finance
Pricing
Setting the price for your product or service. The highest-leverage business decision you make.
Definition
Pricing is the act of deciding what a customer pays. It is also the single most under-optimized lever in most service businesses. A 10% price increase typically drops straight to the bottom line - far more than a 10% cost cut, which is harder to achieve. Three common pricing approaches: cost-plus (markup over cost), competition-based (anchored to market), value-based (anchored to outcome delivered). Value-based pricing is almost always the most profitable but requires the discipline to articulate outcomes in dollars. Most founders under-price by 20-40% relative to value delivered.
In your business
- →Test 10-20% price increases on new customers first - retain existing rates until proven
- →Anchor pricing to outcome (ROI for the customer), not to your cost
- →Review pricing every 6 months - costs and value drift