Pricing for profit: how to set the right prices for your products + FREE pricing calculator

Setting the right price for your products can make or break your business. If your price is too high, you risk scaring away customers and if too low, you might not make enough profit to sustain your business. The secret is getting the pricing just right. To help you do that, we’ve broken the process down into three clear phases:

• Research and analysis

• Pricing calculation

• Testing and adjustment

1. Research and analysis

Before setting a price, you need to understand your market, competitors, and customers. This phase lays the foundation for informed pricing decisions.

• Understand your costs: Before setting a profitable price, you need to know exactly the cost incurred to produce or acquire your product. This includes:

  • Direct Costs – Expenses directly tied to creating or obtaining your product, such as materials, labor, and production costs.

  • Indirect Costs – Key expenses necessary for running your business smoothly, including rent, utilities, marketing, and administrative costs.

To effectively know your costs, use tools like Cantant, which helps you summarize expenses so you never lose track of both your direct and indirect costs. To start, sign up for free here.

• Analyze your competitors: Pricing is highly influenced by competitors. Research what your competitors are charging for similar products or services. This will give you a benchmark and help you position your offering. If your price is significantly higher, you’ll need to justify it with added value, e.g., superior quality, unique features, or exceptional customer service.

• Understand your target audience: Your pricing should align with what your customers are willing to pay. Conduct surveys, focus groups, or interviews to gauge their perception of value. Consider:

  • Their income levels and spending habits

  • The perceived value of your product

  • How price-sensitive your target audience is

2. Pricing Calculation

Once you’ve gathered the necessary data, it’s time to calculate your price. The cost-plus pricing method is the most straightforward and effective way to approach pricing, particularly for small businesses.

• Calculate your direct and indirect costs as gathered earlier

• Determine the profit margin you want to add to the calculated cost

• Use our FREE pricing calculator to automatically calculate the price without errors, no formulas, no hard math. 

3. Testing and adjustment

Pricing isn’t a one-time decision. It’s an ongoing process that requires monitoring and adjustment based on market feedback and business performance.

• Test your price: test different price points to see how customers respond. For example, you could offer limited-time discounts to gauge demand if the pricing were slightly lower

• Gather feedback: listen to your customers. Are they complaining about the price? Are they willing to pay more? Use surveys, reviews, and sales data to understand their perspective

• Monitor competitors: keep an eye on your competitors’ pricing strategies. If they lower or raise their prices, you may need to adjust yours to stay competitive.

• Evaluate profit margins: regularly review your profit margins to ensure your pricing is sustainable. If your costs increase (e.g., due to inflation or supply chain issues), you may need to raise your prices accordingly.

• Adjust as needed: don’t be afraid to tweak your pricing strategy. The market is dynamic, and your pricing should reflect changes in demand, competition, and customer preferences.

Common pricing mistakes to avoid

• Undervaluing your product: Don’t set prices too low just to attract customers. This can devalue your brand and make it hard to raise prices later.

• Ignoring indirect costs: Failing to account for all expenses can lead to losses, even if sales are strong.

• Copying competitors blindly: Your costs and value proposition may differ from competitors’, so their pricing may not work for you.

Pricing isn’t a one-time decision, it’s an ongoing process. By understanding your costs, and analyzing your market, you can set prices that maximize profitability and customer satisfaction. Use our FREE pricing calculator to ease you of the math burden that comes with setting the right price.