Pricing is one of those business fundamentals people talk about, but it’s easy to overlook how much it affects your margin. Choosing the right price isn’t just about covering costs or outdoing competitors. The strategy you pick can have a huge impact on your bottom line, both quickly and over months or years.
A well-thought-out pricing approach can help you capture market share, stand out from the crowd, or just stop leaving money on the table. If you get it wrong, chances are you’ll feel it in your profits before you figure out why.
Understanding Customer Value
Let’s start with a question—what do your customers really want? It’s not always the cheapest version. Sometimes it’s convenience, quality, speed, or a special feature nobody else has. You want to figure out the thing that makes people choose your product or service over something else.
Talking to customers directly, running surveys, or just paying attention to buying patterns can all help. If people keep going for your mid-tier item, maybe that’s where they see the most value. Or maybe your “extras” aren’t landing and you need to tweak what you offer.
When you know what your buyers care about, you can match your pricing to what feels fair and worthwhile to them, not just what covers your costs.
Cost-Plus Pricing
This is probably the pricing formula everyone learns first: add up all your costs—labor, materials, shipping, whatever—and tack on a markup. Pretty simple.
It’s low risk because you’re unlikely to lose money, which comes in handy if you’re starting out or cash is tight. But here’s the thing: cost-plus doesn’t look at what people are willing to pay, or what competitors are doing. You might either be leaving cash on the table, or pricing yourself out without noticing.
If you sell handmade jewelry, for example, you might mark up each necklace by 50%. But if your customers value a special design, you might see them paying more—and you’d never know with cost-plus alone.
Competitive Pricing
Businesses spend a lot of energy watching what others are charging. It makes sense—if you’re $5 above everyone else, customers might just bail and buy elsewhere. But there’s more to it than copying the sticker price.
You’ll want to compare products as closely as possible. Is your competitor including free shipping? Are their materials cheaper? Spend some time checking websites, reading reviews, or even doing a mystery shop.
Basing your price on this research can work, but you have to know what makes your offer different. If you’re just matching all the time, it’s easy to end up in a price war nobody wins.
Value-Based Pricing
Value-based pricing flips the script. Instead of just looking at cost or competition, you figure out what a customer would pay for the benefit your product provides.
Think about software that saves a company 20 hours a month. If your fee is $100, but they save $2,000 in staff time, you could probably raise your price and customers would still stick around.
Plenty of businesses have moved this way, especially in tech, healthcare, and consulting fields. Value-based pricing takes more effort up front, but it can mean higher margins and less sensitivity to price changes.
Dynamic Pricing
You’ve seen dynamic pricing in action if you’ve ever shopped for a flight on different days or seen an Uber trip price change in a rainstorm. Some companies change their prices by the hour, day, or season based on demand, inventory, or even customer location.
For a while, it mostly showed up in travel or big events, but more companies are starting to use simple tools—even for e-commerce. If you have Shopify or WooCommerce, there are apps that will change your prices automatically if a competitor adjusts theirs, or for certain days of the week.
Dynamic pricing can increase margins because you can charge more when demand is high, instead of keeping prices flat all year. The catch is to balance it so people still feel like they’re getting a good deal.
Tiered Pricing
People like options, but not too many. Tiered pricing gives customers choices—basic, standard, and premium are classics—so they can pick what matches their needs and wallet.
Maybe you offer coaching packages at $100, $200, and $500. The lowest tier brings in cost-conscious buyers. The middle one often becomes the most popular. And the highest-tier plan can boost your top line, even if few choose it.
The trick to a good tier is making sure each level has real, perceived value. If your top tier doesn’t feel worth it, it won’t sell—no matter the price.
Bundle Pricing
Ever noticed grocery store meal deals or “suite” software packages? That’s bundle pricing. Businesses put products or services together at what looks like a discount.
The end goal here is to raise the average amount per sale. For example, selling a toothbrush with toothpaste at a slightly lower price than buying both on their own.
Bundles help move slower inventory or introduce a new service by linking it to a popular one. They can also make your business seem like a one-stop shop, which keeps people from wandering to competitors.
Penetration Pricing
Penetration pricing is all about grabbing attention fast. A company launches a product at a lower price than anyone else to get people in the door. If the offer works, you quickly build up a customer base.
Think new streaming services offering $1-for-the-first-month deals. Or local restaurants offering a “grand opening” menu at rock-bottom prices for the first week.
It’s not a long-term play, though. You’ll have to bring prices up eventually, and you want to make sure your new customers stick around after that happens.
Premium Pricing
On the opposite end, you’ve got premium pricing. This is about sending a signal. Sometimes a high price makes people more interested, not less.
Brands do this when they’ve got a great reputation, standout features, or exclusivity. The key is you need to back it up—sharper design, better customer service, something special people talk about.
Jewelry stores, high-end tech, and boutique services use this all the time. The price becomes part of the story. If you’re thinking about premium pricing, always ask if you can clearly explain what makes your offer worth more.
Monitor and Adjust Pricing
Nothing about pricing is permanent. Markets shift, new competitors show up, and customer expectations change all the time. What works today might not work next quarter.
Set up ways to track if your strategy is helping margins. Maybe check your average sale price over time, how many units you’re selling, or what level of your pricing tiers are most popular.
Online tools can help gather feedback or spot a drop in conversion rates. Don’t be afraid to send out a short survey or even just chat with repeat customers if you sense something’s off.
You’ll want to revisit your pricing regularly—quarterly or when you see profits dip. Like with any business tool, small tweaks can keep you on track.
If you’re curious about how business owners balance margins and customer value in tricky real-world scenarios, you might find stories like those at Kylie Lataster Counselling both relevant and relatable.
Conclusion
Getting your pricing strategy right won’t always be flashy, but it’s a core driver for steady, stronger margins. Whether you’re leaning into value-based thinking, cautious cost-plus math, or trying dynamic pricing tools for the first time, each step can move your financials in a positive direction.
The businesses that consistently improve pricing are the ones always asking questions: How are customers responding? Is there something different the competition is trying? Can the value story be clearer?
There’s no one perfect method. The right approach comes down to your product, your customers, and what you notice working. The smartest thing you can do is to keep evaluating—and adjusting—so your margins stay healthy and growth remains steady, instead of getting caught off guard by slow-changing habits. That’s what keeps companies moving forward, one pricing decision at a time.