An Entrepreneur’s Guide to Startup Pricing Strategies

Far too often, startups treat pricing as an afterthought. Upon going to market, founders seldom blame pricing should their company fail to reach expected sales. Rather, they see fault in what they believe to be an inadequate product or service.

When a price does not work, the most common answer is simply to lower it without regard to other factors. However, instead of arbitrarily adjusting price downward, founders should determine how it can better match customer value.

As an entrepreneur, you are required to understand pricing as a strategy, the different methods startups can use and how to select the optimal route. Here’s your guide.

Related: 10 Pricing Strategies That Can Drastically Improve Sales

The importance of pricing

First, let’s discuss how price is established and why it matters.

• Costs influence price. On a rudimentary level, price is the markup applied on a set of inputs. When viewed from this lens, it makes sense. You can’t run a business if your costs outweigh your revenue, so figuring out ways to reduce costs in an early startup and determining a price that exceeds these costs is crucial.
• Consumers determine price. On the other hand, there exists a certain equilibrium with pricing. If your price is set outside the range that customers are willing to pay, no one will buy whatever you are selling. For this reason, price is primarily influenced Related: The Price Is Right: How to Price Your Product for Long-Term Success

  4 common pricing strategies

  As a founder, you need to see pricing as a means of growth for your startup. Depending on which route you ultimately decide to pursue, pricing can be used to accomplish different objectives.

  With this in mind, let’s look at four ways to approach pricing.

  1. Penetrate the market.
     If your sector is currently dominated Related: 5 Strategies of ‘Psychological Pricing’

     4 tips for choosing a pricing strategy

     Now that we understand the importance of pricing and the various strategies to consider, let’s discuss how to make the right pricing decision.

     1. Determine your objectives.
        Consider whether the price you set today is driving a short-term gain at the expense of long-term success. For example, underpricing your product or service may lead to an influx of one-time purchases from customers who are not loyal. If your business relies on repeat purchases, this will undermine your efforts.
     2. Conduct market research.
        When breaking into an established market, it is always recommended that you analyze what prospects are paying for similar offerings. So, reach out to potential customers, identify their willingness to pay for your product or service, and map out the existing landscape of competitors along with their respective prices.
     3. Evaluate your unique selling proposition.
        If a product or service provides immense value that no one else is able to offer, customers will be willing to pay above market rate to reap the benefits. Knowing if your price is equal to perceived value is crucial in determining whether your product or service is underpriced, overpriced or priced correctly.
     4. A/B test prices for engagement.
        As with many different aspects of an early startup, experimentation is often key. When determining what price is most attractive in the eyes of a consumer, engagement is a useful indicator. Offering the same product or service at multiple prices to different customers is an effective way to identify what works best.

     Ultimately, price is more than a number. It conveys value, signifies the earning potential of your business, and plays a pivotal role in countless other decisions. These tips will help you select the best pricing strategy to unlock your startup’s full growth potential.