Pricing a product is one of the most important decisions you make in a business. Price shapes perception, affects who your product attracts and determines how your business scales. The stakes can be high, and many companies revisit pricing only when something breaks. Instead of waiting for something to go wrong, you can take proactive steps to find pricing that works for your business. Below, we'll explain how to price a product in a way that's strategic, adaptive and built to scale.

What's in this article?

• How do you determine the right price for a product?
  
• What are the main product pricing strategies?
  
• How do you adjust product prices effectively?
  
• What are advanced pricing techniques you can use?
  

How do you determine the right price for a product?

There's no perfect formula for pricing, but there are smart strategies that any business can use. Here's what you can do, step by step.

Start with your costs

Figure out exactly what it takes to build and deliver your product, including materials, labour, support, shipping and overhead. This gives you your baseline: the minimum you can charge without losing money.

Make sure your price comfortably covers these costs across real-world variations. If you're offering a Subscription, for example, be sure each customer pays off their acquisition and support costs over time.

Understand what it's worth to your customers

What value does your product bring customers? What does your product help customers do? What pain does it address? How much time or money does it save them?

Talk to customers, and watch what they opt for. A product that saves someone £10,000 a year might be a bargain at £2,000. Value-based pricing works best when you've done the legwork to understand how your product fits into customers' lives or workflows.

Study the competitive landscape

Customers often have price expectations shaped by what else is available. Look at the pricing for similar products in your space and ask:

• Are you trying to undercut, match or charge more?

• If your pricing is higher, what makes that price feel justified?

• If your pricing is lower, does it signal good value or raise doubts?

Competitor pricing helps anchor your range, but it shouldn't dictate your decisions.

Align pricing with your business goals

What are you trying to accomplish with your business right now? If you're hoping for fast growth, lower pricing or a freemium model might make sense to bring in volume. If you're focused on profitability, consider setting a higher price to protect margins, even if that means slower adoption.

Your pricing should reinforce the strategy you're pursuing. And that strategy might shift as your business matures.

Choose a pricing model that makes sense

How you charge matters. In software as a service (SaaS), customers often expect usage-based billing or tiered subscriptions. With physical goods, a one-time price makes sense, possibly with volume discounts. Services are commonly billed on an hourly, project-based or retainer basis.

The pricing model should match customer expectations for your category, and it should work for your cash flow, margin structure and growth Plans.

Check the math

Pricing that looks fine at a glance can end up squeezing margins once you factor in support costs, infrastructure or discounting behaviour. Before you roll out anything, test the numbers:

• Are your margins healthy enough to cover acquisition, operations and growth?

• Does the price still make sense if customer volume or usage changes?

• Are you pricing high enough to reinvest in the product?

What are the main product pricing strategies?

There's no single "correct" way to price a product, but there are proven strategies that businesses lean on and often blend together. The strategy that's best for your business depends on your goals, product maturity and market conditions.

Here's a closer look at how each strategy works, when they make sense and what trade-offs they bring.

Cost-plus pricing

This is the simplest model: you take your total cost to produce and deliver the product, then add a fixed margin on top. It's common in retail and manufacturing, where standardised markups are the norm. For example, if your product costs £35 to make and you want a 100% markup, your price becomes £70.

Cost-plus is predictable, easy to calculate and it ensures you cover your costs – as long as sales hold up. However, it doesn't account for customer demand and competitive context. You might be underpricing (if customers would pay more) or overpricing (if competitors provide better value for less).

This strategy works best when:

• You're in a cost-sensitive category with established margin expectations

• Your costs are stable and predictable

• You need pricing that scales cleanly across stock keeping units (SKUs) or inventory

Competitive pricing

This model sets your price based on what competitors charge. You can position above, below or match the market – depending on how you want your business to be perceived. If everyone else charges £100, you might go to £95 to win volume or £120 if you're providing something more compelling.

This strategy can help keep you grounded in customer expectations, but you could lose sight of your own value. Competing purely on price can turn into a race to the bottom.

This strategy works best when:

• You're in a crowded category with well-established pricing norms

• Customers heavily comparison shop

• You need to stay within a certain range to avoid disqualification

Price skimming

Price skimming means launching with a high price to capture early adopters, then lowering it gradually to reach broader market segments. You start by selling to customers who are willing to pay a premium for early access or innovation, then lower the price as demand slows or as competition increases to attract more price-sensitive buyers.

This strategy maximises Revenue from the customers who value the product most at an early stage. It's also a way to recoup research and development (R&D) costs quickly, and it can reinforce a premium market positioning. But if the perceived value isn't strong enough, early adopters might hesitate. This tactic also might invite competitors to move in with lower-priced alternatives. Additionally, lowering prices later might upset loyal customers or damage your brand if it feels like a ruse.

This strategy works best when:

• You're launching something new, exclusive or hard to replicate

• You know there's a segment willing to pay more to be first

• You plan to lower prices systematically over time (not arbitrarily)

Penetration pricing

With this strategy, you enter the market with a low price to attract attention and build a customer base fast, then raise prices once you've gained traction. The low price acts as an acquisition tool. Then, once users are hooked or competitors are displaced, you shift toward more profitable pricing.

This tactic lowers the barrier to entry, accelerates adoption and can destabilise incumbent players. It can be especially powerful in businesses where the value of a product or service increases the more it's used or when scale is your main advantage. However, this method can result in you burning cash early. And if you don't have a plan for raising prices or improving margins, you could get stuck in unprofitable territory. Customers might also resist price increases later, especially if they perceive the original price as "normal."

This strategy works best when:

• You're entering a crowded or mature market and need to stand out

• Your product gains value as usage grows (e.g. marketplaces, SaaS)

• You have a clear strategy for monetisation post-growth

Value-based pricing
This strategy prices the product according to what it's worth to the customer, not what it costs to produce. You identify the outcomes your product drives and price it in proportion to those results. For example, if your product saves a company £50,000 a year, charging £10,000 annually might feel like a solid choice.

Value-based pricing aligns pricing with customer benefit and opens the door to premium margins – especially for products that save time, reduce risk or generate measurable return on investment (ROI). But it requires a deep understanding of customer needs and sharp storytelling. If you can't clearly demonstrate value, customers might think your price is inflated. And perceived value can vary widely by customer segment, which means your pricing might need to adapt across use cases.

This strategy works best when:

• Your product solves high-value problems or drives clear outcomes

• You have strong relationships with customers or a consultative sales model

• You're targeting buyers who care more about outcomes than budget

Each of these strategies comes with trade-offs. What matters most is how your pricing supports your broader positioning. Many successful companies are willing to revisit their pricing strategy as their product matures, their customer base evolves or their market shifts.

How do you adjust product prices effectively?

Adjusting prices isn't easy. A 2023 report on B2B SaaS companies found that some of the most common reasons for not raising prices are a lack of confidence and the fear of losing customers. The best pricing decisions start with solid foundations, then evolve through testing, customer behaviour and market shifts. Here's how to adjust prices as your business grows.

Launch with intent, but stay curious

Set an initial price based on your cost structure, value proposition and competitive context. Treat this price as a working hypothesis.

Once it's Live, track closely:

• Are conversions in line with expectations?

• Are sales reps closing deals at that price, or are they discounting heavily?

• Are customers giving clear feedback (positive or negative)?

Rarely will your first pricing version be your best.

Test and refine

Use real-world behaviour to improve your pricing:

• A/B test different prices across cohorts, markets or segments.

• Try different plan structures (e.g. bundle versus à la carte).

• Offer discounts or trials, and see how conversion and retention rate shift.

• Experiment with payment cadence (monthly versus annual) or bundling strategies.

Monitor what happens to conversion, retention, average deal size, and churn. If your higher-priced variant performs just as well, that's a signal. If a slight tweak to framing improves uptake, note it. Let data guide your iterations.

What are advanced pricing techniques you can use?

Once you've understood the basics, pricing becomes more about shaping behaviour: nudging demand, tailoring offers and maximising value. These advanced techniques are practical, powerful tools that can help you make smarter decisions as your business scales.

Here are some advanced pricing techniques that experienced teams might use.

Dynamic pricing

This is pricing that moves in response to real-time factors, such as demand, inventory, competitor moves, time of day, and more. This type of pricing is common with airlines, rideshares and e-commerce flash sales. With the right tools, smaller companies can also adjust prices dynamically or semi-dynamically (e.g. seasonally, during high inventory, or based on usage spikes).

This pricing technique can help capture more Revenue when demand is high, offload inventory when demand is low, and keep your business competitive in fast-moving categories. However, customers notice when prices change, and without clear logic, dynamic pricing can feel arbitrary or unfair. Transparency helps: off-peak pricing or limited-time deals are more palatable when the rationale is clear.

Psychological pricing

Subtle framing changes can influence how customers perceive value – even when the numbers don't change much.

Some techniques that can work include:

• Charm pricing: Price at £49 instead of £50. It's simple, but can be effective.

• Anchoring: Show a high-priced option first to make the next Tier feel more reasonable.

• Decoy pricing: Offer a deliberately unappealing option to steer customers toward the one you want them to choose. For example, you might price a small bag of popcorn at £4, a medium at £7.50, and a large at £8.

• Bundling: Package products together to boost perceived value (e.g. combine software with onboarding and support).

• Urgency cues: Use limited-time offers, low inventory indicators and "most popular" tags to guide decisions.

Be thoughtful about your products with these techniques. They'll work best when they reflect real value.

Segmented and personalised pricing

Different customers will likely value your product differently. Pricing that reflects those differences, by segment or by Individual, is often more effective.

For example:

• Volume discounts for large buyers

• Tiered Plans for casual versus frequent users

• Custom pricing for enterprise deals

• Student, nonprofit or regional pricing variations

• Targeted promotions based on usage patterns or churn risk

Keep in mind that pricing disparities can trigger backlash if they feel unfair. Be transparent about eligibility or value differences across tiers. Tools such as Stripe Billing can help make this easier. These types of tools let you manage Plans, coupons and usage-based charges without complex manual setup.

Premium positioning and value-add pricing

Sometimes, the right move is to raise prices. Premium pricing works when your product genuinely delivers more: better results, better experience or a better brand.

Examples might include:

• A design-forward product with exceptional User experience (User experience)

• A white-glove Onboarding experience

• A deeper feature set or performance guarantee

If you're charging more, your customers need to understand why. Make sure they feel your value in every interaction. Done right, premium pricing can reinforce your market position.