How to price your first product or service
How to set a first price from three angles, your costs, the customer's value and what others charge, then say it aloud, handle objections and review it.
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The first price a founder sets is usually a guess. It is copied from a competitor, cut in half to win the first customer, or chosen because it feels comfortable to say. The first guess is often too low, and the harder part is usually not the number but the conversation around it.
There is no formula that gives a correct price for every business, and this guide does not offer figures for any trade. What it offers is a way of looking at the question from three sides and then deciding with open eyes.
What you should come away with
- Your costs set the floor, and they include your own time
- The customer's problem sets the ceiling, not your effort
- Competitors' prices are information, not the answer
- Say the price, then stop talking: do not discount before being asked
- A low first price is hard to raise with the same customer
- Review the price after the first few jobs with real cost and time data
Begin with what the sale costs you, since no price works below it. List the materials, parts or bought-in items for each sale. Add your own time, valued at something more than nothing, because a business that pays the owner nothing is a hobby that has not yet noticed. Add a share of rent, tools, software, transport, and the fees you pay for payments and platforms. Then allow for the things that go wrong: returns, repairs, wastage and customers who pay late or not at all. If your price does not cover this, volume will not rescue you. It will make the loss bigger.
Now look at the customer's side. What does the problem cost them if it is not solved, in money, time or worry? What do they pay today for the same result, including to do it themselves or to live with it? A price should be set against the value of what changes for the customer, not only against how hard you worked. Two businesses that do the same work for different customers can reasonably charge different prices if the problem is worth more to one of them. It also helps to know who decides on the customer's side, and what they can approve without asking someone else.
Then check what others charge, but do it properly. Ask for real quotes, as a customer, from several providers, and note what each includes and leaves out. Be honest about where you are better, the same or worse, and what evidence you have. Many markets have a normal range, and you have to decide where in it to sit and why. Do not assume that a competitor's price is profitable for them. Some are losing money, some have costs you do not, and some are simply guessing too.
Choose the structure as well as the number. You can charge per unit, per hour, per job, per month or as a package. Simple usually works better than clever: a few clear options are easier to buy than a long menu. Consider asking for an advance or deposit, with the balance on delivery, particularly with new customers. If you are registered for GST, be clear about whether your quoted price includes or excludes it, and show it correctly on the invoice. Ask a chartered accountant how it affects your pricing before you quote.
Think carefully about a special first price. Many founders offer a low price to win the first customer. That can be reasonable if you say it is a first-customer price, give the reason, and set an end date. If you simply quote low and say nothing, you teach the customer that the low price is the price, and raising it later becomes an argument. A discount in return for something you want, such as a testimonial you are allowed to use, a longer commitment or an early payment, is easier to defend than a bare reduction.
Then practise saying it. Most pricing mistakes happen in conversation, not on paper. State the number clearly, explain what is included in terms of what the customer gets, and stop talking. The urge to fill the silence with an apology or a discount is strong, and giving in to it tells the customer you do not believe the number. Practise with a friend until it feels dull. A price said calmly is heard as a price. A price said nervously is heard as an opening offer.
When the customer says it is too expensive, find out what they mean. Ask what they are comparing it with. It may be a cheaper competitor, an expectation set by something else, a budget limit, or simply a feeling that they should negotiate. If the budget is real, offer a smaller scope at a lower price rather than the same scope for less. If the objection is really about trust, price will not fix it, and a trial or a reference might. And be willing to lose a sale that would lose you money. Some customers are not worth having at the price they want.
Finally, treat the first price as a starting point. Note how many people say yes at the price you quote. After the first few jobs, compare your actual costs and the actual time with what you assumed, because first estimates are usually optimistic. Raise prices for new customers first, and give existing customers notice and a reason when you raise theirs. Set a date three or six months ahead to review. A price that is never reviewed is a decision nobody is making.