How to Price a Product for Your Startup: Stop Guessing, Start Calculating

Most UK startups underprice their product. Not by a little - by 20-40% above the average selling price. They're so terrified of scaring off customers that they charge less than their costs justify, less than their market supports, and less than their competitors get away with every day.

I know because I've done it while ensuring the perceived value of your product aligns with its price. Priced something based on what felt "fair" instead of what the market would actually bear. Watched a competitor charge customers for your product three times more for something objectively worse and wondered what they knew that I didn't. Turns out what they knew was that pricing is a strategy, not a maths problem. And most founders treat it as maths, overlooking the nuances of product marketing.

Here's the thing nobody tells you when you're starting out. Your price isn't just a number on an invoice; it reflects the value and cost per unit of your offering. It's a signal. It tells customers whether you're the cheap option, the premium option, or somewhere in the middle. It determines whether you attract clients who value quality or clients who haggle over every penny. It shapes your margins, your cash flow, your ability to hire, your ability to survive a quiet month, and the total cost of producing your product while also considering the price per unit. Getting it wrong by 15% in either direction changes the entire trajectory of your business.

And yet most founders spend weeks agonising over their logo and about forty-five minutes considering what to charge customers for your product. I've watched it happen at Startup Networks events more times than I can count. Someone will present a brilliant product, nail the market price, and successfully launch it. pitch, then mumble through the pricing slide because they haven't really thought about the ideal price for their product.

This guide fixes that by helping you include the cost of producing a product in your product pricing strategy. Every major pricing strategy explained in plain English, when each one makes sense, how to calculate your actual numbers, and the mistakes I've watched founders make so you don't repeat them.

Pricing Strategy: How to Price Your Product for Profit

Before we dive into pricing models, it's worth understanding something that many founders only realise after they've launched.

Your price isn't just a number. It's part of your marketing.

Long before someone becomes your customer, they're already making assumptions about your business based on what you charge. Price influences trust, quality, exclusivity and even credibility. Whether we like it or not, people instinctively associate expensive with premium and cheap with compromise.

Think about it for a moment. If someone offered you two bottles of wine—one for £8 and another for £80—most people would expect the expensive bottle to taste better before they've even taken the first sip. The same psychology applies whether you're selling software, consulting, handmade products or a subscription service.

That's why pricing deserves just as much attention as your product itself.

The price you choose influences almost every part of your business:

• Profit margins – The difference between what it costs you to deliver your product and what customers pay.

• Market positioning – Whether you're seen as the premium choice, the affordable option or somewhere in between.

• Cash flow – The speed at which revenue comes in and whether you can comfortably cover your operating costs.

• Growth potential – Whether you have enough margin left to hire staff, invest in marketing and continue improving your product.

What's fascinating is that some of the world's biggest companies rarely treat pricing as something fixed.

Book a flight on Monday, check again on Wednesday and the price may have changed entirely.

Order an Uber after a concert finishes and you'll probably pay considerably more than you would an hour later.

Browse Amazon and you'll often find prices changing several times throughout the week as algorithms respond to demand, stock levels and competitors.

Even many Shopify stores now use apps that automatically adjust prices during promotions, low-stock periods or seasonal demand.

These businesses understand something many startups overlook: pricing is a strategy, not a calculation.

The goal isn't to find one magical number that never changes.

The goal is to find a price that reflects the value you create, supports sustainable growth and gives you room to build a healthier business over time.

Once you understand that, choosing the right pricing model becomes far less about copying competitors—and far more about building a business that can actually thrive.

The Pricing Conversation I Hear at Almost Every Startup Event

One conversation has played out so many times at Startup Networks events that I could almost script it.

A founder spends months building a genuinely impressive product. They've spoken to potential customers, refined the prototype, polished the website and practised the perfect pitch. Then someone asks a simple question:

"So... how did you decide on your pricing?"

There's usually a pause.

"We looked at a few competitors."

Or...

"It just felt about right."

One founder sticks in my mind. He'd built a B2B platform that genuinely solved an expensive operational problem. When I asked why he'd settled on £19 per month, he shrugged and smiled.

"I don't know... it seemed fair."

Out of curiosity, I looked at three companies solving almost the same problem.

One charged £49.

Another charged £69.

The most expensive charged £99.

None of them looked significantly better.

None offered dramatically more features.

Yet none of their customers questioned those prices.

That conversation completely sums up how most founders think about pricing.

• They don't calculate it.

• They don't validate it.

• They don't test it.

• They apologise for it.

Here's the uncomfortable truth that took me far too long to appreciate: customers aren't buying your effort. They're buying the outcome.

• They don't care that development took eighteen months.

• They don't care that your hosting bill doubled.

• They don't care that you've worked every weekend for the last year.

• They care whether your product solves a problem that matters to them.

In fact, something I've seen repeatedly is founders believing that charging less makes selling easier.

Sometimes it does.

Quite often, it has the opposite effect.

I've watched founders slash prices because they weren't getting enquiries, only to find enquiries dropped even further. The lower price didn't make the product look like a bargain—it made people wonder what was wrong with it.

People naturally assume price tells them something.

A £20 bottle of wine and a £120 bottle of wine might taste remarkably similar to most people, yet almost everyone expects the expensive one to be better before they've even taken a sip.

• Software works the same way.

• Consulting works the same way.

• Professional services work the same way.

Price creates expectations long before your customer experiences the product itself.

One opinion I've developed after speaking with hundreds of founders is this:

Most startups don't fail because they charge too much. They struggle because they charge too little for too long.

A business with healthy margins can improve its product, hire better people, provide better customer support and survive slower months.

A business operating on wafer-thin margins rarely gets that opportunity.

That's why I no longer think pricing is something you decide after you've built the product.

It's one of the most important strategic decisions you'll make before your business has even found its footing.

Pricing Models Explained: Which One is Right for Your Product?

There's no one-size-fits-all approach here; different pricing strategies to consider must be tailored to your unique product and market conditions. Different businesses, products, and markets call for different strategies. Here are the common pricing strategies you should be familiar with.

Cost-Plus Pricing: Calculate Your Costs Before Setting a Price

This is the most straightforward method and a solid starting point for most businesses looking to charge a higher price for their offerings. You calculate all the costs involved in producing your product: materials, labour, packaging, shipping, overheads, and the cost of goods sold, and then add a markup percentage to determine your selling price.

Example: Using a pricing calculator can help you determine the best price range for your product. If a product costs you £50 to produce and you apply a 30% markup, your selling price becomes £65, which is a strategic way to price your product.

The advantage here is simplicity, especially when using a pricing calculator to determine your price range and the ideal price for your product. You're guaranteed to cover your costs and maintain a consistent profit margin on every sale, ensuring the price of your product is sustainable while learning how to price effectively. It's particularly useful for physical products where the cost of producing a product is predictable and can support a high price.

The downside? It can be challenging to balance the cost of production while still selling your product at a competitive price. A low price can sometimes undermine perceived value, affecting the market price. It doesn't account for what customers are actually willing to pay. You might be undercharging for something people would happily pay more for, or overcharging relative to competitors without realizing it, affecting your overall product prices.

When to use it: Evaluate your pricing strategy based on market demand and cost per unit. When you're starting out, selling commoditised products, or operating in markets where price transparency is high.

Value-Based Pricing: Charge What Your Product is Worth

This approach flips the script on different pricing strategies. Instead of starting with your costs, you start with your customer's perception of value and work backwards, considering the final price.

If your product saves someone ten hours a week, solves a painful problem, or delivers a unique benefit they can't get elsewhere, you can charge based on that value: not just what it cost you to create.

Example: A piece of software that automates a task might cost very little to develop per user, but if it saves a business £500 a month in labour costs, charging £100 a month represents excellent value to the customer while delivering strong margins for you.

This strategy requires solid market research to determine the average selling price in your niche and consider when pricing your product. You need to understand your target audience's willingness to pay, what alternatives exist, and how your offering compares.

When to use it: When you have a differentiated product, strong brand positioning, or you're solving a high-value problem, you can leverage a premium pricing strategy.

Competitive Pricing: Setting the Right Selling Price

Sometimes, the market has already established what customers expect to pay. In these cases, competitive pricing makes sense.

You research what similar products are selling for, assess where your offering sits in terms of quality and features, and consider when determining the price accordingly. You might go slightly lower to attract budget-conscious buyers, match competitors to compete on other factors, or price higher if you offer superior value.

When to use it: In crowded markets where customers actively compare options before purchasing, types of pricing strategies become crucial to compete on price within the market.

Penetration Pricing: Lower Your Selling Price to Win Market Share

This is a growth-focused strategy where you deliberately set prices low at launch to capture market share quickly and consider when determining the price for future adjustments. The idea is to attract customers through product marketing, build brand awareness, and establish yourself before gradually raising prices over time using different pricing strategies.

It's a bit of a gamble: you're sacrificing short-term profit for long-term positioning, especially if your price is significantly higher than competitors. It works well when you're entering an established market and need to give people a compelling reason to switch from existing options by offering a better price for a product to charge customers for your product.

When to use it: When you're a new entrant competing against established players and can sustain lower margins initially.

Dynamic Pricing: Changing Prices as the Market Changes

Dynamic pricing adjusts your prices in real-time based on demand, competition, inventory levels, or customer behaviour to maximize the value of the product. You've probably experienced this when booking flights or hotels: prices fluctuate based on timing and availability.

This approach maximises revenue by capturing the highest price different customers are willing to pay at different moments within a defined price range. It requires technology and data to implement effectively, but it's increasingly accessible even for smaller businesses through modern e-commerce platforms.

When to use it: When demand fluctuates significantly, you have real-time data capabilities, or you're selling time-sensitive products or services.

How to Set Your Price Without Sacrificing Profit

Here's where things get interesting in terms of product pricing is the process and customer expectations. The best pricing strategies don't just maximise your profit: they create genuine value for your customers too. This isn't just ethical; it's practical when launching a new product and considering the value of the product. Customers who feel they're getting fair value for the cost per unit become repeat buyers and advocates for your brand, especially when the price within the market aligns with their expectations.

Think of it as finding the sweet spot where:

• You're profitable enough to consider implementing a cost-plus pricing strategy to ensure a healthy margin for every product. to sustain and grow your business

• Customers feel satisfied with what they're getting for their money, especially in relation to competitor prices.

• You remain competitive within your market

One effective approach is segmented pricing: offering different price points for different customer groups or product versions. This lets you capture value from customers with higher budgets while still serving more price-sensitive segments with a lower price.

For example, you might offer:

• A basic version at an accessible price point can help you produce a product that appeals to a wider audience.

• A premium version with additional features at a higher price

• Enterprise or custom solutions for clients with specific needs

This way, you're not leaving money on the table with customers who'd pay more, but you're also not excluding those who need a more affordable option at a lower price.

How to Calculate the Price of a Product

Ready to put this into action? Here's a step-by-step approach you can follow:

Step 1: Calculate your true costs to ensure you can set a price that reflects the value of a product. Include everything: materials, labour, shipping, payment processing fees, returns, and a portion of your overheads. Don't underestimate the importance of pricing strategies like price skimming when launching a new product.

Step 2: Research your market. What are competitors charging? What do customers expect to pay? Are there gaps in the market at certain price points that you can exploit with different types of pricing strategies?

Step 3: Understand your customer's perception of value. What problem are you solving? How painful is that problem? What alternatives exist?

Step 4: Set your price based on your primary strategy. Based on your situation, decide whether cost-plus, value-based, competitive, or another approach makes the most sense.

Step 5: Test and iterate. Pricing isn't set in stone; it can evolve as you refine your product marketing approach. Test different price points, gather feedback, and adjust based on real-world results to find the best way to price your product.

If you're looking for more guidance on launching and growing your premium pricing strategy, we can help you consider when pricing your product to determine the final selling price. small business, you might find useful resources in our new product section, especially when launching a product type that fits your market. Q&A Zone where founders discuss these challenges and product marketing strategies regularly.

Common Pricing Strategy Mistakes That Hurt Profit

Before we wrap up, here are a few pitfalls to watch out for:

• Underpricing out of fear can undermine the perceived value of your product. – Many founders price too low because they're worried about competitor prices and rejection. This can devalue your offering and make it harder to raise prices later, especially if you start with a low price.

• Ignoring the competition entirely – Even if you're using value-based pricing, you need to understand the competitive landscape.

• Raising prices too suddenly can impact your margin for every product. fixed costs and overall revenue strategy. – If you need to increase prices, do it gradually and communicate transparently with your customers about why.

• Forgetting about perceived value can lead to misjudging the market price of your product. – Sometimes small additions like better packaging, faster delivery, or improved customer service can justify higher prices without changing the core product.

Choosing the Right Pricing Strategy for Long-Term Success

The truth is, you'll probably never find the "perfect" price-and that's completely normal.

As your business grows, your customers change, competitors enter the market, costs increase and your understanding of what your product is truly worth becomes clearer. The founders who succeed aren't the ones who get pricing right on day one; they're the ones who continually test, learn and adapt.

If there's one piece of advice I'd leave you with, it's this: don't make pricing decisions in a vacuum.

Talk to other founders. Ask difficult questions. Challenge your assumptions. Share what's worked, and more importantly, what hasn't. Some of the most valuable conversations I've had with startup founders haven't been about fundraising or product development—they've been about the simple question of, "What do you charge, and why?"

If you'd like a second opinion on your pricing strategy, or simply want to hear how other founders have approached it, join the discussion on Startup Networks. Our community is full of entrepreneurs who are navigating exactly the same decisions, and sometimes a single conversation can save months of trial and error.

After all, building a business is hard enough. You don't have to figure it all out on your own. Just make sure you look at cyber insurance and business legal!

About the author

James Beresford-Morgan is the Co-Founder and CTO of Startup Networks, one of the UK's leading startup communities supporting thousands of founders, entrepreneurs and investors. Through Startup Networks, he has worked with early-stage businesses across a wide range of industries, helping founders navigate funding, growth, marketing, pricing and commercial strategy. Having reviewed hundreds of startup pitches and spoken to entrepreneurs at events across the UK, James shares practical, experience-led advice that goes beyond theory. His articles combine real founder conversations, lessons learned and actionable insights to help startups make better business decisions and build companies that last.