Most first-time founders price too low. They anchor on what it costs to run, or on the cheapest competitor, and then spend years trying to raise prices on customers who signed up because it was cheap. Pricing is one of the highest-leverage decisions you'll make, and you can change it, so it's worth getting roughly right early.
Start from value, not cost
There are three ways to set a price:
- Cost-plus: what it costs you, plus a margin. Easy, but software costs very little to serve, so this almost always lands too low.
- Competitor-based: whatever similar products charge. Useful as a sanity check, but you inherit their mistakes.
- Value-based: a share of what your product is worth to the customer. Harder, but it's the one that works.
To find the value, ask what the customer would do without you, and what that costs them. If your tool saves a freelancer three hours a month and their time is worth $60 an hour, it's worth $180 a month to them. Charging $15 leaves most of that value on the table. Charging $40 to $60 is still an easy yes.
Do the break-even check
Before settling on a number, check that it can actually support the company. Work out how many customers you'd need at that price to cover your fixed costs.
If the answer is "more customers than you can realistically get in the next year or two," the price is too low for the business you're building, however reasonable it feels.
How many plans?
For an early product, one to three plans is plenty:
- One plan is simplest and often right at the start. Everyone gets everything, and you learn what people value.
- Three plans (often called good, better, best) let you charge different customers different amounts. The middle plan is usually the one most people choose, so design it as the one you want them on.
Split plans by something that tracks value: number of users, usage, or advanced features that bigger customers need. Don't split by features small customers need to get started, or they'll leave before they see why you're good.
Monthly vs annual
Offer both once you have paying customers. Annual plans improve cash flow and reduce churn, because customers who commit for a year have decided to make it work. A common approach is offering annual at the price of 10 months, so two months free.
Free plans and free trials
- Free trial (7–14 days): best when the product shows its value quickly. It creates urgency.
- Free plan: best when free users bring in paying ones, through word of mouth, collaboration or a network effect. Otherwise you're paying to support people who will never pay.
- No free option, with a money-back guarantee: underrated for B2B tools with a clear value.
See how to turn free users into paying customers for the conversion side.
Signs your price is too low
- Almost nobody objects to the price, ever.
- Customers say it's "a steal" or "so cheap".
- Your ideal customers are businesses, but your price is lower than a team lunch.
- You need an unrealistic number of customers to break even.
Some pushback on price is healthy. If no one ever says it's too expensive, you're very likely undercharging.
Signs your price is too high (for now)
- Prospects who clearly have the problem stop at the pricing page.
- You're losing deals to a cheaper product that does less.
- Customers sign up and churn within a month, saying it wasn't worth it.
Even then, check whether the problem is price or how clearly the value comes across. Often it's the second.
Treat your first price as an experiment
Pick a price, ideally a bit higher than feels comfortable, and test it with real prospects. Raise it for new customers every time almost everyone says yes without blinking. You can always add a cheaper plan later. It's much harder to raise prices on a base that chose you for being cheap, though it can be done: see how to raise prices without losing customers.