How Do I Decide What My Product Should Cost? The Pricing Rules I Follow

Early in my career, I priced a service by adding up my costs and including a margin I was comfortable with.

The client accepted my quote in less than a minute. I wondered if I'd priced it too low.

That experience taught me something important: pricing isn't just about covering your costs. It's about understanding what your product is worth to the customer.

Over the years, I've made pricing decisions across Noboru World, Lushful, and Filing Buddy. Here are five rules I follow.

1. Know Your Minimum Price

Before deciding what to charge, I calculate the lowest price at which the business can maintain its target margin.

For example, if a product costs ₹400 to make and deliver, a 40% markup gives you ₹560. But your actual margin is only 28.6%.

To achieve a 40% margin:

Selling price = Cost ÷ (1 − Target margin)

₹400 ÷ 0.60 = ₹667

That's ₹107 more per unit.

I'd always calculate this before looking at competitors. Your costs establish the minimum price, but they don't tell you what customers are willing to pay.

2. Price Based on Value, Not Just Cost

Your customers don't care how much effort went into building your product. They care about what it does for them.

When I evaluate pricing, I ask: Does this product help customers save time, reduce costs, increase revenue, or solve an important problem?

Cost tells me what I need to charge. Customer value helps me decide what I can charge.

3. Talk to Buyers Before Fixing the Price

Founders often spend too much time guessing what customers will pay. I'd rather speak to potential buyers directly.

Ask what they currently use, what they pay for it, and what they would expect to pay for your solution.

If customers find your product expensive, don't immediately offer a discount. First, understand whether the problem is the price or whether they don't see enough value.

4. Consider the Five Cs of Pricing

Before finalising a price, I look at five factors:

• Costs: What's the minimum price I need?
• Customers: What are buyers willing to pay?
• Competitors: What do alternatives cost?
• Channels: What fees or distributor margins apply?
• Company goals: Am I prioritising growth, profitability, or premium positioning?

I'd never blindly copy a competitor's price. Their costs, customers, and business goals may be very different from mine.

5. Give Customers a Reason to Pay More

When we worked with Northmist, a sustainable fashion startup, its products competed against established brands, while many customers were still unfamiliar with sustainable clothing.

Simply lowering prices wouldn't explain why the products were worth buying.

We focused on communicating the value of organic clothing. Online visibility grew threefold.

That experience reinforced an important lesson: when your product costs more than the alternatives, customers need to understand why.

What I'd Do Before Setting a Price

I'd calculate my actual margins, speak to ten potential buyers, and understand what they value before deciding what to charge.

For SaaS businesses, I'd focus particularly on the value customers receive and choose a pricing model that reflects how they use the product.

Pricing isn't about finding a number that feels right to you. It's about finding a number that works for your business and makes sense to your customer.

— Anjan

Frequently Asked Questions

1. How do I set my selling price?

Calculate your costs and target margin, then compare the result with customer value and competing alternatives.

2. What are the five Cs of pricing?

Costs, customers, competitors, channels, and company goals help evaluate whether a price works for your business.

3. What is the difference between cost-plus and value-based pricing?

Cost-plus pricing starts with costs. Value-based pricing starts with what the product is worth to the customer.

4. How do I price a product with no competitors?

Understand how customers solve the problem today, including manual work or doing nothing, and price according to the value your product offers.

5. What is the best pricing strategy for SaaS?

Start with customer value, then choose a suitable model, such as flat-rate, tiered, or usage-based pricing.