How To Price Your Product
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The four pricing methods
Pricing is the single highest-leverage lever most founders ignore. A 10% price increase usually moves bottom-line profit 20–50%, while a 10% volume increase might move it 5%. Yet most first-time founders set price by looking at competitors and shaving 20% — the fastest way to underprice a good product. This guide walks through the four pricing methods, when each fits, and the common traps that cost real money.
Step 1 — know your unit economics
Before picking a method, know your floor:
Step 2 — triangulate with willingness-to-pay data
Ecommerce / DTC: 40–60% gross margin.
The 10%-up experiment
SaaS: 70–85% gross margin.
The tiered-pricing playbook (SaaS)
Services: 50–70% gross margin, depending on leverage.
Anchoring and decoy pricing
Below these, you’re almost always underpricing.
Discounts and promotions — the margin killers
Even for value-based pricing, you need customer-side evidence. Three cheap methods:
Price increases — on existing customers
If your prices have been stable and you have no hard data, this tells you a lot cheaply: raise prices 10% on new customers, watch conversion for 4–6 weeks. Three outcomes:
The “you can always come down” rule
Three tiers, 10:1 price ratio. Standard structure:
Run the numbers
Common mistake: too many tiers. More than 4 tiers creates decision paralysis and reduces conversion. Even 3 tiers work best with clear feature differentiators (e.g., seats, API calls, storage).