• Home  / 
  • Marketing
  •  /  How to Not Screw Up Pricing Your Product or Service

How to Not Screw Up Pricing Your Product or Service

By Nate McCallister / a couple of years ago
How to Not Screw Pricing Your Product or Service

It pains me to think about how many potentially great business ideas fail because they are priced incorrectly.

Even worse than that, many great ideas never even get to the startup phase because the concept creator didn't have the guts to price their product with confidence.

Pricing is awkward and not something that comes naturally to anyone. I struggled with this when I began working for myself.

I had no excuse, I majored in economics, so I should have been ahead of the curve in regards to profit maximization and gauging supply and demand.

Not the case.

My economics degree didn't teach me the most important things about pricing: empathy and confidence in my product or service. Those were developed slowly and painfully.

Hell, I still have a hard time saying, "no, I can't lower my price any further for you."

If providing value is the heart of business, pricing is the brain. Pricing is what allows the value you offer to be something you can continue and at the highest level. Higher prices should ultimately lead to a better service and better brand for you. This will, hopefully, lead to a better experience for your customer.

I love the finer details of pricing and consumer behavior. This post is considered "advanced learning" compared to my typical articles. I will do my best to explain things in the simplest terms possible, but forgive me if I get too detailed. Please ask questions in the comments below if you don't understand something! I want everyone to understand this concept, not just other economics nerds.

The Effect of Pricing on Your Brand

The moment you make a mistake in pricing, you're eating into your reputation or your profits. - Katharine Paine

Pricing is critical not only to your direct profits for whatever particular item you are dealing with at the time, but it also reflects upon the quality of your brand. Even before someone tries your product, the price you set gives them an impression of your brand.

Cheapest: Depending on the market, being the cheapest can damage your credibility and overall respect in the market. Some products with fewer distinguishing features (table salt for example) may maximize your profits when sold at the lowest price possible. With services however, being the cheapest is rarely the best option.

Most Expensive: The risk of being the most expensive it that you may come off as cocky or arrogant. You could seem out of touch with your client base if you are way out of the ballpart on price. If done correctly, however, you can dominate the market if you are truly the best quality. Your high price will actually make your product more desirable.

Here are a number of pricing myths we need to debunk.

Myth #1 You Need to Cut Price to Increase Sales

The best way that I have found to maximize the volume of sales is through price segmentation.

This means supplying your clients with more options and at various price points. Although this isn't always possible, it should always be considered.

Price is what you pay. Value is what you get. - Warren Buffett

Sometimes, this type of comparative pricing has the opposite effect. You see this in your own purchasing behavior most likely.


You have horrible heartburn and want it gone ASAP. You walk into your local drugstore and see the familiar "Alka Seltzer" bottle (or rolaids or whichever big name you trust most) and you grab it almost without thinking.

Nearly every drugstore has a cheaper option than Alka Seltzer I am sure of it. But you didn't even think about it, you just grabbed the Tums. You need your heartburn fixed and you are willing to spend the extra $1-$3 it takes to purchase something you know works.

The store brand seems less appealing now, because your heartburn problem is worth much more than a couple of bucks.

If it were only as simple as being the cheapest! This study performed by the good people at Kissmetrics analyzes the effect of implicit and explicit comparisons to arrive to this conclusion. Implicit comparisons occur when a customer takes the initiative to compare two or more products. Conversely, explicit comparisons are those that are specifically stated or brought up by the marketer or advertiser.

Myth #2 Being the Most Expensive Is Always Best

To the opposite end of the spectrum from the "cheapest" model, is setting your service as the most expensive right from the start.

By doing this, you run the risk of coming off as arrogant and turning away clients in droves. If you are going to be expensive comparative to your competitors, you should be ready to provide the highest quality service. You can, of course, do this and it is ideal, but don't price high just to come off as appealing if you can't deliver.

Myth #3 Prices Shouldn't Be Messed with Once They're Set

Changing your prices too frequently will rub clients the wrong way, especially if you cut the price steeply after they purchased at the original, higher price.

But remember this: pricing will affect your business for as long as it exists, it is worth finding the best price point.

Utilize Weber's Law and avoid increasing or decreasing your prices by more than 10% at a time. Try and adjust prices in a way that goes unnoticed. Qty of sales will dip, but it is the total revenue you need to pay the closest attention to. If your price increase causes you to lose money, reassess. 

Pricing Advice

There is no "one-size-fits-all" formula for deciding on your products pricing. It takes a thorough understanding of your product, its value, your costs, overall demand and your competition. There are some rules and tricks that will help you reach better prices. Prices that make you and your clients happy and that maximize your profits.

There are however, best practices for pricing products and services. ​

Sell "Time" and "Meaning" Rather Than "Savings"

Studies show that providing potential buyers the feeling of connections and quality time with a product has a more favorable effect on sales than focusing on savings or % less than competitors. Aim to create meaning for your product. It is easy to sell happiness if you can generate it. A great example of this is Coca Cola. While there are many generic competitors, they sell the "happiness" associated with Coke. Their slogan afterall is, "open happiness." It isn't, "taste the savings" or "cheapest cola around!" They would never advertise as affordable. People don't like to drink something because it is affordable. Consider this when pricing your products.

Practice Price Segmentation and "Useless" Options

Segmenting your product selection lets individuals pick options that work best for them. They now have more to consider and less excuses to not buy. The "useless" option refers to having segmented prices, and having the middle price point be inefficient compared to the value of the higher segment. For example: eBOOk: $19 print $24.99 eBOok and Print $30. This seems odd, but studies have shown that this works well.

Use Charm Prices

Ever wonder if the prices that end in "9" sell more than whole number prices? The answer is yes, they do. Unless you have a serious reason against this (for example, Subway should maintain their $5 footlong as opposed to making it $4.99) you should always use prices that end with 9.

Does Charm Pricing Work

Use Anchor Pricing

A great way to sell a $20,000 car is by putting it next to a $60,000 car. If this is applicable to your business, utilize this method. This is helpful if you offer many different types of products or sell among many other similar ones. You won't need to be the cheapest, just relatively cheaper when compared against the option next to it.


Bundling allows you package multiple products or service features into one and:

  • Generate more revenue per client on average.
  • Entice clients to purchase because they since the value
  • Help leverage less popular items (or less in demand features) with more popular ones and sell them much more than they could sell alone.

Create a "Line in the Sand" for What Is Included in the Sale

One of the worst mistakes I made when I started doing freelance work was taking on jobs for a set price without setting proper end dates. This really bit me in the butt when I created websites for clients.

You should always provide follow up support within reason, but it is not reasonable for you to charge a flat fee for a website and then be accountable to answer all questions the client has for the rest of eternity. Let them know that you want them to be able to carry on without you so it is important that they ask any questions they can think of now. I typically give my clients a week after my work is completed to request modifications and answer all of their questions.If your client feels the need to have support ongoing, they should be ready to pay for it. As long as you are clear about this upfront, you will be fine.

When it comes down to it, you need to understand the value of your product and have the courage to charge what it is worth. If you do this and implement some of the advice I have provided above, you will do a fine job of pricing your products or services.

References: http://pricepointpartners.com/optimal-pricing-strategy

How about you? How do you go about pricing your products and services? Is this easy for you or really difficult?

About the author

Nate McCallister

Nate is the founder and main contributor of EntreResource.com. He is a lifestyle entrepreneur who spends his time building businesses and raising his two kids Sawyer and Brooks with his beautiful wife Emily. His main interests include copywriting, economics and piano.

1 comment

Leave a comment: