. This approach attracts price-sensitive customers who are motivated by discounts (me) while also maximizing revenue from customers willing to pay higher prices to get their hands on the product before it starts flying off the shelves once it's been discounted.

Companies can maintain a balance between profitability and reaching a larger range of customers by driving traffic to their stores or websites during promotional periods.

Takeaway: Create a perception of value to encourage customer purchases. 

11. Bundle pricing

You've probably seen the Progressive commercials practically begging you to bundle your car and home insurance for a better deal. Or maybe you bundled your cable and phone services back in the day. 

Bundle pricing is when a company combines multiple products or services and offers them at a lower overall price than what each item would individually cost. This creates a perception of added value, convenience, and savings for customers. If you sell a lot of small items or are trying to spread the love to an overlooked service, this pricing strategy may help you increase your sales.

Takeaway: Sell items together in a package deal that's slightly cheaper than if you were to sell the items individually to increase sales and customer satisfaction.

12. Geographic pricing

I follow a candy shop on TikTok with the most delicious-looking candy I've ever seen. They're located in the U.K. and I'm in the U.S., which means I'd have to pay outrageous prices to account for the shipping costs.

Geographic pricing involves setting prices based on different geographic regions or markets, considering factors like local market conditions, competitive landscape, and transportation costs like shipping. While this strategy makes it harder for a candy lover like me to get their hands on some delectable sweets, if you want to expand outside of your own geographic region, this strategy may be inevitable to keep your profits stable.

Takeaway: Maintain profitability across all your geographic markets by adjusting for variable factors.

13. Psychological pricing

A book priced at $20? I'll pass. A book for $19.99? I'll take 10. This common phenomenon that we all fall for time and time again is called psychological pricing. Also known as charm pricing, this strategy leverages consumers' perceptions and emotions to make them think they're getting a better deal than they actually are. 

Making the price seem more appealing or affordable to customers effectively influences customer behavior and increases sales, even if the price difference is negligible (and even if the customer knows in their heart of hearts that it's negligible). You can combine this strategy with another method since it's a common standard in many industries.

Takeaway: Create the illusion of a lower price so customers perceive your price as fairer.  

14. Freemium pricing

If you're like me, you started out with the free version of Spotify until the ads were so grating on your soul that you gave in and shelled out the cash for the paid ad-free version. This method of offering a basic version of a product or service for free and charging for additional premium features or advanced functionality is called freemium pricing. 

By offering a free version, companies can give customers a taste of the value their product or service offers, build brand awareness, and create a larger user base. They then monetize their user base with an enhanced experience for a subscription fee or one-time purchase. If you're new to the market, this is a great way to get buy-in from people who would otherwise be unwilling to convert.

Takeaway: Attract a large user base and convert some into paying customers. 

15. Premium pricing

Some people enjoy the prestigious vibe and social appearance of luxury brands. For example, luxury car companies, like BMW or Mercedes-Benz, position their vehicles as high-end, offering advanced technology, luxurious interiors, and superior performance. (Although I'd love to see what they have that my Honda CR-V doesn't.) 

With those high-end features comes a high-end price tag, otherwise known as premium pricing. This strategy positions the company as exclusive and superior in value in comparison to lower-priced competitors. It appeals to a target market willing to pay a premium for the perceived benefits. If that's your target market, then this is your ticket.

Takeaway: Target affluent customers and generate higher profit margins.

16. Subscription pricing

Every month, I find a surprising number of fees hitting my credit card statement. They range from streaming services I may or may not watch and other charges I recognize to the things I've completely forgotten about or failed to cancel—like that domain fee for my failed dogsitting business.

You can think of subscription pricing as a monthly access fee, whether that's access to a virtual space like Hulu or Adobe or a physical space like a gym. Businesses that wish to take advantage of this pricing strategy first need to build something people want to use regularly. Once they have a product or service that will garner demand, all that's left is to charge a monthly fee.

Companies lean toward this pricing strategy whenever possible because it gives them a fairly predictable revenue stream. For example, if you have 500 customers who pay $19.99 per month, your monthly revenue will be $9,995, barring any drastic changes in your customer base. This strategy is growing massively in popularity not just for pure subscription services like SaaS licenses or streaming services but also for physical product sales. One-off product sales often turn into continual sales, and an initial product can be a way to get a foot in the door for forever payments on one single sale, which is a huge win for sellers.

Takeaway: Create something consumers want—then charge them for access.

4 pricing strategy examples that work

Now that you're familiar with some of the most common pricing strategies at a high level, here's a deeper dive into how real businesses are using them to their advantage.

For example, Zapier's workflow automation capabilities are free for basic use. In this plan, users can automate simple workflows with 100 tasks per month. But businesses that want expanded functions (or premium integrations) can upgrade or start with a higher-tier plan that fits their unique workflows and tech stacks.

Zapier set their pricing this way because they're confident that once users get a taste of the power of Zapier with a free plan, they'll see the value of expanding it with paid pricing tiers. After all, if 400 AI-automated activities are good, then 1,500 AI-automated activities are even better. And if the free tier gives users all the automation they need, it's still a win-win: they get the efficiency they need, but they might find there's a paid tier of another Zapier product that helps them optimize their workflows even better.

As with many products, Apple was the tech that launched a thousand ships—and in 2014, it was wearable fitness gear. Fast forward to today—many companies have joined the space and are trying to stand out. One example is Oura.

The wearable fitness ring is one of many in the industry that utilizes subscription pricing . First, the company emphasizes the design and quality of its ring and the accuracy of its fitness readings, thus building demand. Once consumers are fully bought into the product, they're met with a $300 initial price—combining a premium pricing strategy—and $5.99 per month thereafter. This subscription approach keeps customers on the Oura books long after the initial purchase.

Ask your average American what they know about Sweden, and they'll likely reply with some variation of meatballs, furniture, and fish (Swedish Fish, that is)—and they can thank retail goliath IKEA for the first two. Since the brand's inception, consumers have been captivated by its shopping experience and hypnotized by its expert pricing structure.

While the brand deploys several different pricing strategies, one of the most impactful is economy pricing . While some economy brands cut costs in the product itself, IKEA cuts costs in everything but the product. The company follows a repeatable design process, has world-renowned supply chain management, and operates with a self-service shopping experience—all things that save money. The result is decent-quality furniture at affordable prices. 

When most people think of dynamic pricing , they relive memories of paying for a $167 Uber to get home from the bar or a $2,500 plane ticket they had to book at the last minute. But dynamic pricing is present in the B2B world, too, and you don't need to look further than Google Ads.

Factors to consider when pricing a product

I know I just said cost wasn't the only factor to consider, but it is the most important one to start with. If your prices aren't higher than your costs, you'll be out of business before you even get your company off the ground.

When calculating costs, make sure you include:

Product materials

Employee wages (that includes what you pay yourself!)

Overhead costs (rent, insurance, utilities, taxes, etc.)

Software and services for things like accounting, marketing, and legal

Shipping and transportation

Economic factors

Competitor pricing, positioning.

It's a common misconception that businesses have to sell good-quality products to be successful. There are buyers at every price and quality level; what matters is how your product quality and price are positioned with respect to each other.

One of the easiest industries for demonstrating this concept is the airline industry, because there's no way to mistake the difference between a high- and low-quality purchase when there's a literal curtain dividing them. Normally, price and quality will align with one another. First-class tickets offer high quality at a high price, economy tickets offer low quality at a low price, and everyone else gets piled into coach. 

Value prices occur when quality is higher than price—when you fly during off-peak times or get upgraded to first class for free. When demand is high and seats are limited, the airlines can afford to charge higher prices for lower-quality seats, counting on the fact that you'll pay full price for a terrible seat if it's your only option.

Customer profiles

For example, let's say you’re starting a business that sells running shoes. After intensive research, you may find that your customer profile is a middle-class woman in her 30s who lives in California and mostly finds time to run in the evenings after work. In that case, your pricing strategy should best appeal to middle-class women in their 30s who live—well, you get the idea. The more specific you can get with these profiles, the more effective your pricing will be because you'll gain insights into what they can afford and what they're willing and able to pay for a product.

Tips for setting a pricing strategy that sells

You can have all the information in the world, but without the right action plan, you run the risk of falling flat. Here are some tips to guarantee you get off on the right foot when setting your pricing strategy.

Review your historical data

Start your pricing strategy methodology by analyzing historical sales data to identify patterns in sales volumes and pricing figures. If you've experimented with pricing in the past, take note of how that related to revenue over that period. Or, maybe you can glean information from that surge of sales in April 2019 that your staff tells campfire stories about to this day. When you review past data, you can gain insight into what caused increases or decreases in sales—and what prices correlate with those figures.

Consult your customers

Customers are the lifeblood of your organization—if you don't appeal to them, you're out of business. So, be sure to make every move with your customer profiles in mind. Would that middle-class woman in her 30s be able to afford $299 running shoes? If not, be sure to adjust pricing to match her expectations (so long as it falls within the WTP price range).

Another technique to understand optimal pricing is to conduct surveys, focus groups, or other ways to gather customer feedback. You can ask them questions related to how much they're willing to pay, what factors influence their purchasing decisions, their perceived value of your product, and more. This can not only improve your pricing strategy but show your customers that you value their thoughts.

Nail your value proposition

Gordon Ramsay could cook the most perfect beef Wellington in history, but if he's serving it to a lunchroom full of first graders, they're going to want chicken nuggets instead. The takeaway is that you need to appeal to your audience, and you can do that by developing an expert value proposition.

In all marketing materials, highlight your unique benefits, features, and why your product is perfect for your customers and their budgets. Maybe your running shoes are the most comfortable on the market—transforming that middle-class California woman's after-work run from a workout to a relaxing meditation session. Once you catch your customers' eye, your pricing strategy will be that much more effective.

Experiment with different models

Don't be afraid to experiment with different pricing models to find what works best for your business. For example, you might start with a cost-plus pricing model and then pivot to a value-based model. Or, you may decide to experiment with limited-time promotions and sales or delve into tiered pricing. By testing different approaches, you can gain useful insights into what resonates with your audience. 

Sell more with automation

Businesses need to nail their pricing strategy to win more business and drive revenue. But it's not as simple as throwing a dart and hoping it sticks—you need to be methodical to ensure you resonate with your customers. Once you perfect that approach, you can supercharge it with Zapier.

Pricing strategy FAQ

What are the major pricing strategies.

Successful businesses may use several different pricing strategies, but some of the most popular include:

Value-based pricing

Cost-plus pricing

Economy pricing

Premium pricing

Freemium pricing

If you skipped this entire article just to get to the FAQs, scroll up for 11 more.

How do you set your product pricing?

You should set your product pricing based on factors like how much it costs to make your product, what your competitors are charging, your brand positioning, your customer profile, and any economic or marketplace trends. You also want to align your pricing strategy with your goals to help your business grow and achieve profitability.

What makes a pricing strategy successful?

There are too many factors to name for successful pricing strategies, but two of the most important are understanding your customers and revenue goals. If you're in tune with your customers' expectations and their perceived value of your product, you're more likely to develop an effective pricing method.

Keeping your revenue goals in mind can also help guide you on what you should be charging. If your customer expectations and revenue goals aren't aligned, you'll want to assess the discrepancy—maybe that means engaging in different product marketing or cutting production costs.

Related reading:

This article was originally published in December 2020 by Norm Mclaughlin and has also had contributions from Ben Lyso. It was most recently updated in July 2024.

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Cecilia Gillen

Cecilia is a content marketer with a degree in Media and Journalism from the University of South Dakota. After graduating, Cecilia moved to Omaha, Nebraska where she enjoys reading (almost as much as book buying), decor hunting at garage sales, and spending time with her two cats.

• Small business
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Pricing Strategies and Models Explained

4 min. read

Updated January 18, 2024

What’s the right price for your product or service?

What price will make you profitable and attract customers?

Not sure? Keep reading to learn the basics of pricing strategy and setting the right price.

• What is a pricing strategy?

A pricing strategy is the overarching approach or plan a business uses to determine the price of its products or services. 

It considers various factors such as market conditions, competition, production costs, and the perceived value to the customer. The ultimate goal of a pricing strategy is to maximize profitability, maintain or grow market share, and ensure long-term sustainability while meeting the company’s other objectives.

• What is a pricing model?

A pricing model is the specific method used to set the price of a product or service. It provides a structure to implement your chosen pricing strategy.

What’s the difference?

The distinction between a pricing strategy and a pricing model lies in their scope, purpose, and application.

The pricing strategy aligns prices with business objectives, market conditions, and customer perceptions. A pricing strategy considers market entry tactics, customer psychology, brand positioning, and long-term market objectives. 

The pricing model is the mathematical method you use to create a specific price. It usually involves manufacturing costs, customer demand, and competitor pricing. 

Think of the strategy as the roadmap guiding where a company wants to go with its pricing and the model as the vehicle it uses to get there.

• Types of pricing strategies

1. Penetration pricing

Setting an initial low price to quickly attract customers and establish a market presence. Ideal for new entrants wanting rapid market share. 

Example: Streaming services offering discounted rates for the first three months.

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2. Price skimming

Starting with a high price and then reducing it over time. Suitable for innovative products. 

Example: New tech gadgets like smartphones often use this strategy.

3. Value-based pricing

Pricing based on the perceived value to the customer rather than production costs. Works best for unique products or services. 

Example: Luxury brands like Rolex or Louis Vuitton.

4. Competitive pricing

Setting prices based on competitor rates. Ideal for industries with many competitors offering similar products. 

Example: Supermarkets pricing staple goods.

5. Premium pricing

Charging a higher price to reflect a product’s premium status and quality. 

Example: Brands like Apple or Tesla.

6. Economy pricing

Offering no-frills products at a low price. Common in mass markets. 

Example: Budget airlines like Ryanair.

7. Bundle pricing

Grouping multiple products together at a discounted rate. Useful for increasing sales volume. 

Example: Cable TV packages.

8. Price leadership

Price leadership occurs when one dominant company, usually the largest or most influential in an industry, sets the price of a product or service, and other competitors in the market follow suit.

Example:  

OPEC often influences global oil prices by adjusting its production levels. 

9. Preemptive pricing

Intended to drive away competition or deter others from entering the marketplace by deliberately selling at below market prices (temporarily, of course).

Amazon launching the Kindle with e-books priced below typical hardcover prices. 

• Types of pricing models

1. Cost-plus pricing

Calculating the cost of production and adding a fixed gross margin. Common in retail. 

Example: A shirt that costs $20 to make might be sold for $40.

2. Geographic pricing

Adjusting prices based on location or region. 

Example: A software product priced differently for the U.S. versus India.

3. Dynamic pricing model

Prices change based on real-time factors. 

Example: Uber’s surge pricing during high demand.

4. Tiered pricing model

Different prices for varying levels of product features. See an example of how tiers and introductory pricing can be used to introduce and grow your business.

Example: Software packages with Basic, Pro, and Premium tiers.

5. Freemium model

Basic services are free, with charges for advanced features. 

Example: Spotify offers free music streaming but charges for an ad-free experience.

6. Subscription model

Recurring fee for product or service access. 

Example: Monthly Netflix subscriptions.

7. Pay-what-you-want model

Customers choose their price. Often seen in indie industries. 

Example: Some indie video games or music albums.

8. Volume-based pricing

Decreased price per unit with increased quantity. 

Example: Wholesale retailers like Costco.

9. License pricing model

One-time fee for product usage over a period. 

Example: Microsoft Office’s one-time purchase option.

10. High-low pricing model 

Products have a higher standard price but are frequently discounted. 

Example: Department stores having frequent sales.

• How to choose your pricing strategy

Selecting a pricing strategy comes down to cost, goals, and customer perception. Here’s how:

1. Set business objectives

Define clear goals, such as maximizing profit, penetrating the market, establishing a premium brand image, or achieving specific revenue targets. Your pricing should align with these objectives.

2. Understand your costs

Consider both direct costs (like raw materials and labor) and expenses (such as rent and marketing). Factor in variable costs that change with production volume and expenses that remain constant. Determine the break-even point to identify the minimum price needed to cover all expenses.

3. Analyze the competition

Research competitor prices and understand their value propositions. Identify their market positioning, whether premium or budget and observe any historical pricing trends or changes to gauge market reactions.

4. Know your audience

Understand your target audience’s demographics and what they value in a product. Gauge their price sensitivity and gather feedback on pricing preferences to ensure your price resonates with them.

5. Test and adjust

Before a broad rollout, test the new pricing on a segment of your audience. Refine your pricing based on customer input.

• More on pricing products and services

Check out our other startup pricing resources to turn your pricing strategy into profitable steps for your business.

• How to price your products
• How to price your services
• Mistakes to avoid when setting prices

Kody Wirth is a content writer and SEO specialist for Palo Alto Software—the creator's of Bplans and LivePlan. He has 3+ years experience covering small business topics and runs a part-time content writing service in his spare time.

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The Power of Pricing: How to Create a Pricing Strategy that Drives Profits (+Examples)

Pricing is one of the most important aspects of any business. After all, you won't make a profit if you don't charge enough for your product or service. On the other hand, if you charge too much, you may struggle to find customers. Enter: pricing strategies .

Finding the right pricing strategy is essential for every business. A thoughtful, well-constructed pricing strategy allows you to remain competitive while still being able to cover all of the costs that are involved with running your business.

There are several different pricing strategies--and no one-size-fits-all solution. Your pricing strategy can even become an integral part of your marketing strategy and contribute to bolstering your competitive advantage.

In this guide, we’ll explain 11 different pricing strategies and provide examples of how they work. This way, you’ll have a better understanding of the intricacies involved with pricing—and can determine which strategy makes the most sense for your business.

What is a Pricing Strategy (+ Why is it Important?)

A pricing strategy is a strategic plan for how you will price your products or services and earn a profit. The right pricing strategy considers costs, the perceived value of your offering, market research, and a competitive analysis

Let's say you're selling a unique product or service that has a high perceived value, like an enterprise software suite, you might be able to charge a premium price. If you're selling a commodity product that is more price-sensitive and can easily be replaced by competitors' offerings, you might need to focus on competitive effective pricing to win market share.

Businesses should continually monitor and adapt their pricing strategy as economic and competitive landscapes evolve. In fact, according to Profitwell , most successful companies review their prices quarterly and make adjustments every six months .

Why does pricing strategy matter? It's not just about profits. (Though that is part of it!) Here's a few other reasons why pricing strategy matters:

• Gain a Competitive Advantage : In a highly competitive market, your pricing strategy can be key to gaining a competitive advantage. Companies can use a strategic pricing strategy to attract a new customer base or retain current customers.
• Attract Your Target Audience : Pricing strategy can impact consumer behavior. For example, a low price might attract price-sensitive customers in SMBs, while a higher pricing plan can signal quality and attract enterprise customers .
• Support Brand Image : The right pricing strategy can also bolster your brand image. For example, Rolex’s higher pricing strategy supports its image as a luxury brand.

Whatever pricing strategy you choose, it's important to have a clear plan backed by market research. But be ready to adapt if needed.

11 Types of Pricing Strategies with Real Examples

Now that we've covered the importance of having a pricing strategy in place, let's go over 11 common pricing strategy examples you can use as inspiration for your own pricing strategy.

1. Competitive Pricing Strategy

Many business owners use the competitive pricing strategy to attract customers and increase market share. Essentially, this involves doing a comprehensive competitive landscape analysis and setting prices at or below the level of their competitors’ prices.

This can be a useful strategy if the competitor is a large company with significant overhead and cannot reduce its prices much further. By offering a lower price, small businesses can compete without sacrificing profitability.

However, there are also risks associated with this strategy. If the competitor can lower its prices, the smaller company may be forced to follow suit and risk losing money.

In addition, if customers perceive the quality of a lower-priced offering is also lower, they may be reluctant to purchase it even at a lower price.

Competitive Pricing Strategy Example

Competitive pricing is often be seen in e-commerce. Take, for example, Apple’s AirPods vs a competitor’s “Earbuds.” As you can see below, AirPods cost $329, which Apple can justify thanks to their brand recognition and the quality of their products.

If you go to Amazon and find a similar product from a smaller competitor, you’ll see that these earbuds are just $39.99. They’re similar in style, and they may or may not be similar in quality, but they’re definitely cheaper.

Although nobody knows this brand, they can still compete with big players. This is thanks to the massive discount they’re offering for a product that does more or less the same thing.

Other examples of competitive pricing include bundle pricing, where companies group similar items together and offer a discount.

With competitive pricing, a company may rely more on sales volume than profit margin. With a high enough sales volume, a company can make up for low profit margins with sheer numbers.

2. Price Skimming

Price skimming is a strategy in which a company charges a high price for a new product or service at first, and then gradually lowers the price over time. The goal of price skimming is to generate the highest possible revenue in the shortest amount of time.

To do this, companies typically target early adopters willing to pay a premium for new products or services. The high price also helps to recoup the costs of developing and marketing the new product or service.

Once the early adopters have been captured, the company lowers the price to appeal to a wider range of consumers. This pricing strategy can be very effective in market conditions where there is a lot of consumer demand for new products or services. However, it can also backfire if the company cannot sustain high prices for long enough to make a profit.

Price Skimming Pricing Strategy Example

Gaming consoles are the perfect example of price skimming. Every time a new gaming console hits the market, the price is much higher than what it will be a few years later.

For example, take the Xbox 360. When it was launched in 2005, Microsoft was charging $400 for the console . Now, you can get an Xbox 360 from Walmart for just $183.59.

Due to the novelty of a brand-new product, Microsoft was able to take advantage of the price skimming strategy and maximize its profits in the beginning.

3. Penetration Pricing Strategy

Penetration pricing can be a great way to quickly gain market share. The basic idea is to set the initial price of a product or service low to entice customers. Once customers are hooked, the price increases to a more profitable level.

Of course, this strategy only works if the quality of the product is high enough to justify the higher price. But when done correctly, penetration pricing can be a powerful tool for driving growth.

Penetration Pricing Strategy Example

Jasper.ai is an AI writing software that uses machine learning to produce content. However, now they’re extending their feature set and introducing a new product called Jasper Art.

This tool uses AI and can produce art based on the inputs you give it. It’s a brand-new product, and they’re using penetration pricing to quickly onboard new customers. Here is a screenshot from their product launch post on Facebook.

The post states that their pricing will start at $20/user/month but will likely change (i.e. increase) in the future. A brand new feature combined with an enticing initial price is the perfect combination to get their target audience excited about using their new product, and simultaneously helps them test market demand.

4. Premium Pricing

Premium pricing involves setting a high price for a product or service to convey quality and prestige. This strategy can be particularly effective for luxury goods or products that are higher quality.

There are a few potential drawbacks to premium pricing, however. For one thing, it can alienate potential customers who don't perceive the product as worth the high price tag. In addition, it leaves little room for discounts or promotions, which can be important tools for boosting conversions.

Premium Pricing Example

What better example is there to use for premium pricing than Rolex? Although made with superior craftsmanship, Rolex watches are the epitome of premium pricing. Rolex as a company doesn’t want everyone to own a Rolex. They want to make customers feel like they are purchasing something rare and valuable.

Rolex watches often cost multiple 5-figures and sometimes even 6-figures.

Although the Rolex watches are priced at a premium, it gives their customers a sense of status. This pricing method certainly doesn’t work for everyone (especially new businesses), but it can be a powerful pricing strategy with the right business model, sales strategies , and product offering.

5. Cost-Plus Pricing Strategy

Cost-plus pricing is a popular pricing strategy in which a company sets its prices by adding a fixed markup to the total production costs of its goods or services.

Because cost-plus pricing takes all costs into account, it can help to ensure that a company is making a profit on each sale. However, it can also lead to higher prices for consumers, which can limit demand. In addition, cost-plus pricing can encourage companies to cut corners to provide lower-cost products, which can subsequently lead to lower-quality products.

Cost-Plus Pricing Strategy Example

Cost-Plus pricing is difficult to show as an example as it’s merely a formula:

Cost of goods sold x fixed markup percentage = final price

Cost-Plus pricing is oftentimes used with the sale of alcohol . If a bar is charged on a per liter basis from their supplier, they can then set a markup percentage and pass that fee onto their final customer to make their profit margin.

6. Economy Pricing

Economy pricing is a strategy in which products are priced at a low, competitive rate. The goal of economy pricing is to attract customers looking for a good deal in a competitive market .

This pricing strategy is often used for essential items in high demand, such as food and clothing. Economy pricing can also be used as a loss leader, to attract customers to a store with the hope that they will purchase other, more profitable items as well.

While economy pricing can be an effective way to attract customers, it is important to make sure the low price does not come at the expense of quality. Otherwise, customers may not return in the future.

Economy Pricing Example

For an example of economy pricing, just check your local grocery store’s flyer every week. Grocery stores typically add their best-priced items on the first page to entice people to come shop at their store.

Take, for example, the Big Y flyer below. The weekly sales items are prominently featured, using larger images and attractive pricing.

Grocery stores aren’t worried about making a small margin on their sale items because they know, more often than not, you’ll pick up additional (larger margin) items while you're shopping.

7. Discovery Call Pricing

Discovery call pricing is used by businesses to provide potential customers with an estimate for services. Under this pricing model, customers are required to book a consultation with the business to discuss their needs.

Based on the information gathered during the consultation, the business will provide the customer with a price for their services.

While discovery call pricing can be beneficial for businesses, it is important to note that it can also be frustrating for customers who are not given a clear price upfront.

Discovery Call Pricing Example

Parakeeto for example, a company that helps agencies become more profitable, requires that you fill out an application form and jumping on a call before pricing is disclosed.

This type of strategy can work well for businesses that offer more custom services because it allows you to better understand the customer’s needs before putting together a proposal.

8. Value-Based Pricing Strategies

Value-based pricing is an ideal pricing strategy for SaaS companies that takes into account the perceived value of your offering. This can be based on factors like brand recognition, quality, or even customer service .

When setting prices using this method, businesses typically start with their costs and then add a markup that reflects the perceived value of their product or service. While this approach can help you to attract customers who are willing to pay more for a high-quality product, it's important to remember that perception is often subjective.

Value-based pricing is not an exact science, and there is always some risk involved. Nevertheless, when done correctly, value-based pricing can be an effective way to boost your profits.

Value-Based Pricing Strategy Example

Starbucks is a great example of value-based pricing. They can charge a large markup mainly due to the perceived value of their brand. Even more shocking is that lower-priced competitors, like Dunkin’ Donuts, scored higher in a blind taste test .

A small Dunkin’ Donuts coffee (10 oz) is priced at $1.69. Compare that to a Short Starbucks coffee (8 oz), and you’re paying $2.55, that’s a whopping 41 percent price increase (for less coffee.)

Are you curious about value-based selling and how it can improve your sales performance? Check out this article to discover the benefits and best practices.

9. Dynamic Pricing Strategies

The basic idea of dynamic pricing is to charge customers different prices based on factors, such as time of day, demand, and even the weather.

For example, a business might charge higher prices during peak times, or when demand is high, and lower prices when demand is low. Dynamic pricing can be a very effective way to increase revenue, but it can also be controversial. Some customers feel like they are being charged more than others, based on factors that they cannot control.

As a result, businesses need to be careful when implementing dynamic pricing strategies. But when done correctly, dynamic pricing can be a very effective tool for increasing profits.

Dynamic Pricing Example

Ride-sharing companies like Uber and Lyft take advantage of dynamic pricing. This allows their prices to fluctuate based on the current demand.

Try to find an Uber after a stadium concert, while it’s raining. You’ll pay a lot more for that ride than you would on a sunny Sunday morning when half of local businesses are closed.

10. Psychological Pricing Strategies

Have you ever noticed that some prices end in .99? That’s because businesses are using a pricing strategy called psychological pricing.

Studies show consumers perceive prices ending in .99 as being significantly lower than prices that round up to the next dollar. Businesses can increase their profits by using this seemingly small change in pricing. In addition to prices ending in .99, businesses also use a variety of other pricing strategies to manipulate consumer behavior.

For example, SaaS companies may use anchoring to make a high-priced package seem more reasonable by offering a premium package that costs even more. Or they may use loss aversion to encourage people to buy now by stressing the potential loss of a sale price.

Whether we realize it or not, businesses constantly use pricing strategies to influence our behavior.

Psychological Pricing Strategy Example

You’re likely very aware of what psychological pricing looks like. We see it daily, both online and in physical stores. Just do a quick search on Amazon for any product, and you’ll probably see some form of psychological pricing at play.

Take the example above. Whether products are priced at .99 or .95, they’re all using psychology to trick our brains into thinking prices are lower than they are.

11. Freemium Pricing Strategy

With freemium pricing, businesses offer a basic version of their product for free, with the option to upgrade to a premium version for a fee. This can be an appealing option for customers who are undecided about whether they want to commit to a paid subscription. And it can be a great way for businesses to generate interest in their products.

If you're considering using freemium pricing for your business, you should keep a few things in mind. First, make sure the free version of your product is still useful and enjoyable to use. Otherwise, customers will have no incentive to upgrade to the paid version.

Second, consider what features you will include in the premium version. You want to strike a balance between offering enough value to justify the price tag, but not so much that there are no compelling reasons for customers to continue using the free version.

Finally, be prepared for an influx of users when you launch your freemium pricing strategy. If your dedicated servers can't handle the increased demand, customers will be turned off and may never come back. If you can manage the pitfalls successfully, freemium pricing can be a great way to grow your business.

Freemium Pricing Strategy Example

Dropbox and Google Drive are great examples of the freemium model at work.

Dropbox, for example, offers a free basic account with 2GB of storage. If you need more storage, you can upgrade to a paid plan.

This provides new users with the ability to try out a service, and as they find more value in it, they can upgrade to a paid account. Freemium pricing is typically found in software service-based businesses due to the low marginal costs of providing additional service to customers.

How to Create a Pricing Strategy for Your Business in 5 Steps

Every business needs to have a pricing strategy to remain competitive and profitable. But how do you create a pricing strategy? It's not as difficult as it might seem. Here are five steps to follow.

1. Determine Your Pricing Objectives

The first step is to determine your pricing objectives. What are you trying to achieve with your pricing? Do you want to maximize profits? Or are you more focused on getting market share? Once you know your objectives , you can start to develop a pricing strategy that will help you achieve them.

2. Understand Your Customers

The second step is to understand your customers. Who are they, and what are they willing to pay for your product or service? If you don't understand your customers, it will be very difficult to price your products correctly. Take the time to create your ideal customer profile and get to know what they want.

3. Research Your Competition

Third, research your competition. How are they pricing their products or services? What strategies are they using? You need to be aware of what other businesses in your industry are doing so that you can stay competitive.

4. Find Your Value Proposition

The fourth step is finding your value proposition . What makes your product or service better than the competition? Why should someone pay more for what you're offering? What’s the customer value? If you can't answer these questions, then it's going to be difficult to justify a higher price point. An effective pricing strategy starts with knowing the real value of your product.

5. Collect Data and Modify If Necessary

The fifth and final step is collecting data and modifying it if necessary. Once you've launched your pricing strategy, it's important to monitor how it's working and make changes if necessary. Don't be afraid to experiment a bit and see what works best for your business.

Pricing Strategy FAQs (Frequently Asked Questions)

What are the best pricing strategies for a new product.

When it comes to pricing a new product, there are several different strategies that businesses can use. However, two strategies that work well for new products are price skimming and penetration pricing .

With price skimming, businesses charge a high price for the initial release of the product to capitalize on early adopters who are willing to pay a premium. This strategy is typically used for products with no close substitutes.

Penetration pricing, on the other hand, involves setting a low introductory price to attract customers and gain market share. This strategy is often used for products that face intense competition.

What is the best pricing strategy for SaaS companies?

While many factors can impact the right pricing strategy for a company, most SaaS companies use either freemium pricing or psychological pricing strategies to drive user adoption and target customers in their ideal customer market.

How can pricing strategies be improved?

There are a few general tips that can help to improve your pricing strategy. First, make sure that your selling prices are in line with the competition. If you are too high, you will lose customers; if you are too low, you will struggle to make a profit.

Second, don't be afraid to experiment. Try different price points and see how your customers respond. Finally, keep an eye on your bottom line. At the end of the day, your goal should be to maximize profits, not just sales. These are simple ways to find the right price for your product without decreasing the customer life cycle.

Final Thoughts on Developing Pricing Strategies

Pricing is a critical part of your business and, if done correctly, can be the deciding factor between you and your competition.

By understanding the different pricing strategies and how to create your own strategy amongst the sea of advice floating around, you'll be able to put yourself in a much better position to increase profits, grow your business, and keep your customers happy.

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An effective pricing strategy is essential for continued sales success. Here's how to determine the right tactic for your business.

Setting your business’s prices may seem simple: List your product for higher than it costs you to manufacture or acquire it, and you’ll make a profit.

But your prices are more than just numbers. The way you price your products or services can be a reflection of your business’s identity, how you view and treat your competitors and how you value your customers. That’s why it’s important to have a carefully planned pricing strategy.

What to consider when setting your pricing strategy

Setting your product or service’s prices shouldn’t be a haphazard decision focused entirely on profit. It should be a calculated, informed choice in which your business identity, brand and financial stability are considered.

As with any business decision, determining your pricing strategy starts with assessing your own business’s needs and goals. This involves some commercial soul searching — what do you want your business to contribute to the economy and world? This could mean embracing a traditional retail strategy, establishing a service business mindset or emphasizing personal customer relationships in your offering.

Once you define your goals and needs, do some research on the market you’re entering. Determine three to five main competitors in the industry by conducting online research or scouting out local businesses. No matter what pricing strategy you adopt, what your competitors are doing will impact your business’s success and future decisions. Understanding your competitors’ strategies can also help you differentiate your business from other businesses in the market. In an economy where there are thousands of small businesses providing the same products and services, an effective pricing strategy can help you stand out.

A good final stage in your research is speaking with potential customers to get a feel for how they value your brand, product or service. This can give you valuable insight into how to set your pricing. This kind of research can range from casual conversations with friends and family to formal surveys of potential buyers.

While you may have already done some of this legwork when developing your business plan , it’s good to have as much insight and information as possible before you decide what pricing strategy to adopt.

Pricing strategies to attract customers to your business

There are dozens of ways you can price your products, and you may find that some work better than others — depending on the market you occupy. Consider these seven common strategies that many new businesses use to attract customers.

1. Price skimming

Skimming involves setting high prices when a product is introduced and then gradually lowering the price as more competitors enter the market. This type of pricing is ideal for businesses that are entering emerging markets. It gives companies the opportunity to capitalize on early adopters and then undercut future competitors as they join an already-developed market. A successful skimming strategy hinges largely on the market you’re looking to enter.

2. Market penetration pricing

Pricing for market penetration is essentially the opposite of price skimming. Instead of starting high and slowly lowering prices, you take over a market by undercutting your competitors. Once you develop a reliable customer base, you raise prices. Many factors go into deciding on this strategy, like your business’s ability to potentially take losses upfront to establish a strong footing in a market. It’s also crucial to develop a loyal customer base, which can require other marketing and branding strategies.

3. Premium pricing

Premium pricing is for businesses that create high-quality products and market them to high-income individuals. The key with this pricing strategy is developing a product that is high quality and that customers will consider to be high value. You’ll likely need to develop a “luxury” or “lifestyle” branding strategy to appeal to the right type of consumer.

If you’ve already launched your business, you can experiment with these strategies until you determine what works best for your business. You can also vary strategies between products depending on the market for each good or service.

4. Economy pricing

An economy pricing strategy involves targeting customers who want to save as much money as possible on whatever good or service they’re purchasing. Big box stores, like Walmart and Costco, are prime examples of economy pricing models. Like premium pricing, adopting an economy pricing model depends on your overhead costs and the overall value of your product.

5. Bundle pricing

When companies pair several products together and sell them for less money than each would be individually, it’s known as bundle pricing. Bundle pricing is a good way to move a lot of inventory quickly. A successful bundle pricing strategy involves profits on low-value items outweighing losses on high-value items included in a bundle.

6. Value-based pricing

Value-based pricing is similar to premium pricing. In this model, a company bases its pricing on how much the customer believes the product is worth. This pricing model is best for merchants who offer unique products, rather than commodities.

How do you know what a customer perceives a product to be worth? It’s hard to get an exact price, but you can use certain marketing techniques to understand the customer’s perspective. Ask for customer feedback during the product development phase, or host a focus group. Investing in your brand can also help you add “perceived value” to your product.

7. Dynamic pricing

Dynamic pricing allows you to change the price of your items based on the market demand at any given moment. Uber’s surge pricing is a great example of dynamic pricing. During low periods, Ubers can be quite an affordable option. But, when a rainstorm hits during the morning rush hour, the price of an Uber will skyrocket, given that demand is also likely to rise. Smaller merchants can do this too, depending on seasonal demand for your product or service.

Which pricing strategy is right for you?

Each of these seven strategies offers different advantages and downsides. At the very least, you must make sure your pricing strategy covers your costs and includes a margin for profit. Determining your needs upfront can clarify which strategies are ideal for your business.

Focus on finding the right range of costs, rather than pinpointing a specific number. “Don't waste time debating $500 vs. $505, because this doesn't matter as much until you have a stronger foundation beneath you,” wrote Profitwell .

Regardless of which tactic you choose, pricing your inventory properly is essential for continued business success. You may have the best product in the world, an excellent team and a beautiful storefront, but if you can’t price your products effectively, your sales will ultimately struggle.

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9 Popular Pricing Strategies to Maximize Revenue Growth

• Table of contents

Pricing is one of the most crucial and influential levers in driving revenue for your company. Unfortunately, many organizations take a “set and forget” approach to pricing and fail to develop a comprehensive, research-backed strategy to determine appropriate price points.

This mistake leaves a significant revenue opportunity on the table and is responsible for as much as 18% of startup failures .

It seems obvious, optimize your pricing strategy to maximize revenue from each customer. This leads to improved growth and higher profit.

However, many SaaS revenue leaders fail to put this simple idea into effective practice.

This guide will dive deep into 9 of the most powerful pricing strategies and outline how to choose the optimal approach based on the type of company you operate.

What Is Pricing, and Why Is It Important to Get Your Pricing Right?

Simply put, pricing is the process of determining what you’re going to charge for your company’s products or services.

The operative term in this definition is “process.” Setting your price must not be an arbitrary decision based loosely on market norms and competitor price points (though these factors should be taken into account).

That “process” (which we’ll discuss in more detail in subsequent sections) is informed by your pricing strategy — the theory and principles behind your product pricing.

So, why is it so crucial to get pricing correct?

The main reason is that pricing optimization leads to increased profits. Studies show that a pricing increase of just 1% can induce profit growth of more than 11%.

Of course, by setting prices too high, you’ll alienate certain market segments and risk pricing yourself out of the market. You need to find the right price, or prices, to maximize market penetration.

More than that, a company’s pricing contains inherent indicators of value and how customers should perceive that product. 

At a basic level, higher-priced items are perceived as being of higher quality (a psychological phenomenon known as premium or prestige pricing ) and vice versa. 

How, then, do you determine the optimal price point for your product or service? First, you need to determine the pricing strategy that best fits your revenue and organizational goals.

What Are Pricing Strategies? 

Your pricing strategy is your methodology, concept, or theory behind your product pricing. 

Pricing strategies allow you to make informed decisions on pricing changes and to understand how those changes will be impactful and appeal to your target audience.

Let’s take two common pricing strategies to illustrate: price skimming and cost-plus pricing (both of which we’ll discuss in more detail shortly).

Price skimming is a strategy where you start by setting high prices — as high as the market can tolerate (capturing maximum revenue per unit early on) — and then gradually lower prices to reach a wider audience as demand reduces.

Cost-plus pricing is a strategy that takes your total production cost and adds a margin on top of it (typically a percentage).

A startup entering the CRM market, for example, might perform research and determine that the maximum they can charge for their product right now is $80 per user (using the price skimming strategy). They’ll capture some high-value clients upfront and then slowly reduce their price over time to widen the pool of potential customers.

If they choose to use a cost-plus pricing strategy, however, with a margin of 50%, they may calculate the total cost of production to $30 per user and so decide to set their price at $45 per user.

Why Are Pricing Strategies Important? 

Without an effective pricing strategy, you’re essentially throwing darts in the dark — there’s a chance you’ll hit the bullseye, but you’re more likely to miss the board altogether.

Several things go wrong when the price of a product is not informed by a sound strategy:

You fail to meet market expectations

You fail to capture as much revenue as you could

You risk losing business to competitors whose pricing more accurately reflects market sentiment

You fail to communicate the real value of your product

Your marketing strategy misses the mark

To illustrate, let’s examine the opposite scenario. 

You’re releasing a new product, and it’s time to nail down pricing and get it to market. Because you aren’t using a specific pricing strategy, you’re just going to make your best guess at what the price should be and see how things pan out.

One of two things will happen:

1. Your price is too high. Most of the market isn’t going to buy from you. If you’re really good at selling value, you might capture a few upmarket buyers, though they’ll likely churn once they realize the value you sold isn’t reflective of the actual product, and they’ll move to a competitor that offers the same value for a lower price.

2. Your price is too low. The majority of the market sees your product as cheap, inferior, and altogether not worth purchasing, as the price point you’ve selected doesn’t indicate the product’s true value. You’ll close a few frugal customers, but you won’t generate much revenue from them. If you’re not careful, you may even fail to set the price high enough to cover your production costs. Then, when you realize you’ve gone too low, you’ll increase your pricing and lose the majority of those buyers who only purchased your product — because the price was the most important factor to them. 

The latter is more likely, statistically speaking, as the majority of startups underprice their products and gradually increase total deal size as they grow.

But it’s not as simple as continuing to bump up your product’s price point. Inevitably you’ll reach a glass ceiling, and you’ll experience diminishing returns. Once you exceed a certain pricing threshold, you’ll narrow your addressable market, close fewer deals, and risk actually reducing total revenue.

So, neither of the above scenarios is ideal, but the problem runs deeper.

Because you don’t have a well-developed pricing strategy in place, pricing across your product range is likely to be disconnected, particularly when you have different leaders in charge of each.

And, as you continue to adjust to the market and learn more about how your pricing fits (and the fact that you got it wrong to begin with), you’re going to keep changing it, which is a sure way to confuse and alienate your existing customer base.

Pricing strategies are crucial because they help you to:

Communicate the value of your product and create expectations you can actually make

Target the right customers to increase average deal size and minimize churn

Differentiate your offering from competitors — a good pricing strategy can be a competitive advantage

What Are The Top 9

There are a number of pricing strategies that SaaS companies adopt to communicate value to their target audience and drive revenue.

Before settling on a singular strategy for your own company, take time to consider these nine approaches and how they might impact your own profitability. 

1. Value-Based Pricing

Value-based pricing is the most common approach for SaaS and subscription businesses . With the value-based pricing strategy, you’re setting pricing based on what your customers believe the value of your product to be.

That is, you charge as much as your customers are willing to pay.

It doesn’t take into account cost factors, as the assumption is that if the cost of producing that product exceeds what customers would be willing to pay, then the business model isn’t viable and not worth venturing into.

Many B2B SaaS organizations use this strategy. Take Asana, for example.

Asana uses a freemium model (more on that later), with two paid pricing tiers: Premium and Business.

Note that the Business plan costs twice as much as the Premium plan. That’s because, with the features included in this plan, Asana can demonstrate how they’ll create significant value for their Business customers, and so they’ve priced this plan based on that value.

Value-based pricing is the most suitable strategy for the majority of subscription businesses for a few reasons.

First of all, determining the cost of production (in order to use a strategy like cost-plus pricing) is more well-suited to physical goods than virtual goods like software platforms. With software, once a product is built, it’s built, and so the cost is less relevant to pricing than it would be for, say, a smartphone.

Secondly, it’s the best way to maximize your revenue. Charging based on value allows you to find the optimal balance between revenue per user and the number of users in total.

Thirdly, it puts the customer at the center of your pricing decisions. 

This ensures an alignment between the product and its pricing (as both are designed around the end-user) and puts upward pressure on your company to provide more value. If you can deliver more value than your competitors, you can justify charging a higher price and prevent engaging in a race to the bottom (a competitive situation that occurs when companies compete solely on price).

However, there is one drawback of using the value-based pricing strategy: it’s a reasonably time-consuming process.

Where strategies like competitive pricing are easy to implement (you monitor what your competitors are charging and adjust when they do), value-based pricing requires a deep understanding of your target audience, their needs, and the benefits your product provides. 

It can also be hard to satisfy different segments, like price-sensitive small businesses and big-budget enterprises, with the same offering.

That said, you should get to know your target market and different segments in-depth anyway if you want to effectively market your product, so it’s not the most concerning drawback.

Value-based pricing is a fairly dynamic approach. It involves testing different pricing points (whether actively in the market or by conducting surveys) as well as performing customer research and interviews.

And, of course, each time you release a new update or feature, your value changes, so you’ll need to reassess how that impacts your pricing.

While the value-based pricing strategy is best implemented through a combination of testing and research, a simple formula called the 10x rule can be used to get you into the ballpark:

Value-based price = Value you provide to client (monetarily) / 10

That is, the value you provide in monetary terms — either the additional revenue you help to create for a customer or the amount of money your product saves them — should be 10x your price.

If your product costs $499 per month, for instance, then you should be saving or creating $4999 of value per month for the customer — a premium price needs to line up with your product’s perceived value in your customer’s mind.

2. Competitive Pricing

Competitive pricing is a fairly straightforward strategy. You’re simply setting your prices in accordance with what your competitors are charging.

It’s not a particularly sophisticated strategy, but it’s an easy one and one that can help you find a decent pricing range fairly quickly, assuming your product or service is very similar to the companies you’re competing with.

A company using the competitive pricing strategy would assess the competitive landscape and the various pricing models used and then determine whether they want to sit slightly above, slightly below, or on par with the market.  

If you’re new to a market that has a few established businesses, then competition-based pricing can be a reasonable approach (though it should really only be used as a starting point).

Let’s say you’ve developed a new CRM for sales reps. You’re entering a pretty well-established (and fairly saturated) market, so there’s plenty of competition to base your pricing on.

First, you check out Pipedrive.

Then, Copper.

And a third for good measure: Zoho CRM.

Now we’ve got some good ballpark figures to work from. If you’re planning on offering three different plans, you should start your pricing in these ranges:

Tier 1 - $15-20 

Tier 2 - $40-50

Tier 3 - $60-90

Remember: use these figures as a starting point only. You should test and optimize from there, and ideally move toward a value-based pricing strategy once you’re able to establish and demonstrate the value your product delivers

If your product or service differs significantly from what your competitors offer, then competitive pricing might not be a suitable strategy, as you’re not comparing apples with apples, despite competing in the same market segment.

The other downside of the competition-based pricing model is that you’re relying on someone else’s research, and as we know, that research isn’t always applicable to your business. 

In some instances, it might even be non-existent, and so you’re setting your prices based on a competitor with a price point that isn’t backed by data.

All things considered, paying attention to your competition is still an important aspect of pricing, regardless of your chosen strategy.

Charge much more than your competitors (without being able to communicate additional value), and you’ll likely alienate a large segment of the market. Charge much less, and customers are likely to make the assumption that your product is somehow inferior.

3. Price Skimming

The price skimming strategy is all about squeezing as much revenue out of each customer as possible, focusing initially on those who are willing to pay the most.

With the price skimming strategy (also known as the high-low pricing strategy), you start by setting your price as high as the market will tolerate. You’ll capture revenue from buyers who have the most need and demand for your product or service, but be priced out of the market for the majority.

As time progresses, you’ll gradually lower your price to capture more of the market.

This is a pretty common approach in the electronic goods market, with console producers like Sony and Microsoft using the price skimming strategy for their PlayStation and Xbox product lines.

This pricing strategy works best for products that are able to be positioned as premium (iPhones, for example) and for one-off purchase items such as electronic goods (the intersection of these two product types is ideal).

It’s not so well-suited to subscription products or services because your intention with this style of business is to grow revenue over time. But if you continue to lower your prices, you’ll reduce your revenue from each existing customer and ruin your Customer Lifetime Value (LTV) .

But many of today’s consumers are aware of this pricing strategy, and they understand that prices for certain goods are likely to come down with time. Many will even wait for price reductions before purchasing. So inevitably, you won’t capture the full market demand in the short term, slowing down your cash flow.

4. Cost-Plus Pricing

Cost-plus pricing is an incredibly simple pricing strategy — it’s your costs plus your markup.

To set prices for a new product, you take the total cost of producing it, then add a percentage on top to determine your price.

It’s easy to calculate but not really suitable for anything other than physical products, where your production costs align reasonably closely with an increase in the number of units produced.

With software products, however, the majority of the production costs happen up front. The cost to develop the product is the cost to develop the product; that doesn’t change each time you land a new customer.

As such, cost-plus pricing is generally unsuitable for subscription-based businesses.

On the other hand, the major benefit of using this pricing strategy is that it guarantees your profit margin and provides some security as far as profitability is concerned. If you build a 50% margin into your pricing, then you’ll always maintain a healthy profit margin.

5. Penetration Pricing

Penetration pricing is a strategy commonly used by new companies looking to break into an existing market and generate a solid customer base that they can then leverage to create social proof and move upmarket.

With the penetration pricing strategy, you set your prices far below what your competitors are charging but provide the same (or similar) value.

The idea here is that customers will switch over to your company from a competitor, and you’ll be able to gain a foothold, despite making less revenue and profit per customer than you could if you charged more. In some cases, companies using penetration pricing actually make a loss but offset this against future gains.

There are, of course, a few drawbacks to this strategy:

You’ll need to close a lot more customers to make decent revenue

There’s a significant risk that as you increase pricing, you’ll lose existing customers

You risk setting a low pricing expectation in the market, which could prevent you from lifting prices later on

There’s always a risk that you’ll be unable to survive the phase of unprofitability while prices are set so low

New Relic, an observability platform for developers, is a great example of a company using penetration pricing to gain some ground in the market.

Competing with existing industry standards like Datadog and Dynatrace, New Relic offers a similar feature set but charges significantly less than its competitors.

It’s worth bearing in mind that some customers may be wary of newcomers who are charging significantly less. Pricing has a major psychological impact on how customers perceive your value, so penetration pricing does put you at risk of customers thinking your product is inferior.

New Relic does a fantastic job of overcoming this objection by providing a breakdown of the features they offer (and how they charge for them) in comparison to competitors, demonstrating that they can offer the same value at a fraction of the price.

The penetration pricing strategy is best utilized by companies in markets where consumer demand is reasonably elastic (demand is significantly influenced by price).

6. Economy Pricing

Economy pricing is all about sales volume.

With the economy pricing strategy, you aim to produce a product with lower production costs than your competitors (which often means you create an inferior product) and sell it at a lower price. The idea is to sell the product at a higher volume and thereby generate the same profit as you would if you sold a lower volume at a greater price.

This is the pricing strategy that generic soda brands use to compete with established and recognizable brand names like Coca-Cola and Pepsi.

However, it’s not a great fit for subscription and SaaS businesses, as it limits your revenue potential and generates downward pressure on market pricing.

Plus, it incentivizes producing an inferior product, which is not a strategy that’s suitable for delivering long-term growth in SaaS, where customer relationships are everything.

7. Dynamic Pricing

Dynamic pricing is a pricing strategy that involves rapid changes to your pricing in response to either market demand or costs of production.

Depending on the approach you take, you set your initial price (based on current conditions) and then continue to alter it upward or downward based on cost or demand.

As you can imagine, this isn’t a very suitable pricing strategy for subscription businesses, but it does have a place in certain markets and is more common than you might expect.

Entities like Shell and Mobil, for example, use a dynamic pricing strategy to set pricing for their fuel. In this case, their dynamic pricing is informed by the cost of crude oil.

On the demand side, we can look to Uber for an example of the dynamic pricing model in action.

When immediate demand for Uber’s service is high, the company imposes “Surge Pricing,” an inflated pricing differential designed to capitalize on the fact that a high number of users in the area are seeking to access Uber’s driver network.

8. Geographic Pricing

The geographic pricing strategy involves setting different prices based on your customers’ geographic location.

Market demand differs from country to country, which has a major impact on local pricing expectations. As such, it may be appropriate to use different pricing structures in different markets.

This approach ensures you’re capturing maximum revenue in markets where demand and price expectations are high and meeting the largest market possible in markets where the opposite is true.

Most global enterprises follow this strategy. Consider Netflix’s pricing in different regions.

In India, the cost of a Netflix subscription starts as low as ₹149 ($1.95).

In Denmark, customers are paying 10x that price, with a Netflix subscription topping $12 a month.

Of course, the geographic pricing strategy can be combined with any of the other strategies we’ve covered here. For example, you could use an economy pricing strategy as your general approach but then use market insights to determine what pricing level is appropriate in each country.

9. Bundle Pricing

Bundle pricing is a strategy employed to create the appearance of greater value while simultaneously maximizing the throughput of product lines that might otherwise be purchased less frequently.

With bundle pricing, you sell multiple similar products as a package (i.e., a bundle) rather than separately.

The bundle pricing strategy is prevalent in the fast-food industry, with companies such as McDonald’s regularly promoting products together.

There are three factors that make this such an effective pricing model for a company like McDonald’s. 

Firstly, meal deal combos include a main, a side, and a drink; a fairly standard combination, meaning they’re appealing to existing demand.

Secondly, the difference in the cost of the bundle and the price of the items individually is significant (it’s much cheaper), so it creates the illusion of greater value. We say illusion because, in reality, very few people purchase the items individually.

Thirdly, the addition of extra items like fries and, in particular, a drink comes at a minimal cost increase to McDonald’s, especially compared to the price increase. The difference in price between the burger on its own and the bundle might be a couple of dollars, but the cost increase to McDonald’s is mere cents.

This pricing strategy has an application in the SaaS and subscription industries as well.

Mailchimp, for example, offers blocks of email credits for purchase individually.

Alternatively, customers can sign up for a bundle plan which includes a designated number of email sends (based on the size of your contact base), as well as access to their other tools such as landing page builders, automation, and A/B testing.

Pipedrive , for example, offers “add-ons” for customers subscribing to their CRM who need additional capability.

A pricing manager at Pipedrive could experiment with bundle pricing by creating a package that includes the standard CRM as well as all four available add-ons.

How to Choose the Right Pricing Strategy for Your Business?

Having a knowledge of the different pricing strategies available to you is important, but knowing how to apply that knowledge and choose the ideal strategy for your business is even more crucial.

We’re going to look here at six key steps to take in choosing the ideal strategy. When following these steps, bear in mind that the initial idea is to determine the broad range your product fits into. Is it a $10 product? A $50 product? A $500 product?

We don’t want to waste time here arguing over the difference between $45 and $49. We’ll optimize for that down the line. The important component here is understanding the broad category you’ll fit into.

1. Conduct Target Market Research

We know that a thorough understanding of our customers’ challenges, goals, and demographics is important for marketing a product, but we need some technical details in order to land on an appropriate pricing strategy.

This template , for example, demonstrates how granular you need to get to understand a customer profile in relation to pricing strategies.

In particular, the data that will guide pricing strategy choice includes:

Customer Acquisition Cost (CAC), Customer Lifetime Value (LTV), and Average Revenue per User (ARPU) by customer profile/market segment

Acceptable pricing range and “indifference” price point

Compelling value props

Feature preferences 

2. Assess Your Competitors’ Pricing

While you don’t want to base your product pricing entirely on competitors (unless you’re using a competition-based strategy), this information is still necessary for certain strategies.

Consider Pipedrive’s pricing tiers:

And then look at those of Copper, a close competitor to Pipedrive.

These two products are fairly similar as far as pricing goes. Imagine, then, that you’re in charge of pricing at ActiveCampaign, and you want to use a penetration pricing model to break into the CRM market.

You’d need to know what these two competitors are charging, so you can position your most basic product package at a much lower price point.

3. Consider Your Revenue Model

Your revenue model has a significant impact on the appropriateness of different pricing strategies.

If you’re primarily generating recurring revenue, for example, then the price skimming strategy might not be the most appropriate approach. However, it might be a suitable method for those selling high-value goods such as electronics and vehicles.

Similarly, economy pricing often isn’t the best strategy for SaaS and subscription businesses, though it’s great for many FMCG (fast-moving consumer goods) companies. 

Perhaps, though, your revenue model is a partial subscription model , with the remainder of your revenue made up of services. 

Bench, for example, uses this model.

They have a proprietary software platform and offer services over and above this.

In this instance, it may be suitable to use an economy pricing model for the platform itself (acting as a sort of loss leader to attract new clients) and generate the majority of its revenue using a value-based pricing strategy for service.

4. Get Absolute Clarity on Your Costs

Even if you aren’t going to use a cost-based strategy (such as cost-plus pricing), it’s imperative that you understand the total expense of production.

This will help you to ensure your pricing more than covers that cost and will be crucial in conducting analyses such as calculating your breakeven point .

5. Evaluate Your Company’s Strengths and Weaknesses

What is your company great at, and in what areas are you not so strong?

If, for example, you have a great marketing team with strong storytelling skills, you know you’ll be able to get more leverage out of a value-based pricing strategy.

If, on the other hand, you’re really good at cost reduction and maximizing production, an economy pricing strategy might prove appropriate. 

6. Ensure Your Pricing Strategy Aligns with Your USP

What is your company’s unique selling point? Is it convenience? Financial savings? Customer revenue growth?

Your USP needs to align with the strategy you choose to determine pricing.

For example, if your value props demonstrate your ability to generate the customer thousands of dollars in new revenue, a penetration pricing model where you charge relatively little for your product probably doesn’t align.

Pricing Strategy for Different Industries 

In general, the most appropriate pricing strategy for SaaS and subscription businesses is the value-based pricing strategy.

This pricing strategy:

Maximizes your revenue per user

Allows you to increase pricing as the value your product offers improves

Mitigates the effect of competition that uses penetration or economy pricing models 

2. Ecommerce

For ecommerce companies, the ideal pricing strategy to use depends quite heavily on the industry you’re in, the stage your company is at, and the kinds of products you’re selling.

Value-based pricing is always a good move, and competitive pricing can be a good place to start if you’re unsure about what customers are willing to pay. Both can also be valuable strategies for ecommerce companies moving over to a subscription model.

If you’re selling discount goods at volume, economy pricing can be a viable solution.

3. E-learning

E-learning companies can follow similar advice to SaaS companies (value-based being the ideal strategy), assuming they’re operating on a subscription model.

For e-learning businesses selling using a perpetual license model, penetration pricing can be a viable alternative for market newcomers looking to gain market share, though value-based will win out in the long term.

4. Publishing

Value-based and competitive pricing strategies will be best for subscription-based publishing companies , though price skimming may be suitable if you’re able to position yourself as a premium product.

5. OTT and Video

OTT and video businesses should follow suit with SaaS companies and adopt a value-based approach. 

Competition should be analyzed, but given content varies significantly from platform to platform, a strictly competition-based approach shouldn’t be followed.

Difference Between Pricing Strategy and Pricing Model 

Many revenue leaders confuse pricing strategies and pricing modes, and they’re often used as synonyms, despite this being incorrect.

Your pricing strategy is the theory behind your product pricing. It tells you how you set your price and what data you need to pay attention to when calculating that figure.

Your pricing model, on the other hand, is the way you display, package, and communicate your product pricing to your customer.

Examples of pricing models include seat-based or user-based pricing (common in SaaS, for example, $49 per month, per user), perpetual license (a one-off purchase), and usage-based (such as your monthly utility bills).

When determining product pricing, you’ll need to decide on both. You’ll use a pricing strategy to determine how you’ll set the price, then decide on a pricing method to determine how you’ll communicate and invoice that price.

Types of Pricing Models 

So far, we’ve laid out the most common pricing strategies and discussed what distinguishes these strategies from pricing models.

Here, we’ll examine eight common pricing models, which you can combine with the overall strategy you’ve chosen for your company. 

1. Freemium

Freemium is an extremely common approach to pricing and involves offering a free version of your product with the goal of converting users to a paid plan at a later point.

monday.com, for example, makes use of the freemium pricing model .

With freemium, the idea is to design a stripped-back version of your product, so you retain some leverage to bring users up to a paid plan.

It’s important, however, that you still provide enough value in the free version to make it worthwhile to the user. 

In monday.com’s case, the free plan allows for unlimited boards and access to over 200 templates to get started immediately. 

However, users on the free plan are limited to just two team members, meaning monday.com has built growth right into its pricing (if the free user gets significant value out of monday.com, their team will grow beyond two members, and they’ll need to upgrade to a paid plan).

2. Per Seat

With the per-seat pricing model (also known as the per-user model), your customers pay based on the number of employees that are using the product.

GitHub, for example, uses the per-seat pricing model:

Note, like with both GitHub and monday.com, the per-seat model can be combined with the freemium model.

The per-user model has a few important advantages:

Revenue growth is built-in — as the customer’s company grows in size, they’ll add more users (depending on the need your product serves)

Pricing is easy to digest, and customers can budget accordingly

Customers have immediate access to all features (that are included in their plans)

However, it has some drawbacks as well:

Users can often share passwords to avoid paying for extra seats

Total costs can get expensive for customers when they expand, so they can be reluctant to upgrade

Getting customers from one user to many users can be a challenge

High-usage customers can be a drain on your resources relative to the revenue you’re receiving from them

Low-usage customers may feel they aren’t getting a lot of value out of your product

Most subscription businesses use the tiered approach. With a tiered pricing model , you’ll create different ‘plans’ (generally between three and five) at different pricing points.

ActiveCampaign, for example, uses the tiered model:

With tiered pricing, each subsequent plan gives users access to more features or higher usage volumes.

This is a powerful method for attracting revenue growth from SME customers. When new customers in this segment sign up, they’re more likely to opt for a more affordable plan.

As the company grows, you’ll continue to demonstrate value through the results your product generates, as well as any marketing and sales activities you engage in to increase your annual contract value.

It can also be an effective way to take advantage of price anchoring, a technique where the lowest and/or highest pricing tiers help to establish the middle tier as better value. 

GitHub’s pricing model demonstrates price anchoring in action, where their “Team” plan appears as higher in value when compared with the much higher cost of the “Enterprise” option. 

4. Flat-rate

Flat-rate pricing takes the opposite approach to the tiered pricing model.

With a flat-rate pricing model, you charge one price for access to all of your product features. Basecamp, for example, uses the flat-rate pricing model, which is unusual in SaaS.

Flat-rate pricing models can be considered a form of penetration pricing, where companies compete with industry leaders who charge on a per-user model.

Consider, for example, a company with 30 users comparing Basecamp’s pricing with monday.com’s pricing.

Even at monday.com’s lowest pricing tier ( $8 per month ), that’s a cost of $240 per month vs. $99 at Basecamp.

The primary benefit of running a flat-rate pricing model is this competition. Plus, it makes your pricing much more digestible, as potential customers don’t need to waste time figuring out the differences between your various plans.

It does come with a major drawback though: the inability to grow revenue from existing accounts. 

When you use a tiered pricing model, you’ve got revenue growth built in, as you always have the ability to upsell lower-tier accounts. And if you’re charging per user, you’ll continue adding revenue as your customers scale.

There is a workaround for this problem. Note that Basecamp’s flat-rate pricing model includes unlimited users. It’s also possible to combine the flat-rate model with a per-user pricing model, where you offer only one plan at a flat rate but charge extra per additional seat.

5. Usage-Based

Usage-based pricing is a pricing model where customers pay based on what they use in a given month.

You’ll find this model used across the majority of utility companies.

In the B2B world, usage-based pricing is often used for cloud computing and web infrastructure services. Entrepreneurs and business owners often prefer this model because of the transparency — you pay for what you get.

Amazon Web Services (AWS), for example, uses this pricing model.

Some companies use a hybrid model, where usage-based and per-seat pricing models are combined to provide a set monthly rate with usage ceilings.

Auth0, for instance, takes this approach.

It makes the most sense for high-volume plans — sending an extra invoice for each new user is not feasible.

6. Pay as You Go

The pay-as-you-go pricing model is a variation of the usage-based model in that customers pay only for what they use.

The difference, however, is that they pay in each instance they use the product rather than receiving an invoice at the beginning of the month for the last period’s total usage.

Ride-sharing apps like Uber and Lyft are good examples of the pay-as-you-go model. Customers pay based on usage (longer distances cost more) and are changed at the point of use.

Twilio is an example of a B2B SaaS company who charges using the pay-as-you-go model for certain features.

7. À La Carte

The a la carte pricing model allows customers to pick and choose features or modules, essentially building their own customized solution.

This is beneficial when you offer a large range of features and want to ensure customers are getting maximum value for their dollar. Rather than having to upgrade to a more comprehensive plan to access a single feature, they can simply add it on.

This does, however, have implications for revenue. 

With a tiered approach, customers who need a more advanced feature must upgrade to a more expensive plan. With a la carte pricing, they can simply add on the new feature they need, which typically costs less than the difference between tiered plans, meaning your ability to grow revenue from upsells is limited.

Because of this risk, a la carte is less common as a SaaS pricing model, though some companies, such as Pipedrive, incorporate a la carte into their tiered approach.

8. Perpetual License

The perpetual license is, for lack of a better term, the “old” software model.

Before SaaS was the most common approach, customers would need to purchase the software outright (now known as a perpetual license).

With the perpetual license pricing model, customers pay a one-off fee and have access to the product in perpetuity. Depending on your structure, that might include all future updates, or they may need to pay a crossgrade/upgrade fee in the future.

Microsoft, for example, still sells Word on a perpetual license (though you’ll see that they’re trying to push customers toward a subscription model).

Making the Most of Pricing: Tips and Best Practices

Not sure how to start optimizing your prices? Here are a few tips and best practices.

1. Adopt a Localized Pricing Model

While the USD may be a pseudo-universal currency, failing to display localized pricing inevitably creates friction in the buying process.

Buyers in regions that also use the term “dollar” (Australia, New Zealand, and Singapore), for example, may misinterpret how you’re displaying prices, resulting in an unwelcome surprise when it comes time to enter their credit details (often resulting in cart abandonment).

Moreover, charging exclusively in one currency means customers incur foreign currency fees, and due to fluctuations in exchange rates, your consistent monthly cost is no longer all that consistent.

A simple way to get around this is to install a plugin on your site that detects the visitors’ region and calculates local pricing automatically. There are two drawbacks here, however:

The nature of exchange rates means that prices are displayed differently each time the customer visits. So unappealing price points ($43.67, say) limit your ability to take advantage of psychological pricing.

You’re not truly localizing pricing.

Localized pricing must reflect the demands and expectations of the geography you’re selling into, and this is not always the same as a simple exchange rate calculation.

Zoho, for example, makes it clear to Australian visitors that they’re charging in AUD, and uses localized pricing to set digestible, round numbers for each of their pricing tiers. You also need to consider the buying power of your target market in each country.

2. Messaging Matters

Though the price points you choose do influence how customers perceive the value your product offers, they’re far from the only lever you can pull.

The messaging around your pricing, and the value propositions you use to communicate the benefits your customers can expect to receive, can influence buyers’ willingness to pay by as much as 20% .

Testing is the best (and really only) way to nail your messaging with 100% confidence. The problem is, testing messaging on a live audience can be time consuming, and presents a risk to revenue growth, because testing ineffective messaging on real customers means you’ll convert less than you could.

To maximize impact (and minimize time spent in A/B testing in a real-life scenario where revenue is on the line), use a message testing service like Wynter to gather in-depth feedback from relevant B2B audiences.

Start by testing internally before investing in professional message testing. Perform Voice of Customer research by interviewing your current buyers and questions about the challenges they faced previously and how your product impacts their lives today.

Pull important quotes and insights from these interviews to use as fuel for your product messaging. Develop several messaging options, and ask for feedback from internal stakeholders (marketing, sales, and customer service).

Use this feedback to refine your message and draft the final landing page copy, then submit it for testing, and use the feedback from that professional process to polish, finalize, and publish.

3. Test Psychological Pricing

Psychological pricing is somewhat of a misnomer — all pricing is psychological.

The term itself, however, refers to the concept of manipulating price points at the micro level to influence buyers’ perceptions of value.

The classic example, and one which you see nearly everywhere, is ending price points with a 9 (such as $19 instead of $20, or even better, $19,99).

Ending your pricing in 9s isn’t the only method, however. While this strategy does work for lower-value products (think FMCGs like those pictured above), it tends to be coupled psychologically with discount brands.

Pricing that ends in a 0, on the other hand, can establish the opposite; an appearance of luxury or premium quality.

The most important factor here is what works for your audience. Set up multivariate testing to establish whether 9, 0, or 5 (or any other number, for that matter) appeals most to your target customer.

4. Keep Pricing Packages Simple

Many studies support the notion that offering too many choices results in something known as “ analysis paralysis .” Buyers are too overwhelmed with the number of options they have and are less likely to make a decision than those given fewer options.

Limiting your selection to three to five packages tends to be the most effective approach. It is also enough space to incorporate a free plan and a custom enterprise plan on either side of the scale, like monday.com does.

Pricing presented like this is extremely easy to digest, because most customers will fall into one of three categories:

Customers who are just getting started who know they want a free platform

Customers at the enterprise level who will gravitate automatically to the Enterprise plan

Customers that are anywhere in between, who’ll then only have three options to choose from

Plus, presenting three options makes it easy to take advantage of the center stage effect , the tendency for consumers to choose the middle option when presented with a row of pricing packages.

Note also how monday.com uses a subtle design cue (the “Most Popular” icon) to further influence this decision pathway with a bit of social proof.

5. Use Design to Impact Purchase Decisions

The design of your pricing page (in conjunction with the price points you set and the messaging you use to sell your value props) can have a significant impact on pricing decisions.

It’s fairly well-established that buyers more readily choose the middle option when presented with a selection of products or packages.

But, if, like many SaaS brands, you want to influence customers to choose a more extensive package with a higher price point, you can use subtle design cues to make one package stand out.

ActiveCampaign, for example, uses a couple of simple yet effective design tricks to make their Professional plan stand out, as well as a subtle “Most Popular” banner to influence choice based on social proof.

Conclusion 

Your pricing strategy is one of the most crucial growth levers you have.

It helps you establish a price point that serves market expectations, and if you choose the appropriate strategy for your industry and company type, can build revenue growth right into your price tags.

Of course, determining pricing is just one small step on a very large journey towards revenue optimization. On the other side of that journey is a need to manage, influence, and grow subscription revenue , which is where a platform like Chargebee comes in.

Chargebee is a dedicated revenue management and subscription billing platform designed to help you streamline revenue operations and consistently improve profitability.

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How to Create a Pricing Structure

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Our Small Business Expert

You can’t open a business without answering this fundamental question: How much do I charge? Even with an answer in hand, you may find sales are slow, an indicator you may be charging more than customers will pay. Or your sales are great, but you’re charging too little for a healthy profit.

Pricing is one of the hardest business aspects to get right. I built several software products for startups and large businesses where I was responsible for pricing. I know the challenges of getting pricing right while factoring in considerations such as costs and profit margin.

Pricing is tough because it involves many variables. It affects all business areas, including sales techniques such as how to prospect for sales, sales forecasting, and the entire sales cycle. A pricing structure solves these issues and helps you achieve your pricing goals.

Overview: What is a pricing structure?

A pricing structure defines and organizes prices for your company’s products and services. The objective is to charge a rate that aligns with your pricing strategy while balancing profits with what the market will bear to avoid over- or under-charging customers.

A pricing structure prices products and services so that it makes sense to customers and gets them to buy. For instance, you might offer a discount when customers buy more than one product.

Several pricing structures exist. These are common ones:

• Flat rate: You choose one price for your offerings and you’re done. This works great when you have a single product or service, or you charge an hourly rate that doesn’t change.
• Tiered pricing: This is a popular option. You set different product prices based on value. The greater the value, the higher the price. An example is a software product. The basic version is one price, and if you want more features, you upgrade and pay a higher price.
• Pay per use: This pricing structure charges based on how much of your offering is used. A typical example is electricity. The more electricity you consume, the more you pay.
• Razor-blade pricing: This approach is called "razor-and-blade" because razor blades are an example of how the model works. You sell a core product, the razor, then make money from selling complementary products: the razorblades.

Prices are dynamic. Your competition may change prices. Your costs increase as suppliers charge more. The pricing structure keeps you organized in this dynamic environment.

A robust pricing structure is important to maximize sales and profit. If your pricing structure is too simplistic or lacks price controls, particularly in B2B sales, you end up with prices all over the map.

I’ve seen firsthand how sales reps abandon the price list to make up their own pricing. In these cases, the business loses money because of unnecessary discounting and lack of price fences.

Pricing structure vs. pricing strategy: What’s the difference?

Pricing strategy is the overarching approach used to set pricing for a company’s products and services. It doesn’t define actual price points, but the pricing structure is a consequence of the strategy, and it’s where you set the price customers see.

You must first set a pricing strategy before you can build a price structure since the former dictates the latter. Netflix is a good pricing structure example. It uses a value-based pricing strategy to lure customers from cable television subscriptions.

Netflix applies a tiered subscription pricing structure to articulate its pricing strategy. The tiered pricing enables customers to choose an option based on their needs, such as selecting a higher priced plan for high-definition picture quality. Netflix uses a free trial as a carrot to get sign-ups.

Netflix uses a tiered pricing structure for its subscriptions. Image source: Author

How to set up a pricing structure

Pricing structures can be simple or complex. Start with a simple approach to avoid becoming overwhelmed by the process, especially if you sell several products or services. Then evolve your pricing. These steps show you how.

Step 1: Do your homework

Before you tackle pricing, do your homework. Research and understand your target customers, the competition, and the marketplace. Depending on the industry you operate in, other factors may affect price, such as local laws and industry regulations.

Business costs are the other research area. These costs aren’t limited to the production of your goods or services. Rent, employee payroll, taxes, Sales and marketing, and other factors contribute to your costs.

This information influences your pricing strategy. Once a strategy is in place, you’re ready to build your pricing structure.

Tips for doing your homework

This first step is the foundation for effective pricing. These tips can help.

• Know your customers: No matter your product or service, you must identify your target audience and learn as much about them as possible. This includes their income level and why they are attracted to your offerings. Do this through customer surveys, reading research online, or simply asking your customers for feedback, not just about your business, but also what they think of competitor prices and pricing structures.
• Examine competition: Look at competitors and dissect their pricing structures. Why are they using that approach? Should you use the same? See what they typically charge for an offering similar to yours. Check their website, visit their location, or call them. This research ensures you’re not charging too much or using an overly complex pricing structure, which can drive customers to competitors. It also identifies if you’re too far below the market price, which eats into your profits.
• Understand the market: Your local market consists of several elements: your geography, industry, and addressable audience. For example, a luxury car dealership’s business is limited by the number of people with the income level to afford the cars who live nearby. You want to know your market, including how it may evolve over time and what trends can affect you later. Much of this information is available online, although some sources may require you to purchase the data.

Step 2: Define success metrics

You’ve done the research and set a pricing strategy aligned with your company’s positioning, which defines how your business is presented to customers. Now decide how to measure your sales.

Do you track the number of units sold? Is your business subscription based, so you’re looking at subscription sign-ups? Do you employ a sales team? If yes, track the number and amount of closed sales.

These success metrics help you identify your pricing structure and measure its effectiveness.

Tips for defining success metrics

Your business flies blind without metrics. Define them with the suggestions below.

• Track what’s important to your business: The metrics should align with your company’s offerings. For example, some products may require a higher price point. In this case, use a tiered pricing structure, and track sales separately for each tier. Doing so gives you visibility into each pricing tier’s performance.
• Look at your sales process: Examine how you generate sales. Should you bundle products or services together? Do you offer greater benefits when customers pay more? Does demand fluctuate seasonally or because of other factors? A bed-and-breakfast owner may have a room with a view that generates a higher price point. Tracking bookings by room type becomes a necessity to capture this factor.

Step 3: Find a base price

Establish a base price to build your pricing structure. The base price is the foundation for pricing decisions, even if the amount isn’t applied to all offerings.

The base price gives you a starting point from which to assess higher price points, how much to discount when you want to generate demand, and other pricing decisions.

Tips for finding your base price

Setting your base price can prove tricky. These recommendations can help.

• Factor your costs: Your base price should cover your costs, and include some markup. This gives you flexibility to discount when you employ pricing strategies such as bundling.
• Evaluate value: Your offerings hold higher value to some customers than others. That’s why it’s important to define your target audience. If you sell organic groceries, a customer who cares about eating healthy food will happily pay more for organic food. Your research helps to evaluate your offering’s value to arrive at a base price.

Step 4: Develop pricing models

This is the culmination of the other steps. Using your success metrics and base price, model how you see your business growing.

This pricing model helps you assess which pricing structure makes the most sense. For instance, with vacation rentals, if your business is seasonal, your model should account for more units rented during your high season.

You can modify your base price up or down to evaluate the impact on revenue. From there, try different pricing structures to determine how you want to price your offerings.

Tips for developing pricing models

This is where the rubber meets the road. Here are suggestions to help.

• Establish fences: Set appropriate buyer and price fences in your model. These are criteria for certain price points to take effect. This approach is critical if you rely on others to generate sales, such as sales reps, because the fences act as guardrails to prevent a price that’s too low while they’re prospecting or performing lead management during the sales process. When you run a New Year’s sale that ends on New Year’s Day, you’re setting a time-based fence. If you provide a discount based on the volume of units bought, you’re setting a purchase quantity fence.
• Keep it simple: The first time you model pricing, keep it simple and don’t get lost in the details. If you use tiered pricing, limit the tiers to no more than three. Keep discounts and special offers to a minimum, or consider excluding them until you’ve collected real world pricing data by seeing how customers respond to your pricing structure before adding complexity into the mix.

Step 5: Experiment to grow market share and profit

Despite your best efforts, you won’t know how customers will respond to your pricing until you try them. Some business owners are hesitant to test, thinking once a price is in front of customers, it’s difficult to change without alienating them.

That’s not the case. Today’s customers are used to dynamic pricing. Think of airlines that change prices daily, or companies such as Amazon, where the price for goods can suddenly plummet through their lightning deals before rising back to full price.

Introduce your pricing structure, collect real world data, and see how your success metrics are trending. Customer engagement software, such as CRM software , collects customer data you can use for this exercise.

Get a baseline, such as a month’s worth of sales. Then experiment. See what kinds of pricing approaches drive sales or help you grow market share, then double down on those to grow your business.

Tips for experimenting

If you don’t test and experiment, it’s an uphill battle to grow.

• Choose low-risk tests: Start tests in a low-risk environment. Choose customers you, or if you have a sales team, your sales management have a strong relationship with. Select a small sample size or a specific segment of your customer base. Adjust based on your findings, and continue testing until you see your success metrics moving in the right direction. That’s when you can roll out the pricing structure to all customers.
• Look at non-sales outcomes: Analyze if certain pricing structures incur higher costs in time, money, or effort. Even if sales increase, a labor-intensive pricing program could eat up profits due to increased employee hours. Also consider how your pricing approach affects customer perception relative to competitors.

Final advice on pricing structures

Pricing is a lever to grow your business, and its impact on your customers is the most important factor in choosing the right pricing structure for your business. Prices that draw customers in but aren’t profitable are as bad as prices that drive customers away.

Apply a pricing structure that strikes the right balance and makes the most sense for your business model and customers. Experiment to find that balance, and watch your profits grow.

We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.

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How To Write A Business Plan (2024 Guide)

Updated: Apr 17, 2024, 11:59am

Table of Contents

Brainstorm an executive summary, create a company description, brainstorm your business goals, describe your services or products, conduct market research, create financial plans, bottom line, frequently asked questions.

Every business starts with a vision, which is distilled and communicated through a business plan. In addition to your high-level hopes and dreams, a strong business plan outlines short-term and long-term goals, budget and whatever else you might need to get started. In this guide, we’ll walk you through how to write a business plan that you can stick to and help guide your operations as you get started.

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Drafting the Summary

An executive summary is an extremely important first step in your business. You have to be able to put the basic facts of your business in an elevator pitch-style sentence to grab investors’ attention and keep their interest. This should communicate your business’s name, what the products or services you’re selling are and what marketplace you’re entering.

Ask for Help

When drafting the executive summary, you should have a few different options. Enlist a few thought partners to review your executive summary possibilities to determine which one is best.

After you have the executive summary in place, you can work on the company description, which contains more specific information. In the description, you’ll need to include your business’s registered name , your business address and any key employees involved in the business. 

The business description should also include the structure of your business, such as sole proprietorship , limited liability company (LLC) , partnership or corporation. This is the time to specify how much of an ownership stake everyone has in the company. Finally, include a section that outlines the history of the company and how it has evolved over time.

Wherever you are on the business journey, you return to your goals and assess where you are in meeting your in-progress targets and setting new goals to work toward.

Numbers-based Goals

Goals can cover a variety of sections of your business. Financial and profit goals are a given for when you’re establishing your business, but there are other goals to take into account as well with regard to brand awareness and growth. For example, you might want to hit a certain number of followers across social channels or raise your engagement rates.

Another goal could be to attract new investors or find grants if you’re a nonprofit business. If you’re looking to grow, you’ll want to set revenue targets to make that happen as well.

Intangible Goals

Goals unrelated to traceable numbers are important as well. These can include seeing your business’s advertisement reach the general public or receiving a terrific client review. These goals are important for the direction you take your business and the direction you want it to go in the future.

The business plan should have a section that explains the services or products that you’re offering. This is the part where you can also describe how they fit in the current market or are providing something necessary or entirely new. If you have any patents or trademarks, this is where you can include those too.

If you have any visual aids, they should be included here as well. This would also be a good place to include pricing strategy and explain your materials.

This is the part of the business plan where you can explain your expertise and different approach in greater depth. Show how what you’re offering is vital to the market and fills an important gap.

You can also situate your business in your industry and compare it to other ones and how you have a competitive advantage in the marketplace.

Other than financial goals, you want to have a budget and set your planned weekly, monthly and annual spending. There are several different costs to consider, such as operational costs.

Business Operations Costs

Rent for your business is the first big cost to factor into your budget. If your business is remote, the cost that replaces rent will be the software that maintains your virtual operations.

Marketing and sales costs should be next on your list. Devoting money to making sure people know about your business is as important as making sure it functions.

Other Costs

Although you can’t anticipate disasters, there are likely to be unanticipated costs that come up at some point in your business’s existence. It’s important to factor these possible costs into your financial plans so you’re not caught totally unaware.

Business plans are important for businesses of all sizes so that you can define where your business is and where you want it to go. Growing your business requires a vision, and giving yourself a roadmap in the form of a business plan will set you up for success.

How do I write a simple business plan?

When you’re working on a business plan, make sure you have as much information as possible so that you can simplify it to the most relevant information. A simple business plan still needs all of the parts included in this article, but you can be very clear and direct.

What are some common mistakes in a business plan?

The most common mistakes in a business plan are common writing issues like grammar errors or misspellings. It’s important to be clear in your sentence structure and proofread your business plan before sending it to any investors or partners.

What basic items should be included in a business plan?

When writing out a business plan, you want to make sure that you cover everything related to your concept for the business,  an analysis of the industry―including potential customers and an overview of the market for your goods or services―how you plan to execute your vision for the business, how you plan to grow the business if it becomes successful and all financial data around the business, including current cash on hand, potential investors and budget plans for the next few years.

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Julia is a writer in New York and started covering tech and business during the pandemic. She also covers books and the publishing industry.

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Pricing Strategies for Small Business

Darrell Zahorsky is an expert in search engine optimization (SEO) and marketing. He has worked for companies and clients such as Blackberry, ADP, and Subway.

• Don't Compete on Price Alone

Choosing a Price Strategy for Your Business

Avoiding a price war, the bottom line, frequently asked questions (faqs).

Kentaroo Tryman / Getty Images

Pricing strategy for your small business will set the standard for your product or service in the marketplace, and is an important dimension to both your bottom line and your competitive edge. Early in the life of your small business, research your intended market as deeply as possible, and pay close attention to past fluctuations in competition and demand.

Key Takeaways

• Small businesses should avoid competing on the lowest price, as they lack of economies of scale required to drive down costs.
• Pricing strategies for small businesses to try include value-based, cost-plus, and competitive pricing.
• Small businesses can avoid a price war by building their brands, offering niche products or services, and conducting diligent market research to understand customer needs and price sensitivity.

Don't Compete on Price Alone

When developing a business plan, owners often make the mistake of setting their pricing strategy to match the lowest-price provider in the market. This approach comes from a cursory understanding of direct competitors, and the assumption that the only way to win business is by having the lowest price.

However, having the lowest price is not a strong pricing strategy for small business, as it invites customers to see your product or service as a commodity, and obscures the value of your offering. If you're operating within a niche market, larger competitors with the ability to lower operating costs may eventually enter your segment, and can destroy any small business attempting to compete on price alone—including yours.

Avoid the low price strategy through research on the market you intend to enter, and by repeatedly analyzing the following variables:

Ceiling Price

The ceiling price is the highest price the market will bear, which can be explored by surveying both experts and consumers, and by asking questions regarding pricing limits. Keep in mind that the highest price available on the market may not necessarily be the ceiling price.

Competitive Analysis

Don't exclusively look at your competitor's pricing; look at the whole value of what they're offering. Are they serving price-conscious consumers or an affluent niche? What are the value-added services, if any? How do you compare?

Price Elasticity

Price elasticity tells you about the responsiveness, or elasticity, of the demand of a product or service when nothing changes but the price. Jill Avery, a senior lecturer at Harvard Business School told the Harvard Business Review that "marketers need to understand how elastic, sensitive to fluctuations in price, or inelastic, largely ambivalent about price changes, their products are when contemplating how to set or change a price. Some products have a much more immediate and dramatic response to price changes, usually because they’re considered nice-to-have or non-essential, or because there are many substitutes available."

Once you understand consumer demand within your market, review your own costs, supply chain, and profit goals as a way to inform your choice on pricing strategy. Below are a few pricing models to consider:

• Premium or Value-Based Pricing : The price is based on the perceived or estimated value of a product or service. There are few or no competitors for the product or service.
• Cost-Plus Pricing : The selling price is determined by adding a markup to the unit cost. The goal is to cover costs and generate profit without exceeding customer expectations for price.
• Competitive Pricing : Setting a price based on the price of the competition. This is commonly seen with commodity products.
• Price Skimming : Setting the price high initially and then lowering as additional competitors enter the market.
• Penetration Pricing : The price is set low to rapidly enter a competitive market and provoke word-of-mouth recommendations, only to be raised later.

A price war is when competitors continually lower their prices to undercut one another and gain market share. This almost never works out in a small business's favor, especially when competing against globalized pricing. According to Wharton School marketing professor, Z. John Zhang, the outbreak of a price war is considered a legitimate and effective business strategy in China. “In a growing market, there are all different companies competing—some good, some bad—and the industry finds a way to consolidate. The only way to do that is a price war, where you bring down the prices and squeeze out the inefficient [companies].”

But in the U.S. Zhang said, the markets are more mature and they offer, “oligopolistic competition among mostly equals and [therefore] encourages more finesse in devising marketing strategies.”

Oligopoly markets are markets in which a few suppliers dominate, which can reduce competition.

Below are tips to avoid a price war with your competitors:

• Develop your brand name to build recognition of your small business and to build resilience if a price war ensues.
• Find unique values which your business can add to stand out in the marketplace.
• Provide products or services that are exclusive to your business to ensure further protection from falling prices.
• Conduct diligent market research to understand customer needs and price sensitivity.

If you create sound market research habits early in your journey as a small business owner, you will have greater foresight when setting prices for your products or services, and an ability to adjust when necessary . Research will help you avoid taking a problematically low price-position in the market, and will provide valuable insights into how your future customers will spend money.

What is the simplest pricing strategy?

Cost-plus pricing may be the simplest strategy for small business. With this approach, you determine the breakeven point for your product, and then add a percentage-based premium or markup to arrive at the final price.

Why is pricing important for small business?

Pricing is the simplest and the fastest way for any business, including small business, to increase profits. According to McKinsey & Company, a 1% increase in price leads to an 8.1% increase in operating profit for firms listed in the S&P 1500. Meanwhile, a 1% decrease in price leads to a corresponding decrease in operating profit of 8.1%. Getting pricing right can have a significant effect on the success of a small business.

Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!

University of Missouri Extension. “ Selecting an Appropriate Pricing Strategy .”

Harvard Business Review. " A Refresher on Price Elasticity ."

Z. John Zhang. " How and Why Chinese Firms Excel in ‘The Art of Price War' ." Knowledge at Wharton .

OECD. “ Oligopoly Markets .”

McKinsey & Company. “ The Power of Price .”

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Write your business plan

Business plans help you run your business.

A good business plan guides you through each stage of starting and managing your business. You’ll use your business plan as a roadmap for how to structure, run, and grow your new business. It’s a way to think through the key elements of your business.

Business plans can help you get funding or bring on new business partners. Investors want to feel confident they’ll see a return on their investment. Your business plan is the tool you’ll use to convince people that working with you — or investing in your company — is a smart choice.

Pick a business plan format that works for you

There’s no right or wrong way to write a business plan. What’s important is that your plan meets your needs.

Most business plans fall into one of two common categories: traditional or lean startup.

Traditional business plans are more common, use a standard structure, and encourage you to go into detail in each section. They tend to require more work upfront and can be dozens of pages long.

Lean startup business plans are less common but still use a standard structure. They focus on summarizing only the most important points of the key elements of your plan. They can take as little as one hour to make and are typically only one page.

Traditional business plan

Lean startup plan

Traditional business plan format

You might prefer a traditional business plan format if you’re very detail-oriented, want a comprehensive plan, or plan to request financing from traditional sources.

When you write your business plan, you don’t have to stick to the exact business plan outline. Instead, use the sections that make the most sense for your business and your needs. Traditional business plans use some combination of these nine sections.

Executive summary

Briefly tell your reader what your company is and why it will be successful. Include your mission statement, your product or service, and basic information about your company’s leadership team, employees, and location. You should also include financial information and high-level growth plans if you plan to ask for financing.

Company description

Use your company description to provide detailed information about your company. Go into detail about the problems your business solves. Be specific, and list out the consumers, organization, or businesses your company plans to serve.

Explain the competitive advantages that will make your business a success. Are there experts on your team? Have you found the perfect location for your store? Your company description is the place to boast about your strengths.

Market analysis

You'll need a good understanding of your industry outlook and target market. Competitive research will show you what other businesses are doing and what their strengths are. In your market research, look for trends and themes. What do successful competitors do? Why does it work? Can you do it better? Now's the time to answer these questions.

Organization and management

Tell your reader how your company will be structured and who will run it.

Describe the  legal structure  of your business. State whether you have or intend to incorporate your business as a C or an S corporation, form a general or limited partnership, or if you're a sole proprietor or limited liability company (LLC).

Use an organizational chart to lay out who's in charge of what in your company. Show how each person's unique experience will contribute to the success of your venture. Consider including resumes and CVs of key members of your team.

Service or product line

Describe what you sell or what service you offer. Explain how it benefits your customers and what the product lifecycle looks like. Share your plans for intellectual property, like copyright or patent filings. If you're doing  research and development  for your service or product, explain it in detail.

Marketing and sales

There's no single way to approach a marketing strategy. Your strategy should evolve and change to fit your unique needs.

Your goal in this section is to describe how you'll attract and retain customers. You'll also describe how a sale will actually happen. You'll refer to this section later when you make financial projections, so make sure to thoroughly describe your complete marketing and sales strategies.

Funding request

If you're asking for funding, this is where you'll outline your funding requirements. Your goal is to clearly explain how much funding you’ll need over the next five years and what you'll use it for.

Specify whether you want debt or equity, the terms you'd like applied, and the length of time your request will cover. Give a detailed description of how you'll use your funds. Specify if you need funds to buy equipment or materials, pay salaries, or cover specific bills until revenue increases. Always include a description of your future strategic financial plans, like paying off debt or selling your business.

Financial projections

Supplement your funding request with financial projections. Your goal is to convince the reader that your business is stable and will be a financial success.

If your business is already established, include income statements, balance sheets, and cash flow statements for the last three to five years. If you have other collateral you could put against a loan, make sure to list it now.

Provide a prospective financial outlook for the next five years. Include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, be even more specific and use quarterly — or even monthly — projections. Make sure to clearly explain your projections, and match them to your funding requests.

This is a great place to use graphs and charts to tell the financial story of your business.  

Use your appendix to provide supporting documents or other materials were specially requested. Common items to include are credit histories, resumes, product pictures, letters of reference, licenses, permits, patents, legal documents, and other contracts.

Example traditional business plans

Before you write your business plan, read the following example business plans written by fictional business owners. Rebecca owns a consulting firm, and Andrew owns a toy company.

Lean startup format

You might prefer a lean startup format if you want to explain or start your business quickly, your business is relatively simple, or you plan to regularly change and refine your business plan.

Lean startup formats are charts that use only a handful of elements to describe your company’s value proposition, infrastructure, customers, and finances. They’re useful for visualizing tradeoffs and fundamental facts about your company.

There are different ways to develop a lean startup template. You can search the web to find free templates to build your business plan. We discuss nine components of a model business plan here:

Key partnerships

Note the other businesses or services you’ll work with to run your business. Think about suppliers, manufacturers, subcontractors, and similar strategic partners.

Key activities

List the ways your business will gain a competitive advantage. Highlight things like selling direct to consumers, or using technology to tap into the sharing economy.

Key resources

List any resource you’ll leverage to create value for your customer. Your most important assets could include staff, capital, or intellectual property. Don’t forget to leverage business resources that might be available to  women ,  veterans ,  Native Americans , and  HUBZone businesses .

Value proposition

Make a clear and compelling statement about the unique value your company brings to the market.

Customer relationships

Describe how customers will interact with your business. Is it automated or personal? In person or online? Think through the customer experience from start to finish.

Customer segments

Be specific when you name your target market. Your business won’t be for everybody, so it’s important to have a clear sense of whom your business will serve.

List the most important ways you’ll talk to your customers. Most businesses use a mix of channels and optimize them over time.

Cost structure

Will your company focus on reducing cost or maximizing value? Define your strategy, then list the most significant costs you’ll face pursuing it.

Revenue streams

Explain how your company will actually make money. Some examples are direct sales, memberships fees, and selling advertising space. If your company has multiple revenue streams, list them all.

Example lean business plan

Before you write your business plan, read this example business plan written by a fictional business owner, Andrew, who owns a toy company.

Need help? Get free business counseling

How Much Does a Business Plan Cost?

A complete business plan helps you to identify your business goals and how you plan on reaching them. Whether you are a new business owner or an experienced entrepreneur, writing a comprehensive business plan can help you start, grow, and/or attract investors to fund your business.  

How Much Does It Cost to Write a Business Plan ?

Business plan pricing depends on what route you take to create it. However, there are a few essential elements that are common to all business plans:

• Executive Summary
• Business Description
• Market Analysis
• Customer Analysis
• Competitive Analysis
• Marketing Strategy
• Operations Plan
• Management Team
• Financial Plan

There are several ways to approach writing a successful business plan, but the cost of each way varies widely. The cost of a business plan can be a significant investment, but it’s an essential tool for any business. Below we provide some tips for what to consider and the costs for the various methods of completing your own business plan.  

Considerations When Writing Your Own Business Plans

There are several things to consider when writing your own plan. Depending on whether you’re in need of funding and how much, the costs for your business plan will be different.

Take into account:

• How long will your business plan be?
• How many hours does it take to complete the business plan?
• What kind of language is used in the business plan?
• Who will use the business plan?
• Who will fund your business?
• How much are you looking to raise or if you need funding at all?

According to our business consultants’ surveys of investor requirements, a 15- to 25-page business plan is the ideal length. Adding more pages may cause your time-constrained investor to skim portions of the plan, even if they are interested, which might result in important information being overlooked. However, fewer pages may lead potential investors to believe that the firm has not been thoroughly thought out or simply doesn’t have enough information for them to make an investment decision.  

Business Plan Template Costs

There are a variety of business plan templates online that you can purchase for a one-time fee. These templates range in price but usually start at around $100. Remember, a bargain business plan template may not include all the information that you need, so it’s important to understand what is included with the template you purchase.

Many of these templates also come with instructions to help you fill in the template and make changes as needed. However, if there is something you want to be changed on the template, it may take time and money to have it done.

Be sure to do your research and find the right template for your business. The wrong template could set you back even further and change the face of your business entirely. If you purchase a professional business plan template, make sure it’s from a reputable business plan company with business plan writing skills   in a variety of industries.

The business plan template should be easily editable and customized for your specific business needs and industry trends.

If you do not want to pay for a template, there are companies that will charge by the page and some that offer free resources . However, these templates may not have been professional business plans written for your exact type of business.  

Experienced Consultants & Business Plan Writers Cost

Hiring a business plan writer or professional writing service will help you get a comprehensive business plan written just for your business. A professional business plan consultant will help you identify your goals and how your company will reach these goals. A business plan consultant fee usually costs more but can be worth it if you do not have the time or resources to complete the business plan yourself.

A business plan writer can be found through online directories, but be sure to do your research prior to engaging in business with them. Be sure to ask for references and read reviews before hiring a business plan writing service.

If you choose to hire a business plan consultant, the complexity and length of the plan will determine how much is a business plan. Generally, a consulting firm or private consultants charge between $1,000 and $5,000 to have a comprehensive business plan written . However, a lengthy and complex plan can easily start at a few thousand dollars and stretch into the tens of thousands of dollars based on the needs of the business.

Some experienced business plan writing services also offer package deals that include additional services, such as market research, a marketing plan, and realistic financial projections.

Business Plan Software Costs

There are business plan software applications that can be used for free or have a monthly subscription cost, which may work better for your needs depending on what you need in a business plan. These apps provide templates and make writing a business plan and business planning easier. They help organize the information you enter into the app and will sometimes offer advice on how to do things like financial projections for your business plan .

The information that you put into the application can be used for several different types of business plan needs. These apps are great for startups and small businesses looking to raise capital or secure funding.

Each app or software varies in what it offers. Some are more customizable than others, some have more options for presenting your business plan, and some even offer investment opportunities. With just your business idea, the business planning software can help you write your own business plan quickly and easily. 

Write Your Own Business Plan from Scratch

If you do not want to purchase a template or use software, the easiest and most cost-effective way is to write a business plan from scratch. This route takes time and effort to complete but can be done by anyone willing to put in the work.

When writing your business plan documents, remember that they should be as detailed as possible. This document is your guide to starting and running your business. The more complete it is, the better off you’ll be.

There are a variety of free resources available online to help you write a business plan, including articles, templates, and even video courses.

When writing a business plan from scratch, it’s important to consider all of your business aspects. This includes your business concept or business model , management, production, market research , sales strategies , customer service, operations, human resources, financial projections , and more.

Try to be as thorough as possible when writing the plan. While the task may seem daunting at first, you’ll find that putting together a business plan is not so bad once you get started. After all, if you can dream it, you can write it.

The cost of writing a b usiness plan is dependent on the purpose, type, and length of the business plan. The amount of time it takes to complete a  business plan , the language used, and who will be using the document also play a factor in the cost. You can find templates for a one-time fee or pay by the page, hire a business plan writing service or a business plan writer , contact a consulting firm , or use software/apps to create your business plan. Whichever option you choose, make sure you do your research, conduct an in-depth business plan review, and find the best resource to meet the goals for your business.  

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5 Easy Steps to Creating the Right Pricing Strategy

The easy steps you need to know to make pricing a key component of your company's marketing mix.

You can have the best product or service in the world, but if you don't have a solid and contextually based go-to-market (GTM) strategy and execution plan, you will fail. Marketing plays the critical role in building brand awareness, lead generation, prospect and customer nurturing. Business schools and countless business books discuss the importance of the 4 Ps (Product, Place, Price, and Promotion) as the key components to a solid marketing approach. While all four Ps are important to a founding team's marketing strategy, the "P" I get asked the most about is pricing. Pick the right pricing model and you can transform your goals from concept to reality. Chose the wrong pricing strategy and you risk immediate failure.

Miriam Christof, principal at JustJump Marketing , and pricing coach Jenny Wholly recently hosted a pricing workshop for entrepreneurs. Creating the right pricing strategy can be excruciating. It is a complex endeavor that brings out insecurities in the best of us. Christof and Wholly cut through the potential rat-holes of pricing discussions and recommended an easy to follow five-step process:

Step 1: Determine your business goals. How you make money determines everything about your marketing and sales GTM strategy. Christof and Wholley outlined the following business goal considerations for startup founders to use as a determinant for the basis of pricing:

• Increase profitability
• Improve cash flow
• Market penetration
• Larger market share
• Increase revenue per customer
• Beat the competition
• Fill capacity and utilize resources
• New product introduction
• Reach a new segment
• Increase prospect presence
• Increase prospect conversion

Step 2: Conduct a thorough market pricing analysis. While the first step is grounded in your business goals, this step ensures that your pricing strategy considers the context of the market in which your product or service will compete. "Low cost providers like Walmart often market to a broad audience while high cost providers like Tesla market to a specific audience." If your market and product are broader with many players who offer similar products or services, chances are you will compete on price. You will "need to do everything to keep operational costs down to ensure a maximum profits margin," says Christof. Conversely, if you have a high value, highly differentiated product or service, your offering may be more conducive to premium pricing, which lends itself to a different form of targeted marketing. "With a superior product, it is important that you are able to place emphasis on high quality marketing and customer service," says Christof.

Step 3: Analyze your target audience. This steps enables you to answer why, what, and how customers will use your product or service based on their specific and urgent needs . "Be guided by the most important question: what perceived and real value does my product or service bring to the customer. What is the task they are facing? How does my product or service ease the pain associated with this task? What does my customer have to gain by using my product or service?" says Christof. Your pricing model and promotional campaigns must align with why your customer would buy your product. For example, if you have a best-of-breed product that uniquely fulfills a customer's urgent needs, value-based premium pricing may be the best strategy. Creating low-cost promotions and giveaways will confuse your customers, undercut your value, and shrink your profit margin.

Step 4: Profile your competitive landscape. Whether you are a low-cost provider or a differentiated vendor, the pricing model and price point of your competitors is a significant pricing strategy influencer. Christof suggests the following approach for direct and indirect competitors:

• Identify at least three direct competitors. Study the structure of their pricing. For example, do they have component pricing and allow for heavy discounts? Do they bundle with other products or solutions? Or, do they employ value-based pricing where clients pay a percentage of the total perceived ROI.
• Consider the substitutes a customer may use to solve the task or problem that your product or service addresses. Find out how much these indirect competitors cost the customer. And remember, sometimes your indirect competitor is the word "no". Consider of self-solutions, or no resolution, as well as other indirect vendor alternatives.

Step 5: Create a pricing strategy and execution plan. At this point, you have gathered enough information to formulate an action plan. Christof identified 10 pricing strategies to consider based on your market, customer, and competitive analysis:

• Penetration pricing: Price is artificially low to break into the market
• Economy pricing: Everyday low price with the focus on low manufacturing/delivery cost
• Premium pricing: High price for high value
• Price skimming: Go into the market with a high price, but once your competitors follow, lower your cost and implement other pricing strategies
• Promotional pricing: Discounts over a period of time, one-time deals
• Psychological pricing: Price products or services which triggers action. For example, charging .99 instead of $1.00
• Versioning: Offer different tiers for your services or products: good, better, best
• Sandwich pricing: High, medium and low priced item with the intent to drive customers to the medium priced item
• Competitive pricing: Set the price equal to what your competitors are charging and win the service game
• Value pricing: Understand the value for your customers and their willingness to pay. Also understand what alternatives do they have

After you have completed the five steps, take the time to work the steps backwards. This will help you ensure that the GTM actions you chose to take give you the best shot at successfully competing in your target market segments, gaining revenue and market share.

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6 Different Pricing Strategies: Which Is Right for Your Business?

It’s no secret that small businesses play a vital role in the US economy. However, most non-employer small businesses average just $44,000 a year in annual revenue, with many of these companies earning $25,000 or less. While various factors can affect a business’s revenue potential, one of the most important is the pricing strategy utilized by its owners.

Good pricing strategy helps you determine the price point at which you can maximize profits on sales of your products or services. When setting prices, a business owner needs to consider a wide range of factors including production and distribution costs, competitor offerings, positioning strategies and the business’ target customer base.

While customers won’t purchase goods that are priced too high, your company won’t succeed if it prices goods too low to cover all of the business’ costs. Along with product, place and promotion, price can have a profound effect on the success of your small business.

Here are some of the various strategies that businesses implement when setting prices on their products and services.

1. Pricing at a Premium

With premium pricing, businesses set costs higher than their competitors. Premium pricing is often most effective in the early days of a product’s life cycle, and ideal for small businesses that sell unique goods.

Because customers need to perceive products as being worth the higher price tag, a business must work hard to create a value perception. Along with creating a high-quality product, owners should ensure their marketing efforts, the product’s packaging and the store’s décor all combine to support the premium price.

2. Pricing for Market Penetration

Penetration strategies aim to attract buyers by offering lower prices on goods and services. While many new companies use this technique to draw attention away from their competition, penetration pricing does tend to result in an initial loss of income for the business.

Over time, however, the increase in awareness can drive profits and help small businesses to stand out from the crowd. In the long run, after sufficiently penetrating a market, companies often wind up raising their prices to better reflect the state of their position within the market.

3. Economy Pricing

Used by a wide range of businesses including generic food suppliers and discount retailers, economy pricing aims to attract the most price-conscious of consumers. With this strategy, businesses minimize the costs associated with marketing and production in order to keep product prices down. As a result, customers can purchase the products they need without frills.

While economy pricing is incredibly effective for large companies like Wal-Mart and Target, the technique can be dangerous for small businesses. Because small businesses lack the sales volume of larger companies, they may struggle to generate a sufficient profit when prices are too low. Still, selectively tailoring discounts to your most loyal customers can be a great way to guarantee their patronage for years to come.

4. Price Skimming

Designed to help businesses maximize sales on new products and services, price skimming involves setting rates high during the introductory phase. The company then lowers prices gradually as competitor goods appear on the market.

One of the benefits of price skimming is that it allows businesses to maximize profits on early adopters before dropping prices to attract more price-sensitive consumers. Not only does price skimming help a small business recoup its development costs, but it also creates an illusion of quality and exclusivity when your item is first introduced to the marketplace.

5. Psychology Pricing

With the economy still limping back to full health, price remains a major concern for American consumers. Psychology pricing refers to techniques that marketers use to encourage customers to respond on emotional levels rather than logical ones.

For example, setting the price of a watch at $199 is proven to attract more consumers than setting it at $200, even though the true difference here is quite small. One explanation for this trend is that consumers tend to put more attention on the first number on a price tag than the last. The goal of psychology pricing is to increase demand by creating an illusion of enhanced value for the consumer.

6. Bundle Pricing

With bundle pricing, small businesses sell multiple products for a lower rate than consumers would face if they purchased each item individually. Not only is bundling goods an effective way of moving unsold items that are taking up space in your facility, but it can also increase the value perception in the eyes of your customers, since you’re essentially giving them something for free.

Bundle pricing is more effective for companies that sell complimentary products. For example, a restaurant can take advantage of bundle pricing by including dessert with every entrée sold on a particular day of the week. Small businesses should keep in mind that the profits they earn on the higher-value items must make up for the losses they take on the lower-value product.

Pricing strategies are important, but it’s also important to not lose sight of the price itself. Here are 5  product pricing considerations , alongside your strategy, when choosing how to price your products.

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Notion pricing in 2024: Is it worth the cost?

Deirdre Mundorf

Sierra Campbell

“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.

Published 7:42 a.m. UTC Aug. 29, 2024

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fizkes, Getty Images

As a small business owner, you know the right project management software can help simplify operations, improve communication between team members, enhance overall productivity and lead to increased sales and profits. You also know how important it is to assess the value of a program to ensure you’re getting a good deal for the features it offers. 

Notion is a popular project management and productivity software that you may be considering to improve your productivity. We take a deep look at Notion pricing to help you assess whether it is worth the cost based on the unique needs of your company.

Featured project management software offers

Via Monday.com’s site

Monthly fee

$10 per user, with a minimum of three users

Free version

Yes, for two users

24/7 customer support

Yes, with paid plans

Via HubSpot’s website

Free version available

Via ClickUp’s website

$10 per user

Yes, for unlimited members

Who is Notion best for?

Notion offers a solid solution for solopreneurs, small business owners and collaborative teams. James Allsopp, the CEO of iNet Ventures, highlighted the versatility of the software, explaining that its “flexibility helps it to be outstanding in tasks related to project management, note-taking, knowledge management and collaboration.” 

With its four plans, teams, small business owners and individuals can find the features that will best support their needs. Each plan tier offers varying levels of content creation, collaboration, web publishing, integration, administrative and security features.

Nicole Johnson, the CEO and founder of Digital Made Simple, LLC, sees Notion as an ideal tool for managing nearly all aspects of one’s life. “It’s for those who don’t want to be confined by any particular framework for managing and organizing their information but want to create an operating system that has the flexibility and interconnectivity of their imagination,” she said.

Notion pricing overview

Notion offers four plan options, including a free plan. While many standard features are shared across all tiers, you’ll need to assess the specific needs of your business to determine whether some of the more advanced features found in upper-tier plans are worth the investment for your company.

Notion’s free plan offers several core features to help small businesses or solopreneurs manage projects and improve their productivity. This plan allows you to create an unlimited number of pages with some access to blocks (such as checkboxes or bullet points). It also includes various views (such as boards, calendar and timeline), basic automations and the ability to create subtasks and formulas. 

“If you’re a solo user who’s not creating anything too complex that needs additional apps or to publish any pages, then you can use this plan till the cows come home,” said Johnson. However, if you have more complex needs, the 5 MB file upload, seven-day page history and limited number of guest invites (10) may not be sufficient for your business. The Free plan also doesn’t allow you to make custom websites or provide some of the more advanced administrative or security features that are included with upper-tier plans.

The Plus plan, which costs $12 per user per month (or $10 per user per month with annual billing) builds on the features included with Notion’s free plan. Subscribers receive unlimited file uploads and a longer, 30-day page history. This plan also allows users to invite up to 100 guests, provides advanced SEO indexing features and allows you to create custom websites and custom automations. Allsopp highlighted the Plus plan as a suitable option “for small teams that need more robust collaboration and file storage features.” 

Business plan

Allsopp described the Business plan as “well-priced for a business with growing users who need better security and administrative control.” This plan costs $18 per user per month. With annual billing, the cost comes down to $15 per user per month. 

“This plan retains all the features found in Plus, adding in advanced team collaboration features, such as sharing across the team, admin tools and SSO — single sign-on,” explained Allsopp. It also includes a 90-day page history, allows subscribers to invite up to 250 guests and enables you to create workspace PDF exports.

Enterprise plan

The Enterprise plan is best for large organizations with more complex and unique needs. Allsopp explained that it includes “all of the Business plan features, plus advanced security and controls, dedicated success manager, custom contract and invoicing.”

Pricing for this plan is not published on Notion’s website. If you think your business requires more advanced features than those included with the Business plan, you’ll need to reach out to Notion’s sales team to share more about your specific needs and obtain pricing information for the Enterprise plan.

Additional costs

For an additional $10 per user per month if you pay on a monthly basis (or $8 per user per month if you pay on a yearly basis), you can add Notion AI to the plan of your choice. The add-on offers unlimited use of AI technology, providing you and your team members with immediate answers to many questions, help with brainstorming writing tasks and autofilling various forms. 

While all Notion plans include a trial of Notion AI, its use is limited. The specific number of responses included varies based on the number of users you have. Once you and your team have reached the maximum number of responses, you’ll see a prompt indicating that you must subscribe to Notion AI in order to continue using its features.

Notion value vs. alternatives

Take a few minutes to compare Notion’s pricing and value with two of its top competitors, Trello and Zoho Projects, before deciding which project management software is best for your business.