How to Price Your Product for the First Time

Pricing is the lever most founders ignore. They'll spend six weeks on a landing page and six minutes on pricing. Then they pick a number that "feels right," usually something too low, and wonder why the business barely breaks even.

Here's the truth: pricing is a skill you develop through experimentation. Nobody gets it right on the first try. But there are frameworks that get you close, and mistakes that are easy to avoid once you know what to look for.

First-time founders almost always price too low. The psychology is understandable: you want customers, you're not confident in the product yet, and you're scared that high prices will scare people away.

But underpricing creates its own problems:

Underpricing attracts the wrong customers. Bargain hunters are the most demanding and least loyal customers. They'll haggle over pennies, request features constantly, and churn the moment something cheaper appears.

Underpricing kills your margins. If your product costs $100 to deliver and you charge $110, you're working your ass off for a 10% margin. Charge $250 and suddenly you have room to invest in support, marketing, and product development.

Underpricing signals low quality. Price is a proxy for value in most buyers' minds. When something costs $5, people assume it's worth $5. When it costs $500, they assume there's a reason.

Underpricing is nearly impossible to reverse. Raising prices on existing customers is awkward. Starting low means you're stuck low, or you face a painful conversation with everyone who already signed up.

The founders who win often charge 2-3x what they originally thought possible. And their customers are happier because of it.

1. Cost-Plus Pricing

What it is: Calculate your costs, add a markup, and that's your price.

Formula: Price = Cost x (1 + Markup %)

Example: A t-shirt costs $8 to produce and ship. With a 100% markup, you charge $16.

When to use it: Physical products with clear unit costs. Commodity businesses where differentiation is minimal.

Why it's limited: Cost-plus ignores what customers are willing to pay. If your t-shirt is worth $50 to customers (because of design, brand, or quality), you're leaving $34 on the table.

2. Competitor-Based Pricing

What it is: Look at what competitors charge. Price similarly, or deliberately above or below.

How to do it: List 3-5 direct competitors. Find their pricing pages (or ask as a prospect). Identify where you fit: premium, mid-market, or budget.

When to use it: Markets with established players where customers have price expectations.

Why it's limited: Following competitors means following their mistakes. If everyone in your market is underpriced, you'll underprice too.

3. Value-Based Pricing

What it is: Price based on the value delivered to the customer, not your costs or competitor prices.

How to find it: Ask customers what this problem costs them. Quantify the time saved, revenue gained, or pain eliminated. Price at a fraction of that value.

Example: Your software saves accountants 10 hours per week. At $100/hour billing rate, that's $1,000/week in recovered time. Charging $200/month captures 5% of the value created and feels like a no-brainer to the customer.

Why it's superior: Value-based pricing aligns your interests with the customer's. You're both focused on outcomes.

A useful benchmark: your product should deliver at least 10x the value of its price. If you charge $100/month, customers should feel like they're getting $1,000/month in value.

This isn't precise math. It's a gut check. When the value-to-price ratio is 10x or higher:

• Sales conversations are easy ("It pays for itself in a week")
• Customer retention is high (why leave something that delivers massive ROI?)
• Referrals happen naturally ("You have to try this")

When the ratio is closer to 1:1, every sale is a fight and every renewal is at risk.

Don't guess. Test. Here are ways to gather pricing data before committing:

Ask in customer interviews. Not "What would you pay?" (people lie) but "How much does this problem cost you today?" and "What would it be worth to have this solved?" Listen for the upper bounds.

Run a Van Westendorp survey. Ask four questions:

1. At what price would this be so cheap you'd question quality?
2. At what price is it a bargain, a great deal?
3. At what price is it starting to get expensive but still worth considering?
4. At what price is it too expensive, no matter the value?

Plot the responses. The intersection points reveal optimal pricing ranges.

Test different prices on your landing page. Show different visitor segments different price points. Track conversion rates. This is more reliable than asking hypotheticals.

Start higher than you think. You can always offer discounts or lower prices. Raising prices later is much harder.

Offer a "Founder's Discount" for early customers. "Get 40% off forever as one of our first 100 customers." This lets you test a higher price while still acquiring users at a discount.

SaaS Pricing

Standard models: Per-seat (Slack), usage-based (Twilio), flat monthly fee (Basecamp), tiered plans (most SaaS).

Benchmarks: B2B SaaS averages $50-$500/month for small businesses, $500-$5,000/month for mid-market, $10K+/month for enterprise. B2C SaaS typically sits at $5-$50/month.

Common mistakes:

• Too many tiers (3 is usually enough)
• Freemium too early (it can work but distracts from paying customers)
• Underpricing the starter tier (if your lowest tier is $9, you're competing with free)

Service Business Pricing

Standard models: Hourly, project-based, retainer, value-based.

Benchmarks: Freelancers charge $50-$200/hour depending on skill and market. Agencies charge $150-$500/hour. Consultants charge even higher for specialized expertise.

Common mistakes:

• Charging hourly when value-based would be better
• Not including revision limits and scope definitions
• Undervaluing your expertise (imposter syndrome is real)

Physical Product Pricing

Standard models: Cost-plus, keystone (2x cost for retail), competitive positioning, premium/luxury.

Benchmarks: Keystone (100% markup) is standard for retail. DTC brands often work on 3-4x markup to cover marketing costs.

Common mistakes:

• Forgetting shipping, returns, and payment processing in cost calculations
• Pricing for wholesale before proving DTC demand
• Not accounting for discount periods (Black Friday, etc.)

Raise prices when:

• Customer acquisition is too easy (if everyone says yes instantly, you're too cheap)
• You have a waitlist or capacity constraints
• Customers mention that you're "a bargain" or "underpriced"
• Your costs have increased significantly
• You've added substantial new features

How to raise prices:

• Grandfather existing customers or give them extended discounts
• Announce changes in advance (30-90 days)
• Raise new customer prices first, then address existing customers
• Position increases as investments in product quality

Raising prices is uncomfortable but necessary. The best companies raise prices regularly as they deliver more value.

• Most founders underprice. Start higher than feels comfortable.
• Cost-plus is a floor, not a strategy. Value-based pricing captures what customers will actually pay.
• The 10x rule: customers should get at least 10x the value of your price.
• Test pricing before committing: customer interviews, Van Westendorp surveys, A/B tests on landing pages.
• Simple pricing converts better. Start with 1-3 options and add complexity later.
• Raising prices is easier than you think when you deliver real value. Do it regularly.

How do I price something that's never existed before?

Find the closest comparison. What do people pay to solve this problem today, even with a worse solution? What would they pay for adjacent products? Start with a hypothesis based on value delivered, then test with early customers.

Should I show pricing on my website?

For most B2B SaaS under $500/month, yes. Hidden pricing frustrates buyers and wastes everyone's time. For enterprise deals or complex services, "Contact us" is appropriate because pricing genuinely depends on scope.

How do I handle price objections in sales?

First, make sure you're talking to someone with budget authority. Then, focus on value, not price. If a $500 product saves $5,000/year, the conversation isn't about $500. It's about whether they believe the $5,000 benefit.

What's the minimum price I should charge for SaaS?

Generally, $10/month minimum for B2B. Below that, the customer support economics don't work, and you attract tire-kickers. For B2C, you can go lower, but remember that cheap products need massive volume to work.

How often should I revisit pricing?

At least annually. More frequently in the first year as you learn about your customers and market. Build pricing reviews into your quarterly planning.