How to price your products and services

Price is the most underestimated decision a business makes. Months are spent on the product and then the rate is set in five minutes, glancing at a competitor or applying a random mark-up on cost. Yet price is the most powerful lever on profit: a well-managed 10% increase can double the margin, while systematic discounting can erode years of work. Setting the right price is not an accounting exercise: it is a strategic decision that tells the market who you are.

The three basic approaches

There are three ways to think about price. Most businesses use only one; the best combine them.

Cost-based pricing: you start from costs and add a margin. Simple and safe, but it ignores how much the customer is willing to pay. You risk leaving money on the table or pricing yourself out of the market.
Competition-based pricing: you align with those doing the same thing. Easy, but it turns you into an interchangeable alternative and drags you into a price war.
Value-based pricing: you start from how much the solution is worth to the customer. It is the most profitable approach, but it requires truly understanding the benefit you deliver.

Knowing your costs, not to set the price, but to avoid losing money

Cost should not determine the price, but it is the floor below which you cannot go. You must know precisely:

The variable cost of each unit sold or hour delivered.
The fixed costs to be covered each month regardless of sales.
The break-even point: how many sales are needed not to be at a loss.

A frequent mistake among small service businesses is forgetting their own time and indirect costs, setting rates that seem generous but leave nothing once everything is paid.

Perceived value is the real ceiling

The customer does not pay for your costs: they pay for the benefit they receive. The right question is not “how much does it cost me” but “how much is it worth to them”. Software that saves twenty hours a month is worth, to a company, far more than its development cost. To set the price on value:

Quantify the benefit in money, time or risk avoided.
Identify the customer’s alternatives and their real cost.
Position the price as a fraction of the value generated.

Price is a signal

Price communicates before it is even paid. Too low and the customer suspects poor quality; too high without justification and they walk away. In many sectors a premium price, backed by a credible promise, attracts better customers and reduces downward negotiations. Competing on price alone is the hardest road: there will always be someone willing to go lower.

Structure, not just a number

Often the advantage lies not in the price but in how you structure it:

Tiers (basic, standard, premium): you let the customer choose and capture different spending capacities.
Subscription: recurring revenue, more predictable and more valued by investors.
Usage-based pricing: you pay in proportion to how much you use.

Three options work better than one: most customers avoid the extremes and choose the middle way, which you can design as the most convenient for you.

Don’t forget VAT

In Switzerland, if you exceed CHF 100,000 in annual turnover you become liable for VAT (standard rate 8.1% from 2024). Make clear whether your prices are gross or net of tax, especially towards private customers, to avoid margins eroded by misunderstandings.

Reviewing the price is normal

Prices are not set in stone. Costs, market and value change. Many businesses keep the same rates for years for fear of losing customers, while inflation erodes the margin. Measured, well-communicated increases, tied to clear value, are accepted more often than feared. Test, measure and adjust.

In summary

Price is the most powerful lever on profit: don’t set it at random.
Know your costs to establish the floor, not the price.
The value perceived by the customer is the real ceiling.
Price is a signal: too low devalues.
Tiered structure and recurring revenue beat a single number.

How we help you

We help startups and SMEs build a pricing model consistent with cost, value and growth strategy, and translate it into numbers that hold up in front of customers and investors. Let’s talk about your model.