How to Price Your Product: A Guide for First-Time Founders

Why Pricing Feels So Hard (And Why It Matters)

Pricing is one of the most stressful decisions for first-time founders. Price too high and nobody buys. Price too low and you can't build a sustainable business. There's no perfect formula, but there are proven frameworks that take the guesswork out of pricing.

Pricing is the fastest lever for improving your business. A 1% increase in price, with the same volume, can increase profits by 10% or more.

The good news: you don't need to get pricing perfect on day one. You need to get it roughly right, then iterate based on real customer feedback. This guide gives you practical frameworks to set your initial pricing with confidence.

Common Pricing Mistakes First-Time Founders Make

Before we discuss what to do, let's understand what not to do:

Mistake 1: Pricing Based on Costs Alone

"It costs me $20 to deliver this service, so I'll charge $40." This ignores the most important factor: what value are you providing to customers? If your $20 service saves a customer 5 hours of work, and their time is worth $100/hour, they'd happily pay $200, maybe more. Cost-plus pricing leaves massive money on the table.

Mistake 2: Competing Only on Price

Seeing competitors charge $50 and deciding to charge $40 to "win on price" is a race to the bottom. Unless your entire business model is built around being the cheapest option (like Walmart or Spirit Airlines), competing on price alone is unsustainable. You can't provide the best service while being the cheapest it's mathematically impossible. Focus on value, not just price.

Mistake 3: Underpricing Because You're New

"I'm just starting, so I should charge less." This assumes customers care more about you being new than about the value you provide. If you solve their problem effectively, they'll pay market rates. Underpricing attracts price-sensitive customers who will leave for the next cheapest option and devalues your work. Start with confident pricing.

Mistake 4: Being Afraid to Raise Prices

You launch at $20/month, gain customers, and realize you need to charge $50/month to be profitable. Fear of losing customers keeps you at $20 until you run out of money and shut down. Reality: most customers will accept reasonable price increases, especially if you communicate clearly and grandfather existing customers. Raising prices is normal and expected.

Value-Based Pricing: The Foundation

The best pricing approach is value-based pricing: charge based on the value you provide to customers, not your costs. Here's how to think about it:

Step 1: Quantify the Problem

What does the problem you're solving currently cost your customers? Calculate in money, time, or both.

• A tool that saves 10 hours per week: if the customer's time is worth $50/hour, that's $500/week or $2,000/month in value
• A service that helps acquire customers: if each new customer is worth $1,000 in lifetime value, generating 5 new customers per month = $5,000/month in value
• Software that reduces errors: calculate the cost of errors (refunds, support time, lost customers)

Interview your target customers and ask: "How much does this problem currently cost you in time or money?" Their answers reveal your pricing ceiling.

Step 2: Calculate Your Value Capture

A common rule: charge 10-30% of the value you provide. If you save a customer $2,000/month, charging $200-600/month feels fair to them (they're still saving $1,400-1,800) while building your sustainable business.

For transformational value (where alternatives don't exist or are vastly inferior), you can capture 30-50% of value created. For competitive markets with many alternatives, expect 10-20%.

Step 3: Validate with Willingness to Pay Research

During customer interviews, ask: "If this solution did X, what would you expect to pay?" Listen to their initial reaction. Hesitation suggests you're too high. Immediate agreement suggests you might be too low (or right where customers want you, but you could test higher).

Better question: "What are you currently spending to solve this problem?" This reveals their existing budget and what they consider reasonable.

Pricing Models: Choosing the Right Structure

How you charge matters as much as how much you charge:

Subscription Pricing (Monthly or Annual)

Best for: SaaS products, ongoing services, memberships

Advantages: Predictable recurring revenue, easier to forecast, builds long-term customer relationships

Typical ranges: $10-50/month for consumer products, $50-500/month for B2B tools, $500+ for enterprise

Pro tip: Offer annual plans at a discount (typically 15-20% off monthly pricing). This improves cash flow and reduces churn. If monthly is $50, annual might be $500 ($41.67/month equivalent).

Tiered Pricing

Best for: Products with different customer segments or usage levels

Structure: Basic ($29), Pro ($79), Enterprise ($299)

Tiered pricing serves different customer needs. Small users get affordable access, power users pay more for advanced features. The middle tier is often where most customers land design it as your "recommended" option.

Anchoring effect: The high-priced tier makes the middle tier feel reasonable, even if few people buy the top tier. Having a $299 option makes $79 feel affordable.

Usage-Based Pricing

Best for: Products where usage varies significantly between customers

Examples: Pay per API call, per email sent, per GB stored, per transaction processed

Advantages: Customers only pay for what they use, which reduces barriers to starting. Pricing scales naturally with customer success.

Challenges: Revenue is less predictable, and heavy users might churn if costs grow too high. Often combined with base fees: $29/month + $0.10 per transaction.

One-Time Pricing

Best for: Products with no ongoing costs, digital products, templates, courses

Advantages: Simple, no subscription fatigue, attracts customers who resist recurring charges

Challenges: Need continuous customer acquisition, no recurring revenue

Consider: Charge once, but offer paid updates or premium support as recurring revenue streams.

Freemium Model

Structure: Free tier with limitations, paid tiers unlock full features

Best for: Products that benefit from network effects or have low marginal costs per user

The key challenge: Most free users will never convert. Typical conversion rates: 2-5% from free to paid. This works if you can afford to support 95 free users to get 5 paying customers. For low marginal cost products (like software), this math can work. For high-touch services, it doesn't.

Make the free tier useful enough to attract users but limited enough that serious users need to upgrade. Common limitations: user count, features, usage limits, or support access.

Competitive Research: Learning from the Market

You don't need to match competitor pricing, but you should understand it:

How to Research Competitor Pricing

• Visit competitor websites and note their listed pricing
• Sign up for trials to understand what each tier includes
• Read reviews to see if customers think pricing is fair, too high, or a great deal
• Check discussions on Reddit, forums, or communities where customers discuss pricing
• Look at similar products in adjacent markets for pricing patterns

How to Position Against Competitors

Premium Positioning: Charge 20-50% more than competitors and emphasize superior quality, service, or outcomes. Works when you can clearly demonstrate higher value.

Mid-Market Positioning: Price similarly to competitors but differentiate on features, ease of use, or customer experience. Most companies land here.

Value Positioning: Price 20-40% below competitors while offering comparable core features. Requires operational efficiency to maintain margins. Communicate value, not cheapness.

Setting Your Initial Price: A Framework

Here's a step-by-step process to set your launch pricing:

Step 1: Calculate Your Floor (Minimum Viable Price)

What's the minimum you need to charge to cover costs and eventually be profitable? Include:

• Cost to deliver the product/service
• Operating expenses (tools, infrastructure, support)
• Customer acquisition costs
• Desired profit margin (aim for at least 20-30%)

This is your floor. Never price below this long-term (temporary promotions are okay).

Step 2: Estimate Your Ceiling (Maximum Justifiable Price)

Based on value-based pricing research, what's the maximum customers would potentially pay? Consider:

• Value you provide (10-30% of value created)
• What customers currently spend on alternatives
• Highest competitor pricing in your category

This is your ceiling. Most customers won't pay above this.

Step 3: Choose Your Starting Point

For new products, start in the middle-to-upper range between your floor and ceiling. Why not the ceiling? You need room to justify price increases as you add features and prove value. Starting too high and lowering prices signals weakness. Starting moderately and raising prices signals growing demand and value.

Example: Floor = $30/month (minimum to be profitable), Ceiling = $150/month (based on value provided). Start at $60-80/month. This leaves room to grow while being profitable from day one.

Step 4: Test with Early Customers

Launch at your chosen price point and observe:

• If 80%+ of prospects say "yes" immediately: You might be too low. Test raising prices.
• If 10-30% convert: You're probably in the right range. Monitor and adjust.
• If less than 5% convert: Either your price is too high or your value proposition isn't clear. Test both.

Testing and Adjusting Your Pricing

Pricing isn't set in stone. Here's how to test and optimize:

A/B Test Pricing Pages

Show different prices to different visitors and measure conversion rates. Tools like Google Optimize or Optimizely make this easy. Test 20-30% price variations. A few weeks of data will reveal if higher prices hurt conversion rates enough to matter.

Grandfather Existing Customers

When raising prices, let existing customers keep their current rate (or offer a smaller increase). New customers pay the new rate. This rewards loyalty and reduces churn while improving unit economics on new customers.

Run Limited-Time Promotions

Offer launch discounts (20-30% off) for early adopters. This builds momentum and gives you data at different price points. Clearly communicate that prices will increase after the promotion, creating urgency.

Survey Customers About Price

Ask existing customers: "At what price would this product be too expensive?" and "At what price would you question the quality?" The range between these answers is your pricing sweet spot.

Communicating Price Changes

Eventually you'll need to raise prices. Do it right:

Give Notice

Inform customers 30-60 days before price increases take effect. Don't surprise them on their next bill.

Explain Why

"We've added significant value over the past year including [X, Y, Z features]. To continue investing in the product you love, we're updating our pricing." Customers understand that businesses need to be sustainable.

Grandfather When Possible

If you can afford it, let long-time customers keep their original rate or receive a smaller increase. This goodwill builds loyalty.

Make It Easy to Downgrade

Some customers will reduce to a lower tier rather than churn completely. Make downgrading easy this retains revenue and keeps the door open for future upgrades.

Industry-Specific Pricing Guidance

SaaS Products

• Consumer: $5-50/month
• SMB: $50-500/month
• Enterprise: $500-5,000+/month
• Consider: Tiered pricing with free trial (7-14 days) or freemium model

Digital Products (Courses, Templates, Ebooks)

• Templates/Tools: $10-100 one-time
• Courses: $50-500 one-time (more for premium courses)
• Memberships: $20-200/month
• Consider: Tiered pricing with different access levels

Service Businesses

• Calculate: Your desired hourly or daily rate times estimated time to complete
• Consider: Fixed project pricing (preferred by clients) or hourly rates (easier to estimate)
• Add: 20-30% buffer for scope creep and revisions

Marketplaces

• Transaction fees: 5-20% per transaction
• Listing fees: Free to $10-50 per listing
• Subscription: $10-100/month for sellers for premium placement
• Consider: Take from buyer, seller, or both (most take from seller only)

Final Pricing Tips

• End prices in 9 or 7: $29 or $27 converts better than $30 due to psychological anchoring
• Show value, not just price: "$79/month - everything you need to grow" beats "$79/month"
• Annual plans improve retention: Offer 2 months free when paying annually
• Make one tier "most popular": Visual cues guide customers to your recommended tier
• Hide enterprise pricing: "Contact us" for enterprise forces conversations and allows custom pricing

Remember: You Can Always Change It

The biggest mistake is overthinking pricing and delaying your launch. Pick a reasonable starting price using the frameworks above, launch, and gather real data. You'll learn more from 50 real customer conversations than from 6 months of pricing research.

Pricing is not permanent. As you add features, prove value, and understand your customers better, adjust your pricing accordingly. Every successful company has changed their pricing multiple times. Start with conviction, iterate with data, and focus on delivering value worth paying for.

Ready to launch your product and test your pricing in the market? Contact us to discuss how we can help you build and launch quickly.