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As a small business owner, you need to know how to price a product to bring in higher sales.

How to Price a Product

Product pricing can make or break your small business. If you set prices higher than what customers will spend, you lose sales. But if you set prices too low, you don’t earn at your highest potential. Price points need to meet somewhere in the middle to generate the most revenue. Do you know how to price a product for your small business?

There is no simple formula for getting prices right. However, you can use different business pricing strategies to find an amount that satisfies you and your customers’ needs.

Research your market

Conducting a market analysis on your customers and competition can help you find out what your customers are willing to pay.


Understanding your customers is essential to product pricing. Conduct interviews, surveys, or focus groups to find out your target customers’ needs. You can also look at industry-specific statistics. Look for trends in the places that your target customers spend money and how much they spend.


Be aware of how other companies in your industry price products. You don’t need to set your prices lower than your competitors. Racing to set the cheapest prices could push your revenue below your bottom line. Instead, market your products as valuable and worth their costs.

How to price a product

Use your market analysis to decide what your customers are willing to pay. You will also want to consider the costs of running your business. Look at your gross margin to decide your bottom line for pricing. For how to price a product, try one or more of the following strategies.

Price segmentation

Price segmentation is not a one-size-fits-all product pricing method. Instead, you address the needs of smaller, more specific groups within your market. Separate the groups by the amount customers will pay for your products. Offer discounts to the groups that tend to pay less.

Offering different prices for the same product allows you to cover more ground in your market. You include low-spending customers without lowering all your prices.

For example, a coffee shop next to a college might have market groups that show the lower paying customers are students. The owner offers a student discount deal on coffee and bagels. The pricing discount allows the coffee shop to serve students without lowering all the prices.

Tiered pricing

With tiered pricing, you give all customers different price options for the same product. Each option includes more features than the one beneath it. This method addresses customers with different levels of needs and budgets.

For an example of pricing your products at different levels, you might include: basic, upgraded, and superior. The majority of customers are in the middle spending range. But, the expensive option is available for those willing to spend more for extra features.

The expensive option is not just for reaching the occasional high spender. It also exists to motivate the majority mid-range spending customers. Average spenders are more willing to buy a mid-priced item when it is placed next to a more expensive option. The mid-priced item looks like a valuable product and a deal.

Bundle packages

When you bundle, you sell packages for less than the total of each individual product’s price. Bundling can get customers to buy more products than they initially intended.

For example, if you own a furniture store, you could bundle a couch and a chair. The package deal would be less expensive than if you charged the couch and chair separately. If a customer only wanted a couch, the bundled price might persuade them to buy more to take advantage of the deal.

This product pricing method helps you sell larger amounts of inventory while only incurring one-time marketing costs. If you need to get rid of old inventory quickly, you may want to create some bundle deals.

Most significant digit pricing

For this method of how to price a product, you lower prices slightly to make the most significant digit smaller. This works because many customers pay more attention to the most significant digit. This digit is the one furthest to the left on a price.

Think of selling an item for $19.95 instead of $20. Most people will focus on the furthest left digits, meaning the one and the two, respectively. One is smaller than two, so $19.95 seems cheaper. Though there’s only a five cent difference, $19.95 might seem less expensive to some customers.

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