Introduction: Why Pricing Can Make or Break Your Business

One of the most common struggles new business owners face is setting the right price for their products or services. It seems simple at first—just charge more than what it costs to make, right? But in reality, pricing is a strategic decision that affects your profit, customer perception, and business growth.

Set your prices too low, and you’ll struggle to cover expenses and risk being seen as a “cheap” brand. Set them too high, and you might scare away customers before you’ve had the chance to prove your value.

If you’re a new business owner, this guide will help you avoid costly pricing mistakes, understand different pricing strategies, and set up a pricing structure that ensures profitability from day one.

Step 1: Understanding Your Costs – Never Sell at a Loss!

Before you can decide on a price, you must know how much it costs to create your product or deliver your service. Many new entrepreneurs forget to calculate all their costs and end up pricing their products too low, which leads to hidden losses.

Types of Costs to Consider

1. Fixed Costs (Overhead Expenses)

These are costs that do not change regardless of how much you sell. You have to pay them even if you sell zero products.

✅ Rent and utilities (electricity, water, internet, etc.)
✅ Salaries of office staff and non-production employees
✅ Business licenses and permits
✅ Marketing, advertising, and website expenses
✅ Insurance and legal fees

2. Variable Costs (Cost of Goods Sold – COGS)

These costs fluctuate depending on how much you produce or sell.

✅ Raw materials or ingredients
✅ Direct labor (workers assembling products or providing services)
✅ Packaging and labeling
✅ Shipping, delivery, and logistics
✅ Payment processing fees (PayPal, credit card fees, etc.)

💡 Pro Tip: Many new businesses forget about transaction fees, shipping costs, and taxes. Always include these in your cost calculations!

Step 2: Choosing a Pricing Strategy That Fits Your Business

There is no one-size-fits-all pricing strategy. Your best choice depends on your industry, competition, and target audience.

1. Cost-Plus Pricing (The Simplest Method for Beginners)

This is the most straightforward method, where you add a fixed percentage markup on top of your cost.

Formula:
📌 (Cost per unit) + (Markup percentage) = Selling Price

Example:
If it costs ₱100 to make a product, and you want a 50% markup, your price would be:

📌 ₱100 + (₱100 × 50%) = ₱150

🔹 Best for: Physical products, retailers, manufacturers
🔹 Weakness: Doesn’t consider competition or customer willingness to pay

2. Value-Based Pricing (Charge What Your Product is Worth!)

This method sets the price based on how much value your product provides to customers.

💡 Example:
If your product saves customers 5 hours of work and they normally charge ₱500 per hour, the perceived value is ₱2,500—which means you can price higher!

🔹 Best for: Unique or premium products and services
🔹 Weakness: Requires research to determine perceived value

3. Competitive Pricing (Stay in the Market Without a Price War)

Here, you base your pricing on what your competitors charge for similar products.

Options:
✅ Match competitor pricing → To compete directly
✅ Price slightly lower → To attract budget-conscious buyers
✅ Price slightly higher → If you have superior quality or branding

🔹 Best for: Businesses in highly competitive markets
🔹 Weakness: Can lead to a race to the bottom in price wars

4. Psychological Pricing (Smart Tactics to Influence Buyers)

Humans don’t always make rational buying decisions—psychology plays a big role!

✅ Charm Pricing → Price at ₱199 instead of ₱200 (people perceive it as cheaper)
✅ Bundle Pricing → Sell “Buy 2, Get 1 Free” to increase sales volume
✅ Anchor Pricing → Show a higher “original price” next to a discounted price to create a sense of savings
✅ Limited-Time Offers → Create urgency with discounts (“Only 3 days left!”)

🔹 Best for: Retail businesses, e-commerce, and service-based businesses

Step 3: Calculating a Profitable Price

Pricing should not be based on a guess. Here’s a foolproof formula to ensure profitability:

📌 (Total cost per unit) ÷ (1 – Desired Profit Margin) = Selling Price

Example Calculation

• Total cost per unit: ₱100
• Desired profit margin: 40% (or 0.40 in decimal)

📌 ₱100 ÷ (1 – 0.40) = ₱166.67 (Selling Price)

💡 Why use this formula? It ensures you never underprice your product while maintaining profitability!

Step 4: How to Adjust Prices Over Time

Your prices should not remain static. You must adjust them as your business grows and market conditions change.

✅ Increase Prices If:

• Your costs (materials, labor) increase
• Demand is high and customers are willing to pay more
• You improve your product’s quality or features

✅ Lower Prices If:

• Sales have slowed down significantly
• Competitors are offering better deals
• You find a way to reduce costs and still maintain profit margins

💡 Pro Tip: Always communicate price increases transparently to customers. Show them the added value they are getting!

Step 5: Avoiding the Most Common Pricing Mistakes

🚫 Guessing Your Prices → Always use data-driven calculations
🚫 Undervaluing Your Product → Don’t just compete on price; highlight your unique selling points
🚫 Ignoring Competitor Pricing → Research your competitors, but don’t just copy them blindly
🚫 Forgetting to Re-Evaluate Prices → Prices should be reviewed at least every 6-12 months

Step 6: Testing & Optimizing Your Pricing Strategy

✅ A/B Test Your Prices: Offer different prices for a limited time and track sales performance
✅ Monitor Customer Feedback: If too many customers say your price is too high or too low, re-evaluate
✅ Analyze Sales Data: Track profit margins, sales volume, and conversion rates

💡 Pro Tip: Be flexible. If something isn’t working, tweak it. Small price adjustments can have a huge impact on revenue.

Final Thoughts: Master Pricing and Secure Your Business’s Future

Setting prices the right way is one of the most critical decisions for a new business. Use the strategies in this guide to ensure you cover costs, stay competitive, and maximize profits.

🚀 Final Checklist for Pricing Success:
✅ Have you calculated all your costs?
✅ Are you using a strategic pricing method?
✅ Are you tracking competitor prices?
✅ Do you test and adjust prices over time?

By following this step-by-step guide, you’ll set your business on the path to long-term profitability and growth.