How to Set Pricing Strategies

How to Set Pricing Strategies

Setting the right pricing strategy is one of the most crucial decisions you’ll make as a founder. Price affects how customers perceive your product, how much you can afford to spend on growth, and whether your business can survive long term. This guide helps you choose between popular models like freemium, cost-plus, and value-based pricing and shows you how to test and refine your approach.

Step 1: Understand the Three Main Pricing Models

There is no one-size-fits-all pricing strategy, but these three are commonly used:

1. Freemium
Offer a free version with basic features and charge for advanced functionality. Works well for SaaS products and tools with network effects or viral potential.
Examples: Slack, Dropbox, Notion

2. Cost-Plus Pricing
Set your price by adding a markup to your costs. It’s simple but often fails to reflect what customers are willing to pay.
Example: Manufacturing physical products, food delivery, hardware

3. Value-Based Pricing
Price based on how much value your product delivers to customers. This is the most profitable long-term strategy but requires deep customer insight.
Example: B2B SaaS, enterprise software, consulting

📚 Recommended Reading:

  • Monetizing Innovation by Madhavan Ramanujam
  • The Psychology of Price by Leigh Caldwell

Step 2: Understand Your Product’s Role in the Customer’s Life

To apply value-based pricing, you need to ask:

  • What is the customer using this for?
  • How do they currently solve this problem?
  • What does it cost them now in time, money, or lost opportunity?
  • How much better is your solution?

Example: If your B2B tool saves a company 10 hours a month and that time is worth $500, pricing it at $99/month could be a no-brainer.

Tip: Use interviews or surveys to estimate perceived value. Try tools like Maze, Typeform, or Tally to run these fast.

Step 3: Check the Competitive Landscape

Don’t price in a vacuum. Study your competitors’ pricing, positioning, and packaging.

Ask:

  • What are they charging?
  • What do customers complain about in their reviews?
  • Can you offer something better or different?

Use tools like:

  • PricingPages.xyz – database of SaaS pricing pages
  • G2 or Capterra – for reviews and pricing info
  • Wayback Machine – to see how pricing evolved over time

Step 4: Choose a Structure That Matches Your Model

Decide how you will charge, not just how much.

Popular structures:

  • Flat pricing: Simple monthly fee (e.g., Basecamp)
  • Tiered pricing: Different packages (e.g., Starter, Pro, Business)
  • Usage-based pricing: Charge by API calls, users, storage, etc.
  • Pay-as-you-go: Used for services like Twilio or AWS
  • Per-seat pricing: Common for team-based SaaS tools

Match the pricing model to customer value. For example, per-seat pricing works great when each new user brings added utility (like Slack or Loom).

Step 5: Test and Iterate

You won’t get pricing right the first time. Run tests like:

  • A/B test two pricing tiers with Stripe Checkout
  • Offer early adopter discounts and measure conversion lift
  • Add a new pricing tier based on customer feedback

Avoid long free trials that delay learning. Instead, try:

  • 7-day trials with a strong onboarding flow
  • Limited feature freemium with clear upgrade paths

Use metrics like:

  • Conversion to paid
  • Customer lifetime value (LTV)
  • Churn rate by pricing tier

Tools to help:

Step 6: Communicate Pricing Clearly

Don’t let pricing confuse or scare users. Use clear copy, anchor pricing against benefits, and explain what’s included.

Examples:

  • “$19/month – Save up to 10 hours every week”
  • “Unlimited projects and 5 users included”

If you’re offering tiered plans, highlight the most popular one visually. This helps decision-making.

Final Checklist

✅ Chose a core pricing model (freemium, cost-plus, value-based)
✅ Researched what your customer values most
✅ Analyzed competitor pricing pages and reviews
✅ Selected a price structure (flat, tiered, usage-based)
✅ Tested at least one pricing variation or tier
✅ Connected pricing to perceived value in your messaging
✅ Set up tools to monitor conversion, churn, and LTV

Bonus Resources