Common Pricing Methods
- Cost-based pricing: Set your price as a multiple of cost, or cost plus a determined amount. An example would be a book store selling each book for 150 percent of whatever amount the store paid for it.
- Value-based pricing: Base your price on what your product and service is worth to the buyer. Computer software, for example, is often priced according to the time-savings and productivity gains, rather than the direct cost.
- Market-based pricing: Let the market determine the price. If everybody else charges $15 for a haircut, you charge $15 for a haircut, or some price related to $15 depending on your strategy.
However, the most common pricing error in startup business plans is pricing too low. Entrepreneurs often think a new business has to offer lower prices than the competition, and that somehow a low price is related to success. Because of this common error, startup businesses fail to cover costs, they fail to generate capital to grow, and they just plain fail.