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In this blog you will learn about the importance of choosing the right pricing strategy for a successful business plan.

Why is a pricing strategy important for a business plan?

A business plan is a written document outlining a company’s core business practices – from products and services offered to marketing, financial planning and budget, but also pricing strategy. This business plan can be very lengthy, outlining every aspect of the business in detail. Or it can be very short and lean for start ups that want to be as agile as possible.

This plan can be used for external investors and relations or for internal purposes. A business plan can be useful for internal purposes because it can make sure that all the decision makers are on the same page about the most important aspects of the business.

A 1% price increase can lead to an 8% increase in profit margin.

A business plan could be very lengthy and detailed or short and lean, but in all instances, it should have a clear vision for how pricing is tackled. A pricing strategy ultimately greatly determines the profit margin of your product or service and how much revenue the company will make. Thorough research of consultancy agencies also show that pricing is very important. McKinsey even argues that a 1% prices increase can lead up to an 8% increase in profits. That is a real example of how small adjustments can have a huge impact!

It is clear that each business plan should have a section about pricing strategies. How detailed and complicated this pricing strategy should be depends for each individual business and challenges in the business environment. However, businesses should at least take some factors into account when thinking about their pricing strategy.

What factors to take into account?

The pricing strategy can best be explained in the marketing section of your business plan. In this section you should describe what price you will charge for your product or service to customers and your argumentation for why you ask this. However, businesses always balance the challenging scale of charging too much or too little. Ideally you want to find the middle, the optimal price point.

The following questions need to be answered for writing a well-structured pricing strategy in your business plan:

What is the cost of your product or service?

Most companies need to be profitable. They need to pay their expenses, their employees and return a reasonable profit. Unless you are a well-funded-winner-takes-all-growth-company such as Uber or Gorillas, you will need to earn more than you spend on your products. In order to be profitable you need to know how much your expenses are, to remain profitable overall.

How does your price compare to other alternatives in the market?

Most companies have competitors for their products or services, only few companies can act as a monopoly. Therefore, you need to know how your price compares to the other prices in the market. Are you one of the cheapest, the most expensive or somewhere in the middle?

Why is your price competitive?

When you know the prices of your competitors, you need to be able to explain why your price is better or different than that of your competitions. Do you offer more value for the same price? Do you offer less, but are you the cheapest? Or does your company offer something so unique that a premium pricing strategy sounds fair to your customer? You need to be able to stand out from the competition and price is an efficient differentiator.

What is the expected ROI (Return On Investment)?

When you set your price, you need to be able to explain how much you are expeciting to make. Will the price you offer attract enough customers to make your business operate profitable? Let’s say your expenses are 10.000 euros per month, what return will your price get you for your expected amount of sales?

Top pricing strategies for a business plan

Now you know why pricing is important for your business plan, “but what strategies are best for me?” you may ask. Well, let’s talk pricing strategies. There are plenty of pricing strategies and which ones are best for which business depends on various factors and the industry. However, here is a list of 9 pricing strategies that you can use for your business plan.

• Cost-plus pricing
• Competitive pricing
• Key-Value item pricing
• Dynamic pricing
• Premium pricing
• Hourly based pricing
• Customer-value based pricing
• Psychological pricing
• Geographical pricing

Most of the time, businesses do not use a single pricing strategy in their business but rather a combination of pricing strategies. Cost-plus pricing or competitor based pricing can be good starting points for pricing, but if you make these dynamic or take geographical regions into account, then your pricing becomes even more advanced!

Pricing strategies should not be left out of your business plan. Having a clear vision on how you are going to price your product(s) and service(s) helps you to achieve the best possible profit margins and revenue. If you are able to answer thoughtfully on the questions asked in this blog then you know that you have a rather clear vision on your pricing strategy.

If there are still some things unclear or vague, then it would be adviceable to learn more about all the possible pricing strategies . You can always look for inspiration to our business cases. Do you want to know more about pricing or about SYMSON? Do not hesitate to contact us!

Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!

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The pricing strategy guide: Choosing pricing strategies that grow (not sink) your business

Choosing the pricing strategy for your business requires research, calculation, and a good amount of thought. Simply guessing may put you out of business. Here's what you need to know.

Definition of pricing

What are pricing strategies.

• Importance of pricing strategy

Top 7 pricing strategies

• 3 real-world examples
• How to create your strategy
• Determine value metric
• Customer profiles & segments
• User research & experiments
• Bonus: 10 data-driven tips
• Industry differences
• Final takeaway

Pricing strategies FAQs

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Too many businesses set their pricing without putting much thought into it. This is a mistake causing them to leave money on the table from the beginning. The good news is that taking the time to get your product pricing right can act as a powerful growth lever.  If you optimize your pricing strategy so that more people are paying a higher amount, you'll end up with significantly more revenue than a business who treats pricing more passively. This sounds obvious, but it's rare for businesses to put much effort into finding the best pricing strategy.

This guide will cover everything you need to know about setting a pricing strategy that works for your business. 

Check out this introduction video made by the Paddle Studios team.

Price Intelligently is Paddle’s dedicated team of pricing and packaging experts for SaaS and subscription companies. We combine unrivaled expertise and first-party data to solve your unique pricing challenges, break the mold, and catapult your growth.  Learn more

Pricing is defined as the amount of money that you charge for your products, but understanding it requires much more than that simple definition. Baked into your pricing are indicators to your potential customers about how much you value your brand, product, and customers. It's one of the first things that can push a customer towards, or away from, buying your product. As such, it should be calculated with certainty.

Pricing strategies refer to the processes and methodologies businesses use to set prices for their products and services. If pricing is how much you charge for your products, then product pricing strategy is how you determine what that amount should be. There are different pricing strategies to choose from but some of the more common ones include:

• Value-based pricing
• Competitive pricing
• Price skimming
• Cost-plus pricing
• Penetration pricing
• Economy pricing
• Dynamic pricing

Pricing is an underutilized growth lever

Many companies focus on acquisition to grow their business, but studies have shown that small variations in pricing can raise or lower revenue by 20-50%. Despite that, even among Fortune 500 companies, fewer than 5% have functions dedicated to setting the best price possible. There's a missed opportunity in the business world to see immediate growth for relatively little effort. 

Navigating PLG billing and pricing? Read our latest guide on product-led SaaS

Because most businesses spend less than 10 hours per year thinking about pricing, there's a lot of untapped growth potential in optimizing what you charge. In fact, choosing the best pricing method is a more powerful growth lever than customer acquisition. In some cases, it can be up to 7.5 times more powerful than acquisition. 

The importance of nailing your pricing strategy

Having an  effective pricing strategy  helps solidify your position by building trust with your customers, as well as meeting your business goals. Let's compare and contrast the messaging that a strong pricing strategy sends in relation to a weaker one.

A winning pricing strategy:

• Portrays value

The word cheap has two meanings. It can mean a lower price, but it can also mean poorly made. There's a reason people associate cheaply priced products with cheaply made ones. Built into the higher price of a product is the assumption that it's of higher value.

• Convinces customers to buy 

A high price may convey value, but if that price is more than a potential customer is willing to pay, it won't matter. A low price will seem cheap and get your product passed over. The ideal price is one that convinces people to purchase your offering over the similar products that your competitors have to offer.

• Gives your customers confidence in your product 

If higher-priced products portray value and exclusivity, then the opposite follows as well. Prices that are too low will make it seem as though your product isn't well made.

A weak pricing strategy:

• Doesn't accurately portray the value of your product

If you believe you have a winning product, and you should if you are selling it, then you need to convince customers of that. Setting prices too low sends the opposite message.

• Makes customers feel uncertain about buying

Just as the right price is one that customers will pull the trigger on quickly, a price that's too high or too low will cause hesitation.

• Targets the wrong customers

Some customers prefer value, and some prefer luxury. You have to price your product to match the type of customer it is targeted towards.

Let's now take a closer look at the seven most common pricing strategies that were outlined above with more from Paddle Studios .

Click on any of the links below for a more in-depth guide to that particular pricing strategy.

1. Value-based pricing

With value-based pricing, you set your prices according to what consumers think your product is worth. We're big fans of this pricing strategy for SaaS businesses.

2. Competitive pricing

When you use a competitive pricing strategy, you're setting your prices based on what the competition is charging. This can be a good strategy in the right circumstances, such as a  business just starting out , but it doesn't leave a lot of room for growth.

3. Price skimming  

If you set your prices as high as the market will possibly tolerate and then lower them over time, you'll be using the price skimming strategy. The goal is to skim the top off the market and the lower prices to reach everyone else. With the right product it can work, but you should be very cautious using it.

4. Cost-plus pricing 

This is one of the simplest pricing strategies. You just take the product production cost and add a certain percentage to it. While simple, it is less than ideal for anything but physical products.

5. Penetration pricing

In highly competitive markets, it can be hard for new companies to get a foothold. One way some companies attempt to push new products is by offering prices that are much lower than the competition. This is penetration pricing. While it may get you customers and decent sales volume, you'll need a lot of them and you'll need them  to be very loyal  to stick around when the price increases in the future.

6. Economy pricing 

This strategy is popular in the commodity goods sector. The goal is to price a product cheaper than the competition and make the money back with increased volume. While it's a good method to get people to buy your generic soda, it's not a great fit for SaaS and subscription businesses.

7. Dynamic pricing 

In some industries, you can get away with constantly  changing your prices  to match the current demand for the item. This doesn't work well for subscription and SaaS business, because customers expect consistent monthly or yearly expenses.

Three real-world pricing strategy examples

Real-world pricing strategy examples are the best way for a business to better understand the above-listed pricing strategies. Evaluating other businesses' approaches can be a good starting point but keep in mind that the right pricing strategy is based on math, market research, and consumer insights. For now, let’s look at the pricing strategy examples of some of the biggest brands of today: 

1. Streaming services 

Have you noticed that you pay roughly the same amount for Netflix, Amazon Prime Video, Disney+, Hulu, and other streaming services? That's because these companies have adopted competitive pricing , or at least a form of it, called  market-based pricing .

2. Salesforce

When Salesforce first came out, they were the only CRM in the cloud. (It wasn't even called 'the cloud' back then!) Armed with ground-breaking deployment and a target customer of a large enterprise, Salesforce could charge what they wanted. Later, after they'd grown, they were able to lower prices so small businesses could sign up. This is a classic example of  price skimming . 

3. Dollar Shave Club

At one time, you couldn't turn on your TV without an ad for Dollar Shave Club telling you how much cheaper they were than razors at the store. Although an aggressive  marketing strategy  and advertising like that is unusual for the pricing model, they were nevertheless employing economy pricing. It worked out well for them. They were acquired by Unilever in 2016 for a reported $1 billion.

How to create a winning pricing strategy

In the beginning, the actual number you're charging isn't that important.

There are some exceptions, but for the most part, you should first be figuring out the range you're in: a $10 product, $100 product, $1k product, etc. Don't waste time debating $500 vs. $505, because this doesn't matter as much until you have a stronger foundation beneath you.

Instead, understanding the following is much more important:

• Finding your  value metric
• Setting your ideal  customer profiles and segments
• Completing  user research + experimentation

This video from Paddle Studios goes deep on mastering a winning pricing strategy.

Step 1: Determine your value metric

A “ value metric ” is essentially what you charge for. For example: per seat, per 1,000 visits, per CPA, per GB used, per transaction, etc. 

If you get everything else wrong in pricing, but you get your value metric right, you'll do ok . It's that important. Partly because it bakes lower churn and higher expansion revenue into your monetization.

A pricing strategy based on a value metric (vs. a tiered monthly fee) is important because it allows you to make sure you're not charging a large customer the same as you'd charge a small customer.

If you remember your high school or college economics class, the professor put a point on a demand curve for the perfect price and said “the revenue a firm gets is the area under that point.” The problem here is: what about all that other area under the curve?  You’re missing out on that revenue by charging a flat monthly fee.

“Good, better, best” pricing strategy is a bit more advantageous, because you end up with three points on our trusty demand curve, and thus more revenue potential. You see this problem among many eCommerce businesses and retailers whose products are constrained by being physical goods—the car with the basic package vs. the car with the stereo and sunroof vs. the car with everything. In software, it’s thankfully dying out, but you’ll still see it with mass-market products:  Netflix, Adobe Creative Cloud, etc.

A value metric, however, allows you to have essentially infinite price points—maximizing your revenue potential. In practice, you’ll never show infinite price points on your pricing page , sales deck, or mobile conversion page, but you may have a new customer come in at a certain level and then grow.

Value metrics also bake growth directly into how you charge because as usage or the amount of value received goes up (and those are not the same thing), the customer pays more. If they end up using or consuming less, they pay less (and thus avoid churning). This is why companies using value metrics are typically growing at  double the rate with half the churn and 2x the expansion revenue  when compared to companies that charge a flat fee or where the only difference between their pricing tiers are features.

To determine your value metric, think about the  ideal essence of value  for your product—what value are you directly providing your customer?

In B2B, it's likely going to be money saved, revenue gained, time saved, etc. In  DTC , it may be the joy you bring them, fitness achieved, increased efficiency, etc. Obviously, we can't measure all of these, but if you can,  and  your customer trusts your measurement (meaning you say you saved them $100 and they agree you saved them $100), that’s your value metric.

As an example, the perfect value metric for  Paddle Retain  (our churn recovery product) is how much churn we recover for you. We can measure this, and our customers agree to the measurement, so we can charge on that axis. Other pure value metric products include  MainStreet , which handles government paperwork to automatically get you back tax credits—you pay a percentage of the money saved.

Most of you won't have a pure value metric, so the next step is to find a proxy for that metric. Take for example  HubSpot ’s marketing product. Their pure value metric is the amount of revenue their tool drives for your business. This is hard to measure and hard for the customer to agree to in terms of what percentage of credit HubSpot deserves for revenue from a blog post. Proxies for HubSpot are things like the number of contacts, number of visits, number of users, etc.

To find the right proxy metric, you want to come up with 5-10 proxies and then talk to your customers and prospects. You’ll typically find 1-2 of these pricing metrics will be most preferred amongst your target customers. You then want to make sure those 1-2 also make sense from a growth perspective. Your larger customers should be using/getting more of the metric, whereas your smaller customers should be using/getting less of the metric. You also want to make sure the metric encourages retention.

When we look at HubSpot, if they were to primarily price on “number of seats”, folks could share a login and HubSpot wouldn’t make much more money on large customers vs. small. Ironically they wouldn’t get as many people invested in HubSpot, because there’d be friction to adding additional seats. Instead, if they give unlimited seats and price based on “number of contacts” there’s minimal friction to getting as many people into HubSpot as possible to do activities (e.g., blog posts,  email campaigns , landing pages, etc.) that then produce contacts.

The result: HubSpot’s marketing product’s value metric is “contacts”, which ensures growth is baked directly into how they make money. The usage drives the metric, which therein drives revenue. Most importantly customers small, medium, and large are all paying at the point they see the value and then can grow.

Some other examples:

• Wistia  charges by the number of videos or channels you use/have
• Zapier  invented the concept of zap (connection of software) and charge based on time to connect
• Theater in Barcelona charged based on the number of laughs
• Husqvarna  charges based on time for lawn care products vs. making you buy them
• Rolls Royce  charges per mile for airplane engines. They own the engines on the plane you own and do all the maintenance. Cool model.
• Fresh Patch  charges based on the amount of grass you want per month for your dog—yes they deliver grass to you monthly

As a side note, you should stop pricing based on seats for products where each seat doesn’t provide a unique experience. For instance, imagine you're an AE using a CRM. If you log into the account of the AE sitting next to you, you can’t really do your work because you are only seeing their leads and accounts. Conversely, if you were a marketing exec and were to log in to another marketing manager’s account in HubSpot, you could do all the work you need to. Thus, for the latter, seats are not the right value metric.

Per-seat pricing is a relic of the  perpetual license  era when we couldn’t measure usage or value enough within our products. We’re beyond that point, so use the above as a good litmus test.

Step 2: Determine your customer profiles and segments

The second key component of your pricing strategy is determining your target segment and ideal customer profile. We've all heard about personas, and you may be rolling your eyes at the concept, but most personas are useless because they aren’t quantitative enough. When used properly, quantified personas and segments are beautiful tools. The information needs to go beyond just cute names like “Startup Steve" with a cute avatar, and cute meetings where people tell you they’re targeting "developers."

To get quantified personas, you need to pull out a spreadsheet.  Here’s a template  you can use.

1. Columns: Customer profiles you're targeting

These can take many forms, but the ultimate goal is to be as specific as possible so that you not only know who you’re targeting but how to monetize and retain them. Pragmatically, you typically separate these customer profiles based on size or role (or both). For example, a marketing automation product may target the following profiles:

• Marketing leaders (Director and higher) at companies $1M to $10M
• Marketing leaders (Director and higher) at companies $10.01M to $50M
• Marketing leaders (Director and higher) at companies $50.01M to $100M

The point is you can’t be everything to all people and you need to understand who you’re targeting in order to make better decisions.

2. Rows: Characteristics of each profile to help you differentiate between them

• Most valued features
• Least valued features
• Willingness to pay
• Lifetime value (LTV)
• Customer acquisition costs (CAC)
• ... and any other metric or category you think could be useful

If you're just starting out or you don't have some of this data, it’s fine. Still fill it out though with your hypotheses. You know  something  about your customers.

Next, you then need to validate (or invalidate) the most pressing hypothesis in that spreadsheet based on the decisions you’re going to make. If you're going to validate a new feature for a particular segment, then that's where you should start. Price point the biggest question? Start by researching the price point with each of these roles/segments.

If you don't know who your key roles/segments are, there's no way in hell you’ll set up an efficient growth flywheel, let alone an optimized pricing strategy. Personas act as a constitution within your business to centralize your focus and arguments about direction.

If you don't do segment and persona analysis, you better be able to raise a ton of money. I guarantee you there's some persona or segment on some vision document or in that euphoric part of your entrepreneurial brain that is completely wrong for your business. I see it all the time. Even I—someone who thinks about segments and customer research all the time—fall prey to being an absolute idiot with who we should target.

When we built  ProfitWell Metrics (our free subscription metrics tool) I thought we were geniuses who were going to be billionaires. Turns out analytics products are terrible. Willingness to pay for them is terrible; retention for them is terrible; NPS is terrible. Everything is just terrible, mainly because customers don't appreciate graphs or at least aren't willing to pay much for them. When we did our research this became obvious and put us 18 months ahead of our competitors, pushing us to change up the positioning of the product to freemium, which has fueled our business ever since (oh and our NPS is 70, because we massively over-deliver a free product better than the paid competition).

Never underestimate the power of focusing on the customer through research. You should never, ever just do what they ask, but you need to be an anthropologist who knows them better than anyone else.

Step 3: User research + experimentation

Beyond your value metric and core segments, the monetization game becomes extremely tactical and research-based. Figuring out your price point involves researching those segments and then making decisions in the field. Same with discounting, add-on, and packaging strategies. The point: monetization is never finished because it’s the very essence of translating your value into an optimal framework for your target customer segments.

Practically this is why you should be experimenting with your monetization every quarter. Experimentation can get tricky and have a few quirks, but you’ll find it’s similar to most growth frameworks out there (which are all versions of the scientific method).

Here’s a good prioritization list of what business owners should attack in optimizing their  monetization strategy  once they have the core segments and value metric figured out:

Priority 1: Foundational [see above]

• Core customer segments
• Value metrics

Priority 2: Core

• Order of magnitude price point (are you a $10 product vs. a $500 product)
• Positioning and value props

Priority 3: Optimizations

• Add-on strategy
• Specific price point (are you a $10 product vs. a $11 product)
• Price localization/internationalization
• Discounting strategy
• Contract Term optimization

Priority 4: Growth accelerators

• Market expansion (going up or down market)
• Vertical expansion
• Multi-Product

Your true order of operations with monetization will vary, but for the most part, all companies should work through the foundational and core sections before moving to the optimizations and growth accelerators. If you’re larger or there’s a fire, you may start with an optimization. In fact, this is sometimes a good idea. Something more scoped like “price localization” can help get momentum, be a forcing function to clean up tech and experimentation stacks, and mitigate political conversations. Remember, monetization is something that’s important, uncomfortable, and something you likely don’t know much about, so progress is better than nothing. Start small. You can (and should) always do more.

Bonus: 10 rapid-fire pricing strategy tips rooted in data⚡

In case you're still hungry for more tips on nailing your pricing strategy and achieving maximum profitability, look no further. We've got you covered:

1. You should  localize your pricing  to the currency and willingness to pay of the prospect's region

• Revenue per customer is 30% higher when you just use the proper currency symbol
• Having different price points in different regions increases revenue per customer further, and is justified based on different consumer demands in different regions

2. Freemium is an acquisition model, not a part of pricing

• Think of  freemium  as a premium ebook driving leads, not another pricing tier
• Don't do freemium until you truly understand how to convert leads to customers, because you’ll end up increasing noise or false positives when you’re trying to figure out your segment beachheads. The best folks who deploy free typically don’t implement freemium until two to three years into their business. The exceptions to this notion are if you have a very specific need or network effect (eg., marketplaces, social networks, etc.) or if you have a top 50 growth person on your team.
• To be clear, we're not saying DON’T do freemium. we're saying it's a scalpel, not a sledgehammer that requires thought. A lot of people end up reading our articles on freemium and end up going, “Cool, let’s do freemium and we’ll be a unicorn.” I’m being pragmatic in that you need to realize freemium is fantastic, but doing freemium properly takes a lot of effort and nuance.
• Paid users who convert from free tend to have higher NPS, better retention, and much lower CAC .

3. Value propositions matter oh so much

In B2B value propositions can swing willingness to pay ±20%, in DTC it's ±15%

4. Don't discount over 20%

In some verticals discounting over 20% may be fine, but you're likely not in one of them (although you may think you are), but the size of the discount almost perfectly correlates with higher churn. Large  discounts  get people to convert, but they don't stick around.

5. For upgrades to annual discounts, don't use percentages and try offers

Percentages don't work as well as whole dollar amounts for discounts (ie., "one month" will work better than "X percent off"). Annuals see much lower churn rates.

6. Should you end your price in 9s or 0s? Depends on your price point

Ending your prices in 9s evokes a discount brand, making the customer feel like they're getting something. Ending in 0 evokes luxury or premium, making them feel like they're getting a high-end product. Studies on this for technology products are inconclusive. We have seen it increase conversion in lower-cost products, but retention isn't as good with those customers.

7. You should experiment with your pricing in some manner every quarter

This doesn't mean change you should the price point each quarter, but experiment with variable costs. More changes correlate with increasing revenue per customer. Like all things, focusing on something makes you improve it.

8. Case studies boost willingness to pay quite a bit

Social proof is important.  Case studies  that offer proof of the high quality of your products can boost willingness to pay by 10-15% in both B2B and in DTC.

9. Design helps boost willingness to pay by 20%

This graph didn't look this way 10 years ago when design didn't do much for willingness to pay. Today, affinity for a company's design can boost willingness to pay considerably.

10. Integrations boost retention and willingness to pay

The more integrations a customer is using, typically the higher their willingness to pay and the better their retention. I wouldn't charge for the integrations, but I'd use this as a tool to get people hooked in and paying more or buying different add-ons.

Pricing strategies for different industries

Pricing strategies are not one size fits all. Finding the proper pricing strategy is dependent on your industry, as well as your company's unique objectives. But to give you an idea, we've listed a couple of industries and strategies that are well suited for each other. 

SaaS/Subscriptions

For SaaS and subscription-based businesses, value-based pricing is the winner hands down. As long as your customers are willing to pay, you can charge much more than your competitors.  Because your price is based on how much customers will spend, it isn't artificially lowered like other methods that fail to account for that. 

We also like value-based pricing for B2B companies. Value-based pricing requires you to look outward and understand your customers better. This is good for finding the optimal price, but it's also good for building optimal relationships that will also help grow your company. 

No more price guessing, just pricing that works

Accurately pricing your product for maximum growth requires a lot of market research and even more expertise on how to conduct and analyze that research. Our Price Intelligently  service combines our years of experience in the field with powerful machine learning tools to understand your target customer base and what makes them tick. We know the data to collect, the questions to ask, and the people to ask them of. This is important because businesses in different stages of growth need different strategies for evaluating pricing. Additionally, every business has a unique set of potential selling points and a unique target audience to pitch to.

You need someone in your corner who knows how to evaluate pricing options for your specific businesses. With our help, you can be confident that your pricing strategy and chosen price points will unlock growth levers at your company that have been sitting idle, because they'll be tailored to finding and maximizing the value propositions that are unique to your business. 

Which pricing strategy is best? 

This depends on your business model. For SaaS and subscription companies, as well as many others, we recommend value-based pricing.

How do you determine the selling prices of a product?

First, find a pricing strategy that fits well with your business model and product. As you've seen, pricing strategies differ, but they all give clear instructions for how to use them to set prices.

What is the simplest pricing strategy?

Since you only need to add up the cost to make your product and add a percentage to it, cost-plus pricing is the simplest form of pricing to use.

What is a pricing curve?

A pricing curve is a graph that shows you the number of people who are willing to pay a given price for a product.

What are the 4 major pricing strategies?

Value-based,  competition-based , cost-plus, and  dynamic pricing are all models  that are used frequently, depending on the industry and business model in question.

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12 real-world pricing strategy examples.

Pricing your products and services is one of the most daunting yet most crucial parts of doing business. The goal of strategic pricing is to maximize your profit. It’s a lot more complicated than raising your prices or increasing your profit margins.

Every business is different. They have different products, different customers and different market share. It makes sense that there isn’t a one-size-fits-all pricing strategy. So how do you make the most out of your sales without alienating a potential customer? And how does your pricing align with the brand identity you want to convey?

Read on for our full guide on how to price your product or service. This includes 12 common pricing strategies and real-life examples you can learn from

In this article, we’ll cover:

What Is a Pricing Strategy/Pricing Model?

The four cs of pricing your product, the four main pricing strategies you should know, other kinds of pricing strategy, pricing strategy benefits, key takeaways.

Most marketing guides use pricing strategy and pricing model interchangeably. There are some key differences that you should keep in mind.

A pricing strategy is how the seller uses pricing to achieve a certain business objective. It deals with the psychological reaction that a consumer has towards certain kinds of prices.

A pricing model, on the other hand, is how the seller goes about implementing the pricing strategy. Pricing models are usually specific and quantitative in nature. Here are some of the most common pricing models:

• Hourly: You charge an hourly rate (e.g., $40/hour) and then bill the client for the total number of hours worked.
• Project-based: You charge a flat rate for the entirety of the project (e.g., $5,000 for a website).
• Retainer: You charge a monthly fee for on-going deliverables (e.g., $300/month for search engine optimization).
• Performance-based: You charge a rate based on the results you produce (e.g., $100 per key performance indicator reached).
• Cost-plus pricing: You charge for the production costs (e.g., $10 to make a shirt) plus a profit markup (e.g., 100%, or total $20).

Pricing strategies work best when they take into consideration the four major pillars of pricing. These are customers, current positioning, competitors and costs. Keep the four Cs in mind when choosing the best pricing approach for your business.

Who is your target market? What is your ideal customer’s disposable income range? How much would that customer be willing to pay for your products and service? Will pricing your products/services impact your customers’ purchasing behavior or attitude towards your brand? What kind of pricing strategy speaks to your target customer the best? How does it align with your brand image and what type of value does it communicate?

Current Positioning

What is your brand identity? Which parts of the market are you catering to with your marketing efforts? Are you known as a budget or low-cost alternative, or are you a luxury business with elite clients? Are you a relatively unknown startup, or does your company already have a hold on the market? Your products and services need to be priced accordingly. The more luxury your offerings (or the more established you are as a company), the more you can demand from your customers. This is not to say you should necessarily “price high.” Your product and pricing need to work together in order to create the image that you want.

Competitors

How much are your competitors charging? If your competitors raise or lower their prices, how would that affect your sales? Are your products/services comparable, or do you offer something special for the same cost? You can use your competitors’ prices as a benchmark. Always take note of any major differences that allow you to be more flexible on your price.

It’s simple math—you can’t profit if you’re spending more than you bring in. Always take into consideration production costs (how much it costs to produce a product or service) and fixed costs. (What you have to pay regardless of how many units you sell—e.g., marketing, rent, staffing, other operating expenses , etc.). A common method for this using cost plus pricing. Determine your costs, then determine how much additional you want to charge on top of that.

There are dozens of strategies in existence. There are four basic strategies that provide the foundations for more complex pricing. These are: economy pricing, penetration pricing, price skimming and premium pricing.

Pricing Strategy Examples: #1 Economy Pricing

Under the economy pricing strategy, your company charges as little as possible to entice the largest number of potential customers. This works by lowering operating and production costs as much as you can. Because your profit margins are usually lower, you also have to focus on volume.

This pricing approach is most commonly seen at dollar stores. It’s also common at chain supermarkets like Target or Walmart. However, if you’re a small business, this tactic is a bit tricky. You may not have the volume, market share, or brand awareness to set your products and services at the lowest possible price to reach that target customer.

Pricing Strategy Examples: #2 Penetration Pricing

If you’re a relatively new business, you may want to consider pricing for optimum market penetration. This means that you initially sell your product or service at a low introductory price. This will attract new customers. Then raise prices one you’ve secured your share in the market.

You can see this pricing strategy at work with telecommunications or cable companies. They’ll initially charge a lower-than-market rate for the first month or so. This will entice customers to sign up for their services. There are two potential downsides to this strategy. First, your profits will take a hit. Second, some customers may not buy into the higher price.

Pricing Strategy Examples: #3 Price Skimming

Think of price skimming as the opposite of penetration pricing strategy. You start with a higher initial cost, and then lower the price over time. This occurs as consumer demand falls and newer goods take over the market. This is a great way to cover production and marketing costs early. It also reinforces the idea that your brand is one of quality and luxury.

Price skimming is very common in the tech/electronics industry. Whenever a new flagship phone from Apple or Samsung comes out, prices are high. However, if a customer buys the same phone a year or even just a few months later, they could get it at a much lower price.

Pricing Strategy Examples: #4 Premium Pricing

It may seem counterintuitive to price your product at a premium price point. Customers can actually respond positively to higher prices. Because only a few people can afford them, expensive products create the illusion of exclusivity, status and quality.

You can opt for a premium price if your product or brand has a competitive advantage. The trade-off is that though your business will likely sell fewer units. The high profit margin should be able to make up for loss of volume. Premium pricing can be found in most industries. This includes restaurant and hospitality to automotive to fashion.

While economy, penetration, skimming and premium pricing are the most common pricing strategies, they’re not the only ones you can use. Below are eight more approaches that could benefit your business.

Psychological Pricing

Also known as charm pricing, psychological pricing takes advantage of the fact that humans are emotional by nature. We respond to things emotionally and impulsively rather than logically.

The biggest example of this is when sellers mark their prices as $0.99 or $0.75. This is rather than rounding up to the nearest whole number—like when an item costs $99.99 instead of $100. This is because we see and react to the first set of numbers. We immediately think it is cheaper, even though there’s a negligible difference in cost.

Bundle/Product Line Pricing

If you have a range of products or services that complement each other, you can bundle together products.  This may allow you to charge a lower price than if customers bought them individually. This is called bundle pricing. This is a great way to get rid of stock, move products and encourage more spending.

Retail brands will bundle together related items. Service providers have package deals if you get multiple services at one time. The tricky part of product line pricing is that you have to make sure that your profit loss doesn’t outweigh how much you earn by pushing multiple products at the same time.

Promotional Pricing

Promotional pricing is also known as discount pricing. You sell your products or services at a discounted rate for a short period of time. This could involve slashing off a percentage of the price. This provides vouchers or coupons, launching two-for-one deals or giving away free items with every purchase.

Promo pricing follows the idea that some profit is better than no profit. We recommend using this strategy on high-volume periods (e.g., the holidays). It also works at the end of the season when moving products out of inventory is a higher priority than pure profit.

Geographical Pricing

If you are a local business, then geographical pricing isn’t for you. But if you’re an international company that sells all over the world, then this pricing approach is very relevant.

With geographical pricing, you price your goods and services according to geographical factors such as cost of living, average income, legislation, taxes, and of course, supply and demand. For example, gas stations in a busy urban area are likely to have different prices than similar stations in a rural town.

Captive Product Pricing

This pricing strategy works best if customers have to keep buying from you to continue using your products. Examples of this are shaving products and subscription services like the Dollar Shave Club. Once you buy a razor from a particular brand, the customer will have to keep buying blades and other accessories from you since other brands won’t be compatible.

You can charge a low price for the initial buy-in (e.g., razor handles, printers), and then make up for any profit loss through the renewables (e.g., blades, printer ink).

Optional Product Pricing

You might be familiar with optional product pricing through another term: upselling. With upselling, you can tack on extra services or products for a slightly higher cost. You see airlines using this strategy all of the time, with extra charges for optional services such as baggage, priority check-in, in-flight meals and exit row seats. The idea behind this is that it’s easier and more profitable to convince a current customer to spend more than it is to try and attract a new customer.

Value Pricing

Value-based pricing means basing your prices off how much value your customers feel they are getting when they buy your product or service, instead of deciding prices based on how much a product or service costs to make. The idea behind this is that customers are willing to spend more money on something that they feel is worth it and provides them with value.

For example, a T-shirt may cost just $5 or $10 to produce. But because there’s some value attached to the style and brand, some companies may charge as much as hundreds or even thousands of dollars for it.

Dynamic Pricing

Dynamic pricing is a pricing strategy that’s variable instead of fixed. This means that, depending on the time or other external factors, prices can and will fluctuate. You see this often in the tourism industry—hotels and airlines usually charge higher rates during peak season and will lower their rates when there is less consumer demand.

Flexible pricing systems often use technology to generate the best rates depending on market factors. While this makes it easier to maximize profits, gathering the data necessary to implement dynamic pricing may be too time-consuming or expensive for small businesses.

There are several benefits to using pricing strategies like the ones above. Some of these benefits include:

• Allowing for increased margins on higher priced items. In the case where your margins are based on the initial sale only, using a pricing strategy that encourages recurring purchases will yield higher profits.
• Increasing competitiveness. When everyone else in your industry is jacking up prices and cutting discounts to maximize short-term profits, it might be time to rethink your approach. Using a pricing strategy that entices customers to keep buying from you will make your business more competitive and increase customer loyalty.
• Price flexibility. By using geographical pricing, captive product pricing and dynamic/flexible pricing, you can charge customers different prices based on certain criteria.
• Simplifying your marketing messaging. If your marketing message focuses on value and benefits rather than price, you can make it easier for customers to understand and trust your brand.
• Reducing customer price resistance. When your customers feel that they’re getting a good deal, they’ll be more likely to trust and buy from you.

There are many benefits to having a good pricing strategy. By using one or more of the pricing strategies discussed above, you can increase your revenue and grow your business.

The right pricing strategy will help you get more customers and increase your profits. But what works for one company may not necessarily work for you—even if they’re in the same industry. It’s important to take a look at your specific marketing strategy and circumstances before choosing the most effective price strategy. Check out our resource hub for more information!

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Pricing Strategies and Models Explained

4 min. read

Updated January 18, 2024

What’s the right price for your product or service?

What price will make you profitable and attract customers?

Not sure? Keep reading to learn the basics of pricing strategy and setting the right price.

• What is a pricing strategy?

A pricing strategy is the overarching approach or plan a business uses to determine the price of its products or services. 

It considers various factors such as market conditions, competition, production costs, and the perceived value to the customer. The ultimate goal of a pricing strategy is to maximize profitability, maintain or grow market share, and ensure long-term sustainability while meeting the company’s other objectives.

• What is a pricing model?

A pricing model is the specific method used to set the price of a product or service. It provides a structure to implement your chosen pricing strategy.

What’s the difference?

The distinction between a pricing strategy and a pricing model lies in their scope, purpose, and application.

The pricing strategy aligns prices with business objectives, market conditions, and customer perceptions. A pricing strategy considers market entry tactics, customer psychology, brand positioning, and long-term market objectives. 

The pricing model is the mathematical method you use to create a specific price. It usually involves manufacturing costs, customer demand, and competitor pricing. 

Think of the strategy as the roadmap guiding where a company wants to go with its pricing and the model as the vehicle it uses to get there.

• Types of pricing strategies

1. Penetration pricing

Setting an initial low price to quickly attract customers and establish a market presence. Ideal for new entrants wanting rapid market share. 

Example: Streaming services offering discounted rates for the first three months.

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2. Price skimming

Starting with a high price and then reducing it over time. Suitable for innovative products. 

Example: New tech gadgets like smartphones often use this strategy.

3. Value-based pricing

Pricing based on the perceived value to the customer rather than production costs. Works best for unique products or services. 

Example: Luxury brands like Rolex or Louis Vuitton.

4. Competitive pricing

Setting prices based on competitor rates. Ideal for industries with many competitors offering similar products. 

Example: Supermarkets pricing staple goods.

5. Premium pricing

Charging a higher price to reflect a product’s premium status and quality. 

Example: Brands like Apple or Tesla.

6. Economy pricing

Offering no-frills products at a low price. Common in mass markets. 

Example: Budget airlines like Ryanair.

7. Bundle pricing

Grouping multiple products together at a discounted rate. Useful for increasing sales volume. 

Example: Cable TV packages.

8. Price leadership

Price leadership occurs when one dominant company, usually the largest or most influential in an industry, sets the price of a product or service, and other competitors in the market follow suit.

Example:  

OPEC often influences global oil prices by adjusting its production levels. 

9. Preemptive pricing

Intended to drive away competition or deter others from entering the marketplace by deliberately selling at below market prices (temporarily, of course).

Amazon launching the Kindle with e-books priced below typical hardcover prices. 

• Types of pricing models

1. Cost-plus pricing

Calculating the cost of production and adding a fixed gross margin. Common in retail. 

Example: A shirt that costs $20 to make might be sold for $40.

2. Geographic pricing

Adjusting prices based on location or region. 

Example: A software product priced differently for the U.S. versus India.

3. Dynamic pricing model

Prices change based on real-time factors. 

Example: Uber’s surge pricing during high demand.

4. Tiered pricing model

Different prices for varying levels of product features. See an example of how tiers and introductory pricing can be used to introduce and grow your business.

Example: Software packages with Basic, Pro, and Premium tiers.

5. Freemium model

Basic services are free, with charges for advanced features. 

Example: Spotify offers free music streaming but charges for an ad-free experience.

6. Subscription model

Recurring fee for product or service access. 

Example: Monthly Netflix subscriptions.

7. Pay-what-you-want model

Customers choose their price. Often seen in indie industries. 

Example: Some indie video games or music albums.

8. Volume-based pricing

Decreased price per unit with increased quantity. 

Example: Wholesale retailers like Costco.

9. License pricing model

One-time fee for product usage over a period. 

Example: Microsoft Office’s one-time purchase option.

10. High-low pricing model 

Products have a higher standard price but are frequently discounted. 

Example: Department stores having frequent sales.

• How to choose your pricing strategy

Selecting a pricing strategy comes down to cost, goals, and customer perception. Here’s how:

1. Set business objectives

Define clear goals, such as maximizing profit, penetrating the market, establishing a premium brand image, or achieving specific revenue targets. Your pricing should align with these objectives.

2. Understand your costs

Consider both direct costs (like raw materials and labor) and expenses (such as rent and marketing). Factor in variable costs that change with production volume and expenses that remain constant. Determine the break-even point to identify the minimum price needed to cover all expenses.

3. Analyze the competition

Research competitor prices and understand their value propositions. Identify their market positioning, whether premium or budget and observe any historical pricing trends or changes to gauge market reactions.

4. Know your audience

Understand your target audience’s demographics and what they value in a product. Gauge their price sensitivity and gather feedback on pricing preferences to ensure your price resonates with them.

5. Test and adjust

Before a broad rollout, test the new pricing on a segment of your audience. Refine your pricing based on customer input.

• More on pricing products and services

Check out our other startup pricing resources to turn your pricing strategy into profitable steps for your business.

• How to price your products
• How to price your services
• Mistakes to avoid when setting prices

Kody Wirth is a content writer and SEO specialist for Palo Alto Software—the creator's of Bplans and LivePlan. He has 3+ years experience covering small business topics and runs a part-time content writing service in his spare time.

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Don’t Mess Up Your Pricing Strategy — Here’s How to Do It Right

Capturing market share, staying competitive, and growing profits is often about how you price your goods.

Richard Harris

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Choosing a pricing strategy is one of the most important decisions you can make as a business leader. Get it wrong and your sales will suffer, causing consumers to question the value of your brand. Get it right and you can increase sales, reduce costs, and improve your company’s profitability.

If you’re wondering where to begin, you’re in the right place. Learn about the different kinds of pricing strategies, the benefits of choosing the right one, pricing strategy examples, and how to create an effective pricing strategy for your business.

What you’ll learn:

What is pricing strategy, 5 different types of pricing strategies, benefits of implementing an effective pricing strategy, how to create a pricing strategy: 5 points to consider, tips for setting pricing strategy from 20 years in sales, unify sales, finance, and legal on the #1 ai crm.

When sales, finance, and legal are disconnected, the customer feels the pain. Learn how Revenue Cloud can help.

A pricing strategy is a method to decide what your products and services should cost. Pricing strategy is both an art and a science. It’s about understanding production costs, profit margins, and the competitive landscape, so you can make a profit and keep shareholders happy.

( Back to top )

When you choose the right pricing strategy for your business, you can feel confident that the prices for your products or services are competitive while ensuring profitability. In my experience, these are five of the most popular strategies:

1. Cost-plus pricing

The cost-plus pricing strategy only looks at the unit cost and ignores prices set by competitors. Also known as markup pricing, this strategy is a simple way to determine the sales price of a product. Start by adding up your production costs. Then determine your desired profit margin, or markup, to set your selling price. Here’s an example:

A former aerospace engineer sells a line of high-end boomerangs for collectors, handmade with balsa wood imported from Ecuador. Here are the costs to produce one boomerang:

• Material: $5
• Labor (based on industry averages): $20
• Overhead (for manufacturing space and utilities): $10

The total cost to produce a single boomerang is $35. The engineer then adds a markup of 300%. The formula to set the price looks like this: Production costs ($35) x markup (300% or 3) = selling price ($105)

When to use: Government contractors are well known for using cost-plus pricing because there isn’t similar competition on the market. Retailers, such as supermarkets and department stores also use the strategy, because it’s a relatively simple formula and provides a consistent rate of return.

2. Competitive pricing

This method looks at competitors’ pricing as a benchmark. Instead of using production costs or customer demand, companies set prices at, below, or above their competition.

Here are the different types with examples and when to use them:

• Above the competition: This method uses higher-than-competition pricing justified by additional or unique benefits customers receive, like convenience. Here’s an example: Four gas stations are all located at the same intersection. But the gas station closest to the freeway on-ramp charges $0.25 more per gallon than the other three, and customers seem happy to pay the higher price for the convenience.
• Below the competition: Also known as the loss leader strategy , this pricing scheme deliberately sets an item’s price point below the market rate. The business then gains a larger overall profit when customers purchase additional items. Printers are a great example of this strategy. A lower-cost printer might attract customers, but they also need to purchase paper and ink cartridges. This increases the total cost and leads to repeat purchases when ink and paper run out.
• Matching the competition: When a company sets prices equal to its competitors, the focus shifts from price to the product or service itself. This can happen in industries heavily regulated by the government, as U.S. airlines were before 1978. Before deregulation, U.S. airlines differentiated themselves from the competition by offering perks such as free champagne or gourmet meals.

3. Price skimming

Price skimming is a strategy where a company initially charges a high price for its products or services and then gradually lowers the price to attract a wider audience. Companies employ this strategy when they want to recover sunk costs upfront.

Fashion companies have long used price skimming for unique specialty products in the marketplace. When an innovative new product is released, the price is initially expensive. The company is targeting a smaller pool of consumers willing to pay the high price at launch.

Once the company captures all of the buyers it can at the launch price, it begins to slowly lower the selling price over time. This strategy captures price-sensitive customers while putting pressure on other fashion retailers that enter the market.

When to use: This strategy is used when you have a buzzworthy product in your industry, with early adopters clamoring to get it first. It also helps you create an air of exclusivity; only those with certain budgets can afford your product.

4. Penetration pricing

In contrast to price skimming, penetration pricing is when a business enters the market with a product or service offered at an exceptionally low price. This strategy initially draws attention and attracts hordes of cut-rate customers. For this to be sustainable for the business — and ultimately profitable — prices must eventually be raised.

When to use: Many software companies launch using penetration pricing to make a splash in the market, and then move to competition-based pricing after they’ve gained some brand recognition. This disruptive strategy may incur early losses for businesses that use it, but the hope is that the customers initially attracted by a bargain will stay loyal once the price creeps up.

5. Value-based pricing

With this strategy, companies set a price based on what customers are willing to pay for their products or services — in other words, what they perceive as valuable. You can see value-based pricing in luxury products such as leather handbags, automobiles, and high-end makeup brands.

While the quality may not be measurably different from its lower-priced competitors, luxury brands use marketing to become status symbols for consumers and send the message that their products are high value. When this is successful, buyers are willing to pay a premium.

When to use: With value-based pricing, you need to build a brand focused on value — conveying unique benefits, features, and offerings of your products.

Luxury brands do this well, but the actual value of the product doesn’t always match the perceived value; their pricing is often based on how much their customers think they’re worth rather than on production costs or competition. A substantial investment in marketing, research, and PR is required for this to be a successful formula.

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If you choose the right pricing strategy, it can mean the successful launch of your product and fast market penetration. But these are just some of the big wins from pricing correctly.

Here are additional benefits of choosing the right pricing strategy:

• Conveying the value of your brand: The perception consumers have of your brand will help determine how much of their current pain they are willing to tolerate in relation to the relief your product or service offers them. Think about when you use a delivery service instead of going out and buying something yourself. How much is it worth to you for that convenience? 
• Adding new customers: Expanding your customer base can increase sales, which leads to increased profits.
• Increasing the value of current customers: It’s a lot easier to upsell or cross-sell a current customer a new feature or service than it is to find new customers. Pay close attention to your pricing with your best customers to encourage additional sales. 
• Building brand ambassadors: People who believe in your brand are more likely to become advocates, leading them to recommend your products or services to friends and family. They may also offer positive reviews online or tag your brand in social media posts.
• Improving sales: When products or services are priced well, you’ll see an uptick in sales. This is where research into your target audience can pay off.

If your pricing strategy falls short of supporting your business goals, you might attract the wrong kind of customers, leading to mistrust and diminishing the perceived value of your brand. That’s why it’s vital to find a fair, reasonable price in the exchange of goods and services that the market will bear.

Choosing the best pricing strategy for your business doesn’t have to be a headache. Here’s how to get started:

1. Understand your goals

Think about what you want your business to achieve. Do you want to grab customer attention quickly with an enticing new product launch? Then maybe you’d go with penetration pricing. Are you trying to build a reputation for your luxury brand? Value-based pricing might be best.

2. Analyze the competition

Make sure you understand what your competition is offering in the marketplace and how much they are charging. This will help you set your pricing because it will give you an idea of what others are willing to pay for similar products.

If you notice outliers, those charging much higher or lower than most, check them out to see how they justify their prices. All research is good research when it comes to understanding the marketplace.

3. Research your target market

Knowing your target audience is a key step in determining your pricing strategy. Understanding who your target audience is, including their age, gender, location, likes, dislikes, and values, gives you a better shot at appealing to the right people with the right offer at the right price.

4. Weigh the pros and cons of each pricing approach

To determine which strategy is right for your business, look at the different pricing approaches and consider their benefits and drawbacks. Keep in mind that some strategies, such as penetration pricing, may be effective during a product launch but are typically not a sustainable long-term strategy.

If you choose to enter the market with this type of pricing, you’ll need to consider what you’ll shift to once the initial product launch period stops drawing in new customers.

5. Test your prices, then learn and adjust

Once you’ve picked your pricing strategy, keep in mind that it’s not set in stone. If sales are slow or there are shifts in the market, you may need to adjust your prices to compensate. Think of this as an opportunity to test and tweak the true value of your product. And if you are an early-stage start-up, expect that in the first year or two you may make deals you would never make again as you gain traction. And in those moments, that’s okay.

If you want to see what dollar amount works, try A/B testing your price on a product page. For example, if you’re selling a book, you could create two landing pages — one priced at $11.99 (with a low-cost add-on, perhaps) and the other at $9.99. Then, you can measure which price attracts the most buyers to inform your strategy.

With an equal number of people visiting each page, how many convert? The page with the most conversions tells me how much most people are willing to pay.

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As the founder of The Harris Consulting Group and with more than two decades of experience in sales, I know what the market bears and I price right in the middle. I don’t ever want to be the most expensive, because when someone turns around and asks for a discount, which everyone does, I can easily come back and say, “My price is based on what the market will bear. How would you like to proceed?”

If you want to see your business grow and flourish, you must first develop an effective pricing strategy that’s appropriate for your goals. Hitting the right price won’t just attract customers; it will also convey the value of your brand. If the price is right, your customers will feel like your products or services meet their expectations. And the price you decide on will ultimately determine the sales revenue and profitability of your company.

When creating a pricing strategy, the first thing I encourage people to do is to understand the economic impact based on the pains they are experiencing in their current ways to solve their problems. This includes what they would be able to do better and faster once they implement your solution. As human beings, we are all comparison shoppers.

Understanding your production costs is also key, of course. This will help you set a price that allows you to not only break even — but also eventually turn a profit. When you create your pricing strategy, consider things such as overhead; how much you pay in rent, salaries, and insurance; and manufacturing costs, services, and labor.

Invest in the right pricing strategy

Getting your pricing strategy right is critical for the health of your business, so it can be an intimidating idea to tackle. Luckily, it’s not a one-and-done motion. Pricing strategies are all about testing what the market will bear, then adjusting based on what you learn. For the health and growth of your company, investing time, money, and resources into your pricing strategy will never be a gamble — it’s an investment in your future.

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Richard has more than 20 years of SaaS experience and teaches revenue teams how to earn the right to ask questions, which questions to ask, and when to do it. Richard’s clients include Zoom, Salesforce, Google Cloud, PagerDuty, DoorDash, Salesloft, and Gainsight. He’s also the co-founder of Surf ... Read More & Sales. Learn more at theharrisconsultinggroup.com.

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More From Forbes

How to find the best pricing strategy for your business.

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Stephen King serves as President & CEO of GrowthForce , a leading outsourced accounting and bookkeeping service provider for businesses.

Whether you're starting from scratch or have an established business that's struggling to generate a profit, pricing—and getting your pricing right—is essential to business success.

Pricing not only affects your profits but also has a significant impact on your customers and the way they view your business. If you price too high for your company's perceived value, you risk losing customers. If you price too low for the perceived value of your business, you risk losing customers (and perceived brand value) to prices that make your brand look cheap.

So, how can you determine the price that's right for your business's products or services? You need a pricing strategy.

What is a pricing strategy?

A pricing strategy is a method that a business can use to determine the most appropriate price point and pricing structure for their business's products and/or services. A pricing strategy involves a pricing analysis and an evaluation of pricing structures, both of which should be performed before a business implements a new pricing method and evaluates its success.

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Best covid-19 travel insurance plans, seven steps to finding the best pricing strategy for your business.

1. Start with a price analysis.

Before you choose a pricing strategy for your business or set your prices, you should perform a price analysis. This includes looking at your competitors, industry, geography, costs, market and demand to evaluate your pricing potential in addition to the price points and pricing structures that are the most popular and most successful. Consider your successful competitors as examples of what you want to do and less successful competitors as examples of what not to do.

2. Know your true costs.

Next, it's important to know your true costs. In product-based businesses, calculating the cost of goods sold is more straightforward since the bulk of costs are in direct materials. Service-based businesses, however, will have a slightly trickier time getting a handle on the true cost of the services they sell. You'll need solid time-tracking procedures in place that allow you to determine how much time your people spend performing different job types and servicing different customer types to determine your true direct labor costs.

3. Know your brand value.

Understand where your company is—and where you want it to be—in terms of perceived brand value. Do you consider your company to be a discount option, a middle-road option or a luxury option? Understanding your brand value will help you logically and more appropriately place your pricing points among those of your competitors.

4. Explore pricing strategy options.

Different pricing strategies and methods can inform where you set your prices and how you charge your customers. Countless strategies exist, but they won't all be right for you. Pricing strategies largely depend on what you're selling, where you sell it, the structure of your business, how you market and what type of clients you cater to.

Some of the most popular pricing strategies include:

• Cost-plus pricing

• Competition-based pricing

• Project-based pricing

• Hourly pricing

• Value-based pricing

• Freemium pricing

• Dynamic pricing

• High-low pricing

• Penetration pricing

• Geographic pricing

• Skimming pricing

• Premium pricing

• Psychological pricing

5. Choose a strategy that fits based on business type and industry.

Certain pricing models will be more or less appropriate for your business depending on your industry and business model. For example, cost-plus or high-low pricing models are most appropriate for retail or product-based businesses, while project-based pricing and subscriptions tend to be more appropriate for service-based businesses.

6. Shield your prices and profits from inflation.

Price points are not evergreen primarily because the market constantly changes, and your cost of goods sold will always be shifting and changing.

Most often, costs increase over time as a result of inflation, and this effect has been even more pronounced over the past year of incredibly steep inflation rates. For this reason, it's important to choose prices that offer a large enough profit margin that you do not need to constantly adjust and increase prices due to the increasing inflation rates.

In the happy event that your business's cost of goods sold happens to decrease, you have the option to either enjoy your fattened profit margins or pass the savings along to your customers in the form of discounts or temporarily lowered prices.

7. Practice proactive pricing leadership.

In order to maintain healthy profit margins, you need to keep a close eye on your costs, revenue, competitors, demand and pricing structure. While I don't recommend changing your rates all of the time—because your customers like to be able to count on their costs fitting into their own budget—you should reevaluate your pricing structures at least annually.

If your business produces a product or service that is essential, however, you might have more flexibility in changing prices more often. For example, people continue purchasing fuel despite increasing costs, but they purchase fewer movie tickets when theater prices increase. This factor is known as the price elasticity of demand and can be calculated using the following equation: Price elasticity of demand = % change in quantity / % change in price.

In an uncertain economic climate marked by high inflation rates, you can get away with adjusting your prices more frequently to account for the increased costs you're incurring. Your customers will understand and be less surprised than they would be if you adjusted prices frequently during more stable economic times.

Accurate reporting for business management matters more than you think.

Every small-business owner knows they need bookkeeping and accounting for compliance and tax filing, but not every new business owner realizes just how much their accounting departments can affect how they run, manage and lead their businesses. With up-to-date financials, business owners can easily evaluate their prices and pricing strategy while also analyzing new strategies and potential price changes.

So, as you improve your pricing strategy and settle into the sweet spot between maximizing sales and maximizing profit margins, ensure your accounting team is helping you maximize the success of your business.

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18 of My Favorite Sample Business Plans & Examples For Your Inspiration

Published: July 01, 2024

I believe that reading sample business plans is essential when writing your own.

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As you explore business plan examples from real companies and brands, it’s easier for you to learn how to write a good one.

So what does a good business plan look like? And how do you write one that’s both viable and convincing? I’ll walk you through the ideal business plan format along with some examples to help you get started.

Table of Contents

Business Plan Types

Business plan format, sample business plan: section by section, sample business plan templates, top business plan examples.

Ultimately, the format of your business plan will vary based on your goals for that plan. I’ve added this quick review of different business plan types that achieve differing goals.

For a more detailed exploration of business plan types, you can check out this post .

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1. Startups

Startup business plans are for proposing new business ideas. If you’re planning to start a small business, preparing a business plan is crucial. The plan should include all the major factors of your business.

You can check out this guide for more detailed business plan inspiration .

2. Feasibility Studies

Feasibility business plans focus on that business's product or service. Feasibility plans are sometimes added to startup business plans. They can also be a new business plan for an already thriving organization.

3. Internal Use

You can use internal business plans to share goals, strategies, or performance updates with stakeholders. In my opinion, internal business plans are useful for alignment and building support for ambitious goals.

4. Strategic Initiatives

A strategic business plan is another business plan that's often shared internally. This plan covers long-term business objectives that might not have been included in the startup business plan.

5. Business Acquisition or Repositioning

When a business is moving forward with an acquisition or repositioning, it may need extra structure and support. These types of business plans expand on a company's acquisition or repositioning strategy.

Growth sometimes just happens as a business continues operations. But more often, a business needs to create a structure with specific targets to meet set goals for expansion. This business plan type can help a business focus on short-term growth goals and align resources with those goals.

I’m going to focus on a startup business plan that needs to be detailed and research-backed as well as compelling enough to convince investors to offer funding. In my experience, the most comprehensive and convincing business plans contain the following sections.

Executive Summary

This all-important introduction to your business plan sets the tone and includes the company description as well as what you will be exchanging for money — whether that’s product lines, services, or product-service hybrids.

Market Opportunity

Information about gaps in your industry’s market and how you plan to fill them, focused on demand and potential for growth.

Competitive Landscape Analysis

An overview of your competitors that includes consideration of their strengths and how you’ll manage them, their weaknesses and how you’ll capitalize on them, and how you can differentiate your offerings in the industry.

Target Audience

Descriptions of your ideal customers, their various problems that you can solve, and your customer acquisition strategy.

Marketing Strategy

This section details how you will market your brand to achieve specific goals, the channels and tactics you’ll utilize to reach those goals, and the metrics you’ll be using to measure your progress.

Key Features and Benefits

This is where you’ll use plain language to emphasize the value of your product/service, how it solves the problems of your target audiences, and how you’ll scale up over time.

Pricing and Revenue

This section describes your pricing strategy and plans for building revenue streams that fit your audiences while achieving your business goals.

This is the final section, communicating with investors that your business idea is worth investing in via profit/loss statements, cash flow statements, and balance sheets to prove viability.

Okay, so now that we have a format established, I’ll give you more specific details about each section along with examples. Truthfully, I wish I’d had this resource to help me flesh out those first business plans long ago.

1. Executive Summary

I’d say the executive summary is the most important section of the entire business plan. It is essentially an overview of and introduction to your entire project.

Write this in such a way that it grabs your readers' attention and guides them through the rest of the business plan. This is important because a business plan can be dozens or hundreds of pages long.

There are two main elements I’d recommend including in your executive summary: your company description and your products and services.

Company Description

This is the perfect space to highlight your company’s mission statement and goals, a brief overview of your history and leadership, and your top accomplishments as a business.

Tell potential investors who you are and why what you do matters. Naturally, they’re going to want to know who they’re getting into business with up front. This is a great opportunity to showcase your impact.

Need some extra help firming up your business goals? I’d recommend HubSpot Academy’s free course to help you set meaningful goals that matter most for your business.

Products and Services

Here, you will incorporate an overview of your offerings. This doesn’t have to be extensive, as it is just a chance to introduce your industry and overall purpose as a business. I recommend including snippets of information about your financial projections and competitive advantage here as well.

Keep in mind that you'll cover many of these topics in more detail later on in the business plan. The executive summary should be clear and brief, only including the most important takeaways.

Executive Summary Business Plan Examples

This example was created with HubSpot’s business plan template . What makes this executive summary good is that it tells potential investors a short story while still covering all of the most important details.

Our Mission

Maria’s Gluten Free Bagels offers gluten-free bagels, along with various toppings, other gluten-free breakfast sandwich items, and coffee. The facility is entirely gluten free. Our team expects to catch the interest of gluten-free, celiac, or health-conscious community members who are seeking an enjoyable cafe to socialize. Due to a lack of gluten-free bagel products in the food industry currently, we expect mild competition and are confident we will be able to build a strong market position.

The Company and Management

Maria’s Gluten Free Bagels was founded in 2010 by Maria Jones, who first began selling her gluten-free bagels online from her home, using social media to spread the word. In 2012 she bought a retail location in Hamilton, MA, which now employs four full-time employees and six part-time employees. Prior to her bagel shop, Maria was a chef in New York and has extensive experience in the food industry.

Along with Maria Jones, Gluten Free Bagel Shop has a board of advisors. The advisors are:

• Jeni King, partner at Winding Communications, Ltd.
• Henry Wilson, president of Blue Robin, LLP.

Our Product

We offer gluten-free products ranging from bagels and cream cheese to blueberry muffins, coffee, and pastries. Our customers are health-conscious, community-oriented people who enjoy gluten-free products. We will create a welcoming, warm environment with opportunities for open mic nights, poetry readings, and other community functions. We will focus on creating an environment in which someone feels comfortable meeting a friend for lunch, or working remotely.

Our Competitive Advantages

While there are other coffee shops and cafes in the North Shore region, there are none that offer purely gluten-free options. This restricts those suffering from gluten-free illnesses or simply those with a gluten-free preference. This will be our primary selling point. Additionally, our market research [see Section 3] has shown a demand for a community-oriented coffee and bagel shop in the town of Hamilton, MA.

Financial Considerations

Our sales projections for the first year are $400,000. We project a 15% growth rate over the next two years. By year three, we project 61% gross margins.

We will have four full-time employees. The salary for each employee will be $50,000.

Start-up Financing Requirements

We are seeking to raise $125,000 in startup to finance year one. The owner has invested $50,000 to meet working capital requirements, and will use a loan of $100,000 to supplement the rest.

Example 2 :

Marianne and Keith Bean have been involved with the food industry for several years. They opened their first restaurant in Antlers, Oklahoma in 1981, and their second in Hugo in 1988. Although praised for the quality of many of the items on their menu, they have attained a special notoriety for their desserts. After years of requests for their flavored whipped cream toppings, they have decided to pursue marketing these products separately from the restaurants.

Marianne and Keith Bean have developed several recipes for flavored whipped cream topping. They include chocolate, raspberry, cinnamon almond, and strawberry. These flavored dessert toppings have been used in the setting of their two restaurants over the past 18 years, and have been produced in large quantities. The estimated shelf life of the product is 21 days at refrigeration temperatures and up to six months when frozen. The Beans intend to market this product in its frozen state in 8 and 12-ounce plastic tubs. They also intend to have the products available in six ounce pressurized cans. Special attention has been given to developing an attractive label that will stress the gourmet/specialty nature of the products.

Distribution of Fancy's Foods Whipped Dream product will begin in the local southeastern Oklahoma area. The Beans have an established name and reputation in this area, and product introduction should encounter little resistance.

Financial analyses show that the company will have both a positive cash flow and profit in the first year. The expected return on equity in the first year is 10.88%

Tips for Writing Your Executive Summary

• Start with a strong introduction of your company that showcases your mission and impact, then outline the products and services you provide.
• Clearly define a problem, explain how your product solves that problem, and show why the market needs your business.
• Be sure to highlight your value proposition, market opportunity, and growth potential.
• Keep it concise and support ideas with data.
• Customize your summary to your audience. For example, you might emphasize finances and return on investment for venture capitalists, whereas you might emphasize community benefits and minimal environmental impact for progressive nonprofits.

For more guidance, check out our tips for writing an effective executive summary .

2. Market Opportunity

This is where you'll detail the opportunity in the market. Ask and answer: Where is the gap in the current industry, and how will my product fill that gap?

To get a thorough understanding of the market opportunity, you'll want to conduct a TAM, SAM, SOM analysis , a SWOT analysis , and perform market research on your industry to get some insights for this section. More specifically, here’s what I’d include.

• The size of the market
• Current or potential market share
• Trends in the industry and consumer behavior
• Where the gap is
• What caused the gap
• How you intend to fill it

Market Opportunity Business Plan Example

I like this example because it uses critical data to underline the size of the potential market and what part of that market this service hopes to capture.

Example: The market for Doggie Pause is all of the dog owners in the metropolitan area and surrounding areas of the city. We believe that this is going to be 2/3 of the population, and we have a goal of gaining a 50% market share. We have a target of a 20% yearly profit increase as the business continues.

Tips for Writing Your Market Opportunity Section

• Focus on demand and potential for growth.
• Use market research, surveys, and industry trend data to support your market forecast and projections.
• Add a review of regulation shifts, tech advances, and consumer behavior changes.
• Refer to reliable sources.
• Showcase how your business can make the most of this opportunity.

3. Competitive Landscape Analysis

Since we’re already speaking of market share, you‘ll also need to create a section that shares details on who the top competitors are. After all, your customers likely have more than one brand to choose from, and you’ll want to understand exactly why they might choose one over another.

My favorite part of performing a competitive analysis is that it can help you uncover the following:

• Industry trends that other brands may not be utilizing.
• Strengths in your competition that may be obstacles to handle.
• Weaknesses in your competition that may help you develop selling points.
• The unique proposition you bring to the market that may resonate with customers.

Competitive Landscape Business Plan Example

I like how the competitive landscape section of this business plan shows a clear outline of who the top competitors are. It also highlights specific industry knowledge and the importance of location. This demonstrates useful experience in the industry, helping to build trust in your ability to execute your business plan.

Competitive Environment

Currently, there are four primary competitors in the Greater Omaha Area: Pinot’s Palette Lakeside (franchise partner), Village Canvas and Cabernet, The Corky Canvas, and Twisted Vine Collective. The first three competitors are in Omaha and the fourth is located in Papillion.

Despite the competition, all locations have both public and private events. Each location has a few sold-out painting events each month. The Omaha locations are in new, popular retail locations, while the existing Papillion location is in a downtown business district.

There is an opportunity to take advantage of the environment and open a studio in a well-traveled or growing area. Pinot’s Palette La Vista will differentiate itself from its competitors by offering a premium experience in a high-growth, influential location.

Tips for Writing Your Competitive Landscape

• Complete in-depth research, then emphasize your most important findings.
• Compare your unique selling proposition (USP) to your direct and indirect competitors.
• Show a clear and realistic plan for product and brand differentiation.
• Look for specific advantages and barriers in the competitive landscape. Then, highlight how that information could impact your business.
• Outline growth opportunities from a competitive perspective.
• Add customer feedback and insights to support your competitive analysis.

4. Target Audience

Use this section to describe who your customer segments are in detail. What is the demographic and psychographic information of your audience? I’d recommend building a buyer persona to get in the mindset of your ideal customers and be clear about why you're targeting them. Here are some questions I’d ask myself:

• What demographics will most likely need/buy your product or service?
• What are the psychographics of this audience? (Desires, triggering events, etc.)
• Why are your offerings valuable to them?

Target Audience Business Plan Example

I like the example below because it uses in-depth research to draw conclusions about audience priorities. It also analyzes how to create the right content for this audience.

The Audience

Recognize that audiences are often already aware of important issues. Outreach materials should:

• Emphasize a pollution-prevention practice
• Tell audience a little about how to prevent pollution
• Tell audience where they can obtain information about prevention.

Message Content

• Focus the content for outreach materials on cost savings, such as when and where pollution prevention is as cheap as or cheaper than traditional techniques. Include facts and figures.
• Emphasize how easy it is to do the right thing and the impacts of not engaging in pollution prevention.
• Stress benefits such as efficiency or better relations with government, for businesses not primarily concerned with public image.

Tips for Writing Your Target Audience Section

• Include details on the size and growth potential of your target audience.
• Figure out and refine the pain points for your target audience , then show why your product is a useful solution.
• Describe your targeted customer acquisition strategy in detail.
• Share anticipated challenges your business may face in acquiring customers and how you plan to address them.
• Add case studies, testimonials, and other data to support your target audience ideas.
• Remember to consider niche audiences and segments of your target audience in your business plan.

5. Marketing Strategy

Here, you‘ll discuss how you’ll acquire new customers with your marketing strategy. I think it’s helpful to have a marketing plan built out in advance to make this part of your business plan easier. I’d suggest including these details:

• Your brand positioning vision and how you'll cultivate it.
• The goal targets you aim to achieve.
• The metrics you'll use to measure success.
• The channels and distribution tactics you'll use.

Marketing Strategy Business Plan Example

This business plan example includes the marketing strategy for the town of Gawler. In my opinion, it works because it offers a comprehensive picture of how they plan to use digital marketing to promote the community.

You’ll also learn the financial benefits investors can reap from putting money into your venture rather than trying to sell them on how great your product or service is.

This business plan guide focuses less on the individual parts of a business plan, and more on the overarching goal of writing one. For that reason, it’s one of my favorites to supplement any template you choose to use. Harvard Business Review’s guide is instrumental for both new and seasoned business owners.

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How to Write Pricing Strategy for Your Business Plan

Product and Service Description Workbook

• May 16, 2024

15 Min Read

You have finally created that awesome product. It’s now time to sell.

At what cost?

This is the question that troubles most businesses.

Price your products too high and you see low sales. Price it too low and you struggle to make profits.

What’s the sweet spot to finding a balance between profitability and business sustenance?

The answer is a smart pricing strategy in your business plan . But how to decide on a pricing strategy for your products?

This article is your answer.

In this guide to creating the right pricing strategy, we cover everything you need to know about a pricing strategy from A to Z.

Let’s decode the recipe to a pricing strategy that brings in both: great profit margins and happy customers.

What is a pricing strategy?

A pricing strategy is a model you use to decide the price of your products or services.

It is a critical component of your business plan, as it decides on how you:

• Make profits
• Compete against competitors
• Optimize conversion and lead generation

Creating the right pricing strategy means taking into account various factors such as market conditions, competition, production costs, perceived value to the customer, and so much more.

We agree it’s the hard part.

The main objective: Establish a price point that’s good enough to attract customers while also maintaining profitability for effective financial planning.

Why is pricing strategy critical to a business plan

A recent survey by Bain and Company found that roughly 85% of businesses are seeking an improvement in their pricing decision-making process. On the other hand, McKinsey contends that even a mere 1% increase in prices can result in an impressive 8% boost in profits.

Your business plan is a document that contains the goals of your company and how you plan to achieve them. A pricing strategy highlights how you will be making actual profits from your product offerings to achieve those goals.

The price you set reflects not only the value you assign to your brand’s products and customers but also serves as a pivotal factor that can either attract or deter potential buyers.

Let’s delve deeper into the benefits of the right pricing strategy in a business plan:

Establishes the road to profitability: Your pricing strategy determines your profit margins. By understanding your costs and competitors’ pricing, you can set a price that ensures profitability and sustainability for your business.

Enables better market positioning: An optimized pricing strategy helps you put your products and services in the correct price bracket. It guides your business and helps you decide which market position to occupy for the best chances of success.

Helps project demand: With a good pricing strategy, you can project and satisfy the demand for your product or service. Choosing the optimal pricing strategy (such as skimming, penetration, or value-based pricing) will help you manage demand fluctuations and optimize sales volume. This makes your business plan stronger.

Helps project ROI: You also get a rough idea regarding your sales goals with a strong pricing strategy based on competitor and marketing analysis.

Enhances chances for funding: If you’re a startup seeking funding, a strong and thoroughly analyzed pricing can highly strengthen to secure funding.

With an understanding of the criticality behind integrating a pricing strategy into your business plan, it’s now time to explore some real-world pricing strategies before you come to designing your own.

Choosing the best pricing strategy for your business

“You know you’re priced right when your customers complain—but buy anyway.” — John Harrison

You know what it is, and you know why you need it. But which strategy should you implement? What’s the best one for you?

Let’s get you out of all these conundrums with our comprehensive list of best pricing plan strategy examples.

Competitive pricing

The competitive pricing strategy involves setting your prices based on what your competitors are charging for similar products and services.

As such, it’s ideal for businesses venturing into markets that sell similar products such as groceries or retail stores.

Think of how airline prices for a particular destination all rise up together during holidays.

A competitive pricing strategy is used both in B2B and B2C sectors like communication services, retail stores, grocery, telecom market, and more.

Essentially, you can implement this strategy by:

• Setting your prices below competitors’
• Setting your prices similar to your competitors’
• Setting your prices a little above your competitors

What approach you choose depends on how well you know your market or customer. For instance, if you price your goods a bit lower, you may attract more customers. However, you must make sure not to attract big losses.

If you decide to set your product prices higher than your competitors, you’ll want to draw on some ideas from value-based pricing strategies that help clarify why you are charging more for your products. Are you offering better quality? Are you treating customers better?

Marketing efforts like a refund scheme, better customer experience, and more will play a crucial role in justifying the higher cost to customers.

Best for: Both B2B and B2C sectors like communication services, retail stores, grocery, telecom market, and others with stiff competition . Works best if your product offers more value than the competition.

Value-based pricing

The value-based pricing method works based on what your customers think the value of your product should be.

Thus, the price is dependent on what the customer is willing to pay (WTP price) for your product.

Depending on the value that you bring to your customers’ business or life, you get a chance to price your products much higher than the actual production cost.

Think of how a fine-dining restaurant sets its price. While it may seem exorbitant to some, patrons willing to throw in that amount happily visit such a place.

This technique is well used by B2C or B2B service providers, freelancers, and experts who teach a specific skill.

Best for: This technique is well used by B2C or B2B service providers, freelancers, and experts who teach a specific skill.

Apple, in particular, is notorious for using this strategy to demand excessive prices for products that are either only slightly better or equivalent to their counterparts.

Cost-plus pricing

The cost-plus pricing strategy pulls us away from a “willing to pay” towards a more business-centric approach. This strategy, aptly named markup pricing, involves taking into account the production cost and simply adding an extra dollar value to it.

Cost-plus pricing, in a nutshell:

My production costs + Markup price = My selling price.

If you plan to sell a product that costs you $100 to produce. Simply speaking, you now need to sell the product at a higher price to earn a profit.

If you want a 20% profit margin, you have to sell at $120. If you want a 15% profit margin, you sell at $115. Pretty easy, right?

With the cost-plus strategy, it becomes easy for you to get a rough draft regarding the profits you can generate depending on the volume of your sales.

So, let’s say you have a profit goal of $10000 and a profit margin of 20% with each product costing $100 to make.

Thus, your sales goal should be

$10000/$20 = 500

You need to sell 500 units to reach that goal.

Best for: Cost-plus pricing strategies are commonly employed in B2C retail settings such as grocery stores, big-box stores, and convenience stores.

Economy pricing

In the economy pricing strategy, you sell products at a bargain price, i.e. at the lowest price to get your potential customers to start buying your products.

While this method might seem quite similar to competitive pricing, there is a hidden catch.

Unlike competitive pricing, economy pricing targets those customers who may be okay with a slightly lower product quality or those who don’t care about brand image.

By sourcing cheaper supplies and streamlining features, you can offer extremely low prices for your goods while remaining profitable.

Best for: This strategy is usually employed in the B2C industry. For instance, large retail stores and food delivery services often use this method.

You might have noticed a retail chain’s cheaper alternative sugar packet stocked right beside the branded ones. Another great example includes generic drugs—they are priced lower because they come with lower production costs.

Premium pricing

The premium strategy is exactly the opposite of the economy pricing strategy. Instead of selling products at their cheapest, you hike up the price to give customers the essence of a luxury product.

Of course, companies do add some additional value to their products but the bulk of the pricing comes from the perception of the product as high-end by the customer.

Best for: This pricing approach is generally employed by companies that manufacture upscale B2C goods, such as luxury cars, cosmetics, and devices. B2B companies also use it.

Psychological pricing

The psychological pricing strategy plays with the psyche of your customers to make them want to buy your stuff.

For instance, one of the most popular and widely used techniques in this strategy is the 9-digit effect. It suggests that even though a product priced at $9.99 is essentially $10, customers perceive it as a better deal due to the presence of the “9” in the price.

Placing the target product next to an expensive alternative, giving good deals, tweaking your typography, and inducing FOMO (fear of missing out) are some other basic ways to subtly manipulate buyer psychology.

Best for: This strategy is suitable both for B2B and B2C products. You must understand your customers.

Dynamic pricing

Dynamic pricing goes by many names—surge pricing, demand pricing, or time-based pricing. And as the names suggest, it is a pricing strategy that is flexible in nature and is catered to adjust to the fluctuating market and customer demands.

Dynamic pricing lives and dies with your monitoring and analysis capabilities. You need to stay on top of various metrics like supply and demand, spatio-temporality, customer preferences, and more.

Best for: This strategy suits both B2B and B2C customers. Travel prices are one of the most dynamically priced as you might have noticed airlines or cab services changing their prices depending on your time, location, and demand.

Penetration pricing

In this strategy, you enter the market with a low baseline price for your products. That attracts customers and you set up your market presence. This helps you pull customers away from competitors who demand higher prices for similar products. That’s what the penetration strategy is all about.

Do note that this strategy may not be always sustainable in the long run. This requires you to have a suitable plan in place once you establish a suitable foothold in the market.

Best for: Both B2B and B2C companies can make ample use of this service. We see it in use in telecom services, bulk retailers, and mostly by other market newbies who are trying to establish a presence.

Uber made great use of this strategy. They started with a customer-centric strategy where rides were cheaper than the competing taxi service.

Price skimming strategy

As a complete opposite to the penetration strategy, we have price skimming, where you start off with a high price and slowly bring it down.

Price skimming works best when you are stepping into a market where there’s not a lot of competition, focusing on a specific bunch of customers, and really highlighting the value of your product or service.

Of course, this comes with a hefty upfront investment in marketing and promotional campaigns.

Once more players start popping up in your market, you’ve got a chance to drop your prices a bit and snag a larger slice of the customer pie.

Best for: This strategy should be reserved for innovative products and sectors, both B2B and B2C.

Take the Apple iPhone, for instance. They frequently employ a price-skimming strategy when they first release a new model. But once competitors like the Samsung Galaxy hit the market or they release newer models, Apple adjusts the price downward to maintain a competitive edge

Steps to design an ideal business pricing strategy

We covered a whole lot of potential pricing strategies that can make way into your business plan. However, you still need to decide which one is the most suitable for your business and how you can implement it. Let’s help you with that with some easy-to-follow steps:

Step 1: Secure your business goals

The first and most important step is to understand what your business needs. You need to discern what your pricing should depend on.

Is it increasing profitability, improving cash flow, extending your market share, beating a competitor, reaching out to a new audience, or introducing a new product?

Your entire pricing strategy will depend on these factors. Choose wisely.

Step 2: Undertake a thorough analysis of the market pricing

Ensure that your pricing strategy is suitable for both internal affairs and market conditions.

For instance, if the market you choose is saturated, you must gear up for competition and go for something on the lines of a competitive pricing approach. On the flip side, if it’s a new market, you can go for a value-based pricing approach.

Step 3: Understand your target audience

Why should your customers purchase your products? What will they buy and how should you provide it to them? Is it a premium customer base? Or are you targeting price-sensitive customers?

These are essential questions you need to find the answer to. It is only by knowing your target audience and your Ideal Customer persona that you can initiate and maintain your sales.

Opening a fine-dine restaurant in a Tier-2 city? Value-based or premium pricing can work. Opening another cafe in a metro city? You’re in for competitive or economy pricing.

Step 4: Analyze your competitors

Identify at least three direct competitors and analyze how they structure their pricing. Take a look at whether they break down their pricing into components and offer significant discounts. This gives you a solid idea of how to price your own products.

Check if they bundle products or solutions with others. Look into value-based pricing, where clients pay a percentage of the perceived return on investment. When considering substitutes, think about what options customers might use and their costs.

Remember, sometimes the best solution is the decision to do nothing. Consider self-solutions or choosing not to address the issue, along with alternatives from indirect vendors.

Step 5: Draft a pricing strategy and a plan to implement it

Now that you have gathered enough info to design and draft your pricing strategy, this is the stage where you finalize everything and move on to the implementation stage. Depending on the above metrics, you can choose one of the aforementioned strategies.

We have already discussed the different pricing strategies. Pick one after you have thoroughly analyzed your market, competitors, production costs, and overarching business goals.

Here’s a quick cheat sheet for choosing and implementing the right strategy for you:

• Value pricing: Understand the value for your customers and their willingness to pay. Also, understand what alternatives they have.
• Competitive pricing: Set the price equal to what your competitors are charging and win the service game.
• Psychological pricing: Price products or services in a way that triggers action. For example, charging .99 instead of $1.00.
• Promotional pricing: Discounts over a period of time or one-time deals.
• Price skimming: Enter the market with a high price, but once your competitors follow, lower your cost and implement other pricing strategies.
• Economy pricing: Everyday low price with a focus on low manufacturing/delivery costs.
• Penetration pricing: Set a price artificially low to break into the market.

Step 6: Keep refining and be flexible with your approach

Don’t stress over finding the absolute perfect price. Instead, come up with a few options and give them a test run with your customers. You might be surprised to find that you can actually sell at a higher price than you thought with the right strategy.

But you won’t know until you try it out with potential customers. If the price doesn’t seem to work, take a look at any feedback you receive, tweak your pricing, and give it another shot

Tips to keep in mind:

• Try to Communicate with and understand your target customers. Know how much they can pay, what they are interested in, and how you can give them the best value. A good way is to use feedback forms.
• Always be flexible. If your pricing strategy doesn’t work, it’s time to research, experiment with different prices and adapt.

Bain and Company’s original research on pricing strategies also suggests useful tips. Make sure your sales staff is a part of your pricing and marketing strategy. If your pricing strategy is truly flexible that must also translate to better incentives for your sales team so they can sell more and sell better.

Get Started With Your Own Business Plan With Upmetrics

We just covered everything about pricing strategies. They are so critical to business planning as they help formulate your business goals, organize inventory plans, and increase your chances of achieving business goals.

However, there is so much more to a business plan than just pricing. If you want help creating a business plan from scratch, consider Upmetrics. It offers a collection of 400+ sample business plans for ideas and inspiration. Furthermore, AI assistance and automated financials make the process even easier for new users.

Interested? Try Upmetrics today!

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Frequently Asked Questions

A pricing strategy is a method used to determine the price of products or services, taking into account factors like market conditions, competition, production costs, and perceived value to customers.

How does a pricing strategy benefit you?

A pricing strategy helps in making profits, competing against competitors, optimizing conversion, and lead generation. It also draws in more customers, balances pricing, determines profitability, and assists in meeting customer expectations.

How should you choose the best strategy for your company?

To choose the best pricing strategy for your company, you should secure your business goals, analyze market pricing, understand your target audience, analyze competitors, draft a pricing strategy, and plan to implement it based on factors like value, competition, product positioning, and customer behavior.

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

Reach Your Goals with Accurate Planning

Pricing Strategy Plan Template

What is a Pricing Strategy Plan?

A pricing strategy plan outlines the steps required to set and execute pricing strategies in order to achieve business goals. It is a comprehensive plan that covers the entire process of setting, monitoring, and adjusting pricing strategies in order to optimize revenue, profitability, and customer retention. The plan should include a clear outline of the focus areas, objectives, measurable targets (KPIs), related projects, and implementation timelines.

What's included in this Pricing Strategy Plan template?

• 3 focus areas
• 6 objectives

Each focus area has its own objectives, projects, and KPIs to ensure that the strategy is comprehensive and effective.

Who is the Pricing Strategy Plan template for?

This pricing strategy plan template is for marketing and sales leaders, managers, and teams of all sizes and industries. The template provides a comprehensive framework to create a plan to set pricing strategies that are tailored to their unique business goals and objectives. With this plan, teams can build and improve pricing strategies that maximize revenue, profitability, and customer retention.

1. Define clear examples of your focus areas

Focus areas are the broader topics that the pricing strategy plan will address. These areas should be specific enough to provide direction to the team, while being broad enough to accommodate an array of objectives. Examples of focus areas could include Establish Pricing Strategies, Monitor Pricing Performance, and Evaluate Pricing Strategies.

2. Think about the objectives that could fall under that focus area

Objectives are the goals that the team is aiming to achieve. Objectives should be measurable and achievable, and should be closely related to the focus area. Examples of objectives could include Maximize Revenue, Increase Profitability, and Track Pricing Performance.

3. Set measurable targets (KPIs) to tackle the objective

KPIs (Key Performance Indicators) are the measurable targets that teams can use to track the progress of their pricing strategy. Examples of KPIs could include Increase Average Revenue per unit, Increase Profit Margin, and Increase Average Sales.

4. Implement related projects to achieve the KPIs

Projects (or Actions) are the individual activities that the team will carry out in order to achieve the KPIs. Examples of projects could include Develop pricing strategies, Adjust pricing strategies, Monitor pricing adjustments, and Analyze pricing performance.

5. Utilize Cascade Strategy Execution Platform to see faster results from your strategy

Cascade Strategy Execution Platform helps teams create and execute pricing strategies faster than ever with its easy-to-use interface and powerful analytics capabilities. With Cascade, teams can quickly identify areas of opportunity, develop pricing strategies, monitor performance, and analyze the results to maximize revenue and profitability.

Pricing Strategy Examples

• Small Business
• Business Planning & Strategy
• Pricing Strategy
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What Is the Purpose of the "Loss Leader" Strategy?

Objectives of the product life cycle, markup vs. profit margin.

• Differentiation Strategy With a Product Life Cycle Focus
• Long-Term Pricing Strategy

Starting a new business or launching a new product or service requires detailed thought and planning. A critical piece of that planning is deciding how you should price your products and services. The pricing strategy you choose dramatically impacts the profit margins of your business, and determines the pace at which your business can grow. Several pricing strategies exist for products and services, and choosing the best for your business depends greatly upon your overall long-term business strategy.

What are Competitors Charging?

Competition-based pricing strategies focus solely on what the competition is charging and strive to meet or beat those prices. Sometimes this strategy is referred to as a rock-bottom pricing strategy, or a low price leader strategy. The goal is to best your biggest competitors based on pricing alone.

Competition-based pricing strategy is a popular choice among many large retailers on the internet. Because the same products are available from multiple sources, the consumer buying decision is simply to select the retailer with the lowest price.

This pricing strategy is a difficult one for small businesses to maintain, however. That's because it provides very narrow profit margins that make it challenging for the business to achieve enough momentum to grow.

Penetration Strategy Strategy

A penetration pricing strategy is used as a loyalty-building or market-entry tool. The penetration pricing strategy offers a high-quality product at a much lower than expected price. This combination helps the business enter a new market even when strong competitors exist, and it builds loyalty with new customers from the beginning.

The penetration strategy can dramatically increase the lifetime value of customers, because they're "hooked" with the outstanding first product offering and – assuming future products are just as high quality – they are more willing to buy additional products from the company long into the future.

Pricing a Loss Leader

Also known as a promotional pricing strategy, the goal of the loss leader pricing strategy is to get new customers even if you do not make a profit from the initial sale. By taking a loss on the first sale, businesses can offer related products or upsells at normal prices. Despite loosing profits on the promotional product or loss leader, enough profits are normally made from the additional regular-priced products and services to sustain the strategy for the long term.

Grocery store sales utilize the loss leader pricing strategy on a regular basis. They discount one or more items on their shelves to the point of taking a loss of profit, with the intention of getting customers into their stores. Once there, the customers are likely to buy more than just those products that are on sale.

High Quality at a Premium Price 

Premium pricing takes advantage of a segment of consumers who believe high quality comes at a premium price. Instead of trying to have the lowest price among competitors, businesses who use the premium pricing strategy attempt to price their products and services at the highest in their market. This strategy limits the customer base available to market products and services to, but also provides much higher profit margins for each sale.

• Different Pricing Strategies: Which Is Right for Your Business?
• Investopedia: Penetration Pricing

Kathy Burns-Millyard has been a professional writer since 1997. Originally specializing in business, technology, environment and health topics, Burns now focuses on home, garden and hobby interest articles. Her garden work has appeared on GardenGuides.com and other publications. She enjoys practicing Permaculture in her home garden near Tucson, Ariz.

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Home » Blog » Tips » 5 Pricing Strategy Examples For Different Businesses

5 Pricing Strategy Examples For Different Businesses

by Erin Ollila | Oct 14, 2015 | Tips | 0 comments

5 pricing strategy examples that will boost your profits and put your business ahead of the competition

For infant businesses, mapping out a price plan will give you a clear vision of what road you’re preparing to travel through.

A pricing strategy is what a business uses to label the cost of their products (or services) so they can gain as much profit from their sales as possible.

Sometimes it means pricing things at an expensive rate to gain profit, other instances require businesses to lower prices so that customers will flock towards them. Whether your business is a start-up, or you’re an established company that’s offering a new product or service, you’ll benefit tremendously from price plans.

Think about what customers search for during the shopping process.

All shoppers look for the best possible bargain–but do some think that an expensive product or service means the quality is better than a competitors? Or if you implement a fair and affordable increase in a popular product, will customers be accepting of this change?

~ ~ ~ ~ ~ ~

Let us help you put these pricing strategies to work.    Sign up with Blitz today for a 30-day free trial  of our lead management software and use our sales follow up system to turn more leads into customers.

5 pricing strategy examples that will help you create your own

1. Discounted pricing

This is probably difficult to do if you’re a newborn company; but if it’s executed properly, the benefits will far exceed your expectations. The basic idea behind a discount promotional strategy is to lower your prices in order to gain new customer, but not gain a large profit.

The products you sell are at a price that’ll generate enough funds so you can break even and maintain your business, but you’ll appeal to a large pool of customers. For example, this is one of the pricing strategy examples that works best for businesses like a grocery or convenient store that offers a variety of products at an inexpensive rate. Combining discounted products and regular-priced products in one location will draw customers into the business for a discount, but indirectly encourages impulse purchasing on regular-priced products.

2. Premium pricing plans

On the flip side, a premium pricing plan will attract an exclusive pool of customers because products and services are given at an expensive rate. Think of Apple, who never discounts or has sales. They maintain their status as a premium product this way. Using premium pricing plans limits your potential buyer pool, but offers a larger profit margin, and the ability to produce a higher quality product. Psychologically, higher-priced products have a higher perceived value by customers.

3. Inverted strategy

A list of pricing strategy examples without an inverted strategy would be incomplete, even though it can be problematic for many companies. What this price plan does, is take a product or service of high quality and put it at a low (say, $1 for the first six months), or free price. Although it seems like you’re devaluing the cost of your product, the inverted strategy is a great marketing tool–especially for new businesses who simply need to build a list of customers to market to. Software-as-a-Service (SaaS) businesses can most easily use this strategy, because it costs almost as much to have 100 customers as it does to have 1.

4. Competitor’s strategy

Like all of the above mentioned price plans, the value you put on your product or service has to be the best fit for your customers. When you have steep competition, some businesses concentrate on pricing your business services at the lowest possible rate. That’s not to say it will be inexpensive, but you want to beat your competitors. You’ve probably seen this strategy at gas stations that are across the street from one another. This strategy isn’t the easiest for most small business who need to profit to survive, however, if you’re a bigger business with many competitors, give your customers and leads a reason to step onto your turf.

With this strategy, if you’re selling the same exact product as the competition, there’s a great chance that they’ll ask why your prices are different. Make an effort to understand and break the pricing down for them, and show why your company is worth it. On the other hand, you could offer the same exact pricing as your competitor rather than driving down prices and perceived value in your industry, a common issue in creative service industries like design and photography.

5.  Internal pricing plan

Of all the pricing strategy examples, this one is the only price plan that is competing with itself. With the internal strategy, you’ll have to check out your inventory and see what products are similar to each other. Say you own a shoe store and hold two types of shoes that (essentially) are identical. You’ll have to price them differently so they sell. Maybe they’re the same shoe from the same designer, but one pair has rhinestones on it and the other doesn’t. Offer the shoe with the rhinestones at a higher price and leave the modest one as it was intended to cost. By comparison, the shoe without the studs on it will seem reasonably priced for people looking for an affordable shoe. If both shoes are priced individually, they’ll be more appealing to your customers.

Are there any pricing strategy examples that you use for your business? Share your answers in the comments!

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Five good pricing strategy examples and how to benefit from them

Pricing strategies are the main profit drivers in eCommerce.  As price is the key detail consumers compare in eCommerce, pricing strategies should be your number one focus area. Building winning pricing strategies is easy: find out how your customer value is delivered and ensure your pricing is part of it.  In this article we introduce five best  pricing strategy examples  that are simple to follow and implement.

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Ecommerce Pricing Strategy Checklist

Does your pricing strategy deliver customer value?

Are your customers in search of low prices or a premium service and experience?  Customer value is the core of your pricing and you should integrate your  pricing strategy  into your marketing strategy. 

Let us assume you are an eCommerce company. You have decided your position in the market, you are clear on  customer value  and how your pricing delivers it. Now you must consider some tactics to make your prices and strategy work. You can consider aspects like competitor actions, market conditions, consumer trends, and other variables, including product costs, to account for the pricing model of your goods. It is vital and something we have seen multiple times: sticking to a simple pricing strategy works best if it delivers the value the customer wants. You can easily win your competitors over by creating a simple, understandable pricing plan that includes customer value at the core. 

As a retailer or an e-commerce player, you must decide right pricing strategies before advertising products to customers. In the list below, we will review five most common pricing approaches. You need to determine the best pricing strategy for your business.

Need Expert Guidance on Your Pricing Strategy?

Explore our pricing solutions to enhance your ecommerce strategy., 1. competition-based pricing strategy.

Competition-based pricing utilizes pricing data of competitors for similar products to set a base price for their products. Rather than focusing on production costs or the item’s value for the customer, this pricing method relies heavily on market data.

Think of it in this way. You have five competitors who sell the same product as you, and you categorize the products from the most high-end brand to the affordable brands. Then, you decide where you fit in.

What is the ideal situation for using competition-based pricing?

The reason companies rely on competition-based pricing or market pricing is simple. Market-based pricing strategy is an easy strategy, and you have complete control over your market position. In addition, market information gathered on competitors can give more insights than just pricing, which you can implement in your brand to replicate similar results.

The disadvantages are that it is hard for companies to sustain only competitive pricing if they are not actively adding value to customer experience and are lacking quality products. Also, one of the major pitfalls is that selling based on a competitor’s pricing can undermine your product and cost you revenue.

Analyse competitor pricing strategies

Insert information about your competitors to get clear dashboards and a comprehensive analysis of your competitors.

2. Cost-plus pricing strategy

Cost-plus pricing strategy or cost-based pricing strategy is an essential strategy that takes into account the total cost of making a product and adds a markup to that to determine the real price of a product. Although it is a good and straightforward strategy, as a business owner, you must understand the costs involved in production: material, labor, warehousing, machinery, utilities and such.  The markup price added to the top of production cost is what the company makes in profit.

Here’s how cost-plus pricing works:

• Step 1 : calculate the entire production cost for x units of a product.
• Step 2 : divide the cost by x units to get the unit cost.
• Step 3 : multiply unit cost by markup percentage. If unit cost is $10 and markup percentage is 20, then the profit margin is $10 X 20/100 = $2. The price of the product is $12.

Based on the products that are offered, they can charge different markups. However, this is not ideal for example software service companies and music producers as the product price is significantly higher than the product cost.

Understand your pricing

Get valuable insights on how different discounting techniques, costs and marketing will affect your profitability.

3. Dynamic pricing strategy

The simplest way to describe  dynamic pricing is that your prices are not static but they change based on other factors. These factors can be, for example, segments, time, market changes or competitor prices. In eCommerce, the use of dynamic pricing in  market-based pricing strategies  is very common.

Dynamic pricing in different segments

Companies use algorithms and Dynamic Pricing Software to derive their prices for different groups based on statistics. Let’s look at an example. Y ou own a car rental company and use AI-algorithms for pricing. You designed those to raise prices at locations with many pubs and bars. If this sounds highly illegal and impractical, we can assure you it is not. We are just describing Uber. Dynamic pricing, also known as adaptive pricing, is standard practice to raise profitability.

Dynamic pricing by time

Sales-based companies, like a car or insurance dealerships, are in a rush to close deals at the end of the month. As a result, dealers offer lower prices on products to match the sales quota compared to the start of the month. In today’s world, we see this happen all the time. For example, Amazon, Uber, and aviation companies use dynamic marketing based on supply and demand.

Read our latest post on dynamic pricing

Read  “How to use competitor pricing to improve your profitability” and use our 15-step guide to get started and better understand your competition. 

4. Penetration price strategy

Penetration pricing is used to  capture market share by setting product prices at a below-market level to gain customers. Once you get a sizeable market share, you readjust your pricing accordingly.

Here’s how penetration pricing works

Let’s look at an example of penetration pricing. Consider company X, a small to a medium-sized soap maker, that sells lavender soap bars at $10. An international company Y, with a higher production capacity, enters the market and begins to sell a similar lavender soap bar at  $5. 

The goal of Y is to run the small-sized competitor X out of business even if at $5 company Y makes a low minimal profit. Still company Y is confident that company X cannot match their prices . As customers begin to buy from Y, X will eventually run out of business. This extreme form of penetrative pricing is also often called predatory pricing.  World-renowned Walmart is known for relying on this practice  and has been the bane of smaller local businesses due to their unmatchable price. 

Learn how to build pricing strategies

With the help of our article on an introduction to pricing strategies, easily fine-tune or build your pricing strategy from scratch.

5. Price skimming strategy

The practice of charging a higher price point for a product when launching it is known as price skimming.  Instead of this, you can leverage market demand and then lower or readjust the price based on price elasticity later.

We see this often at the launch of celebrity product lines or new product launches from a reputed brand. In these cases, customers are willing to pay considerably higher prices. Whether the price reflects the actual value of the product is not essential. Customers want the anticipated product, w hether it is Rihanna’s Fenty Beauty or the newest Playstation, when the demand is high.

Lowering the price of products attracts price-sensitive customers . Therefore, you can charge the maximum amount for each customer segment by skimming off the top of these customer segments and  get higher profits as a business owner. Monitor if you need to lower the price in a few months.

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A business plan is a helpful step to create a roadmap as you start or start to grow your business. This guide will explain the value of having a business plan and provide a detailed, step-by-step process to help you create one.

Think of a business plan as more than just a theoretical overview. It is a practical, actionable resource that informs your business as you grow.

What is a business plan?

At its most basic, a business plan is a formal document that outlines your objectives, strategy, and timeline to profitability. It includes basic information all in one place: your mission , organizational structure, product offerings, financial projections, and more.

A good business plan will:

Clarify your vision and strategy

Guide growth and help you stay on track

Provide a framework for making informed decisions regarding your business

At the end of the day, a business plan helps you stay focused on your goals and demonstrates that you have a viable strategy for growth. 

Why create a business plan?

Even if you don’t need one right now, a business plan can help you clarify your goals and lay out the steps to grow your revenue and customer base, so you can keep doing work you enjoy. A solid business plan can keep you on track and provide a benchmark for measuring progress. Plus, you’ll likely need a comprehensive business plan if you plan to attract outside investors.

How to develop a business plan

Before you start putting together your business plan, there are a few key pieces of thinking and research that will inform the details. 

1. Evaluate your business idea

Take some time to evaluate your new business. This step helps you hone in on your mission and vision for the business and what makes it unique. 

Ask and answer the following questions:

What problem does my business solve?

Is there a demand for my product or service?

What are the potential pitfalls and risks?

2. Conduct market research

Market research involves gathering information about your industry, target audience, and competitors to understand your market and identify gaps and sales opportunities. This helps you look more closely at where you stand among similar businesses and how you can differentiate yourself.

Industry analysis: Look at industry trends, growth potential, and market size.

Target market: Identify who your customers are, their demographics, preferences, and buying behavior.

Competitor analysis : Analyze your competitors' strengths and weaknesses, their market positioning, and their strategies.

Read our guide to audience research

3. Understand your audience

Developing a clear understanding of your target audience will help you figure out how to speak to them effectively, how to market your brand to them, and their unique needs.

Once you know your target market, dive deeper into their needs. Ask yourself:

How do you solve a problem or fill a need for them?

What are their priorities?

How do you reach them online or in person?

What type of message or behavior is likely to gain their trust or loyalty?

Creating a customer or buyer persona —a fictional version of your ideal customer—can be a helpful way to summarize these details. 

The elements of a business plan

A formal business plan includes several parts, including details about your business, how it’s structured, marketing plans, financials, and products. Which parts you need for your own business plan depends on its purpose. If you plan to present this to a potential partner or investor, you likely need most of the elements. If the business plan is to help you log your goals and plans, you can remove sections that don’t feel relevant to your needs.

Executive summary

The executive summary is the first section of your business plan, but you should probably write it last. It’s a one or two paragraph high-level summary of your entire plan. Remember, the executive summary is the first thing someone will see, so it needs to be concise and engaging.

What to include in your executive summary:

Business name: Your business' name and any relevant branding

Mission statement: A brief description of your business’s purpose and core values

Products/services: A summary of the products or services you offer

Market opportunity: An overview of the market need you are addressing

Financial highlights: Key financial projections, including expected revenue and profit

Example: For an eco-friendly clothing line, the executive summary might highlight the growing demand for sustainable fashion, the unique designs offered, and projected first-year revenues of $100,000.

"Our eco-friendly clothing line, GreenDress, is dedicated to providing stylish and sustainable fashion alternatives. With the mission to reduce fashion waste, our products are made from organic and recycled materials. Addressing the increasing consumer demand for eco-friendly options, we aim to capture a significant share of the sustainable fashion market, projecting first-year revenues of $100,000 with a profit margin of 20%."

Company description

Provide a comprehensive overview of your company, including its structure, history, and the problem it solves. This is similar to the About section you might write for your website bio .

What to include in your company description:

Business structure: Describe your legal business structure (for example, sole proprietorship, partnership, LLC ).

History: Provide a brief history of your business, if applicable.

Market needs: Reiterate the problem your business solves and why there’s a demand.

Example: “ GreenDress is an LLC founded in 2023 by Joan Campion, a fashion stylist and designer with over 10 years of experience in sustainable manufacturing. Our mission is to offer fashionable, eco-friendly women’s clothing options that minimize environmental impact. With growing awareness of fashion’s ecological footprint, there is an increasing demand for sustainable fashion.”

Market analysis

Conduct market analysis to help you understand your industry, market size, and competitors. This helps you and others understand where you sit among competitors, who your brand is for, and what makes you unique.

What to include in your market analysis:

Industry overview: Summarize the industry landscape and trends.

Target market: Define your target market, including demographics, location, and purchasing behavior.

Competitive analysis: Identify your main competitors and analyze their strengths and weaknesses.

Example: “The sustainable fashion industry is growing at an annual rate of 10%. Our target market consists of eco-conscious consumers aged 18-35 who value sustainability and unique design. Competitors include established brands like Patagonia, independent sustainable fashion brands, and direct-to-consumer startups like Everlane. GreenDress differentiates itself by offering more affordable and fashion-forward options.”

Organization and management

Highlight the experience and expertise of your team members. If you’re creating a business plan for your own planning purposes, you can likely skip this section unless it’s helpful to sketch out your team structure.

What to include in your organization and management section:

Organizational structure: Include an org chart and provide a one or two sentence overview of your business’s organizational structure. 

Management team: Introduce team members, their roles, and relevant experience.

Advisors: Mention any advisors or board members.

Example: “ GreenDress is led by CEO Joan Campion, with over a decade of experience in sustainable fashion design. Our team includes COO Carlos Silver, who has a background in supply chain management, and CFO Emily Deschutes, an expert in financial planning for startups. We also have a board of advisors consisting of industry veterans and sustainability experts.”

Products or services

Describe your products and explain what makes them unique. Writing this out can help you clarify how you talk about your products and the process for creating and selling them.

What to include in the products or services section:

Description: Provide detailed descriptions of your products or services.

Benefits: Highlight the key benefits to your customers and the unique selling points of your products.

Lifecycle: Outline the lifecycle of your products or services, including development and future plans.

Example: “ Our product line includes organic cotton dresses, jeans, t-shirts, and jackets made of recycled and repurposed materials. Each item is designed with style and sustainability in mind. Our clothing is durable, stylish, and eco-friendly, appealing to consumers who want to reduce their environmental impact without sacrificing fashion.”

Marketing and sales strategy

How will you attract and retain customers? Include information about your preferred marketing channels, sales tactics, and customer retention plans.

What to include in the marketing and sales strategy section:

Marketing channels: Describe the channels you will use to reach your target market (for example: social media , email marketing , influencers).

Sales strategy: Explain your sales process and tactics.

Customer retention: State how you plan to retain customers and encourage repeat business.

Example: “ We will leverage social media platforms, fashionistas, and eco-influencers to promote our brand. Our sales strategy includes an ecommerce website and pop-up shops in vibrant neighborhoods. We will implement a customer loyalty program, offer discounts for repeat buyers, and regularly update our product line to retain customers and keep our brand fresh and appealing.”

Read our guide to creating a marketing strategy

Financial plan

Provide an overview of your business’ financial projections. You may need to talk to a financial expert or ask a friend who understands the financials of starting a business. 

What to include in the financial plan section:

Revenue model: Explain how your business will make money.

Funding requirements: Detail any funding you need to start or grow your business.

Financial projections: Provide projected income statements, cash flow statements, and balance sheets for the next 3-5 years.

Example: “ Our revenue model is based on direct-to-consumer sales through our website and pop-up shops. We are seeking $50,000 in seed funding to cover initial production costs and marketing expenses. Projected first-year revenue is $100,000, with a net profit margin of 20%.”

Include any additional information that supports your business plan in an appendix. Consider what additional questions your audience might have. If this business plan is for your records, think about what business documentation would be useful to keep in your plan for easy reference.

The appendix can include things like:

Resumes: Detailed resumes or bios of the management team.

Product photos: High-quality images of your products .

Legal documentation: Any relevant legal documents, such as patents or trademarks.

Creating a simple starter business plan

Depending on your business stage and goals, you may only need a truncated, straightforward business plan outline. Focus on the essentials and don’t get bogged down in too much detail. Instead of including everything listed above, start with these sections:

Financial projections

A shorter business plan may be all you need to get your venture off the ground. It will provide enough of a framework to take the idea in your head and make it a real, viable business.

4 tips for writing a good business plan

A few best practices apply no matter how long your business plan is or who it’s for. A great business plan is clear, realistic, and based on research.

Use clear and straightforward language. Avoid jargon and overly technical terms, use short sentences and paragraphs, and be specific and direct.

Support your claims with data and research. Use credible sources for market data, provide references and cite your sources, and use charts or graphs to illustrate data and make it easy on the eyes.

Set feasible and achievable goals.  Base your projections on realistic assumptions and don’t be overly optimistic, consider potential challenges and risks and how you plan to address them, and be able to explain for your projections.

Seek feedback from friends, mentors, and advisors. Share your plan with someone you trust, ideally with more experience than you and use the feedback to refine and improve your plan.

Crafting a well-structured business plan is an elemental step for starting a new business or side hustle. You can start with a simple bare-bones plan or develop a more robust one, depending on your needs. The process can seem daunting, but armed with a clear and detailed plan, you will be ready to guide your business to success.

Posted on 01 Aug 2024

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Our Top 9 Pricing Strategies for Service Based Business Owners

Key takeaways:

• Service providers often struggle with setting prices, afraid that a high price will scare off potential customers, or charge too low a price to create a sustainable business. 
• Small business owners need to set a pricing structure that helps them attract their ideal customer, while meeting their own financial goals. 
• There are a number of pricing strategies that can work, based on the type of service you offer and the value you provide. 
• Research pricing strategies and revisit them periodically to meet your business goals. 

The story goes something like this: A man calls a plumber who comes out to fix a problem with his pipes. He listens for a bit, bangs on a pipe several times, gets things flowing again, and then charges the customer $200 for the brief visit. When the customer protests the price and asks for an explanation, the plumber writes:

Hitting the pipe with a wrench: $2

Knowing to hit the pipe with a wrench: $99

Knowing where to hit the pipe with a wrench: $99

Fact or fiction, this story illustrates a common challenge entrepreneurs face when pricing their service-based business. How much should you charge? 

There are many pricing strategies, and each one has its pros and cons. Here we’ll cover 9 of the most popular pricing strategies to help you find one that works for your business. 

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How Do Pricing Strategies Work?

Pricing strategies provide a framework to help you understand common approaches to setting prices. There has been an enormous amount of research into pricing methods. 

As a result, there is a wide range of both service and product pricing strategies, and many can be adapted to either type of business. Before you can choose a pricing strategy, though, you need to think about your objectives. 

“Two different companies that have exactly the same product, exactly the same market, and everything is the same…except they are trying to achieve different things. Their pricing strategy should be completely different,” says James Wilton, managing partner at Monevate , a pricing and monetization consulting firm, in an interview on the Pricing Talk podcast.

Why Consider Pricing Strategies for Your Service Based Business?

A pricing strategy may not seem necessary, but it can help you build your brand. While many might think your brand starts and stops at design and marketing, it is built on the entire experience customers have with your business. 

This means that the price customers pay for your business’ services reinforces or contradicts this image they have of your brand. And that goes on to influence other factors such as their feelings and loyalty to the brand. We’ll share a concrete example of this in a moment. 

Because pricing correctly is so critical, you need a service pricing strategy that is in alignment with your overall business strategy and will help build the image you want for your business in customers’ minds. 

1. Competitive Pricing

A competitive pricing strategy involves setting prices based on what competitors are charging for similar services. This doesn’t necessarily mean you should price your services the same as your competitors, or try to undercut them, but rather you use them as a guide for your own pricing, whether that is having a similar, higher, or lower price. 

For example, you may look at your competitors’ pricing and realize you are offering a more basic service, don’t have as much experience, or that you may be able to grow your customer base quickly with a lower cost service.

2. Value-Based Pricing  

Pricing services based on the perceived value to customers rather than just costs. In order to use value-based pricing you have to be able to assess what value customers feel they are getting from the product. 

Oftentimes there are higher marketing costs associated with this type of pricing strategy because you not only have to discover customer perceptions, but you need to make sure you are constantly reinforcing them as well. For these reasons it isn’t often a good pricing strategy for low cost services but can be very good for higher end and/or unique services.

“Price based on the value of your expertise, not the time spent” suggests Belinda Rosenblum, CPA and profit strategist for Own Your Money , which she says “helps service-based business owners grow a more profitable business that gives them the life they love.”

“If something comes easy to you.” she says, “then it is more likely in your zone of genius so you should be charging more for those services.” 

3. Bundle Pricing

Bundling pricing offers multiple services packaged together at a discounted rate compared to purchasing them individually. This can increase revenue for the business, while also making customers feel like they are saving money even if they are spending more than they otherwise would have. 

Depending on the service, you may also be saving time on your end. For example, a waxing salon may bundle eyebrows and upper lip together, which allows them to use the already warmed wax for another service and also bring in a few extra dollars.

4. Good, Better, Best Pricing 

Providing tiered service options at different price points to appeal to various customer segments. This may not work for all service types, but often can be effective. An example would be car washes where there are several tiers of services that offer something slightly different for each customer. 

The business owner needs to make sure that there is enough value in all the tiers to ensure that customers have a reason to go for the higher tiered pricing when they can.

Rosenblum shares an example of a client who, as an executive coach and speaker, was asked to submit a proposal for a presentation to their leadership team. 

“She proposed two options: $8,000 for just the presentation or $12,000 for the presentation plus two follow up calls to ensure implementation,” says Rosenblum, adding that both packages were priced fairly similarly, which “generally encourages the prospect to choose the higher option if it has a lot more value and items they would specifically want.” 

Rosenblum believes that if her client had only proposed one of the two options, she may have lost the opportunity since the only options were “yes” or “no”. But instead, she was able to sell the higher priced-package.   My client was thrilled because she preferred to do the entire $12,000 package to create an even better transformation for the company,” she explains.

5. Hourly Pricing 

Charging clients based on the time spent providing the service is a popular approach in some industries. However, charging an hourly rate also has challenges. 

First, customers will likely want an estimate/quote and it can be hard to estimate the number of hours a job will require, especially with a new client or a challenging project. You’ll need to make sure you communicate with the customer if you are going to reach the upper limit of the quote or exceed it, so they don’t feel that they are not being ripped off or just surprised with the bill at the end. 

Many service based businesses use forms of hourly-based pricing, including attorneys, electricians, therapists, bookkeepers, etc, but if you are outside fields where this pricing strategy is common you may need to invest more time into your marketing to convince people that not only is your business better than competitors but that your pricing strategy is better as well.

Another trap: just charging for the time spent without taking into account overhead costs. Your business incurs other direct and indirect costs that must be taken into account. 

Loper offers this suggestion: “A recent Side Hustle Show guest gave me his “3x Rule”: you should aim to charge 3x your labor costs. This gives you margin for marketing, overhead, and business profit.”

6. Premium Pricing

Charging higher prices to convey high quality or luxury positioning is known as premium pricing. Oftentimes with premium pricing companies need to spend a lot of money on marketing to really create and maintain this high end image of what this service provides. If successful, it often allows for very high margins.

Here’s an example: 

“I work with a student that provides finely crafted desserts,” says Teresa Quinn, entrepreneurship and innovation program director with the Clark University School of Business Director of Entrepreneurship and Innovation . “Although it is a product, she provides an identifiable service that sets her apart from her competitors.  She delivers and lavishly sets up, which truly compliments her product. When she delivers, she matches the set-up with the higher quality look of the dessert. 

“Her stands are tiered with  exquisite presentation. She takes pride in the presentation. However, she is leery to price higher than comparable competitors as she is afraid she will out-price herself from catering jobs.” 

Quinn has mentored her to remember their customers are looking for a “product/service will impress their guests, thus, the added service of presentation is needed.” This allows her to set her business apart from competitors, but, as Quinn points out, “those extra steps cost (more) in time, labor, and products.”

7. Promotional Pricing

Promotional pricing involves offering temporary discounts or special deals to attract new customers. Promotional pricing may involve lower profit margins or at times even negative profit margins if a company believes it will help with their overall strategy. 

Businesses that pursue this strategy need to be careful as it could hurt the overall image the company is pursuing, or it could attract those not in the ideal target audience.

8. Dynamic Pricing 

Adjusting prices in real-time based on demand, market conditions, or other factors is known as dynamic pricing. Because dynamic pricing is based on several different real-time factors it is often easier to implement for services booked online. You will just need to make sure that you have a system that can keep up with these changes and adjust the prices accordingly. 

You may have experienced this yourself when you’ve looked at pricing for a vacation rental or tour. The price will often go up in a busy season, but discount when demand is low. 

9. Cost-Plus Pricing

Adding a markup to the cost of providing the service to ensure profitability. It is a relatively simple strategy in theory but it can still be challenging for businesses to know how much they should add onto the cost of the service. 

Plus there may be different willingness to pay for different services which can be hard to adjust for with this type of pricing strategy. 

One mistake business owners with service-based businesses commonly make, says Rosenblum, is “including too much. Then you resent the work, overwhelm your buyer, and end up way underpriced.”

“More isn’t always better,” she adds. “Less is actually more as your buyer is likely already overwhelmed.”

Which Pricing Model Is Best for Your Business?

The pricing model that is best for your business is dependent on a lot of factors. The key is to think about it carefully before you launch, rather than just hoping for the best.

“Research!” Quinn advises. “Do your research on your direct and indirect competitors. I have not found a tool that can out do old fashion research.”

Here are some of the factors you’ll want to think about: 

Your business plan and strategy helps serve as a guide to the right pricing strategy. If your strategy is to provide affordable lawn mowing service, for example, you are not going to pursue a premium pricing strategy. You may use competitive pricing or a cost-plus pricing strategy. 

But if you are a high-end landscaper, you’re less likely to offer promotional pricing for fear that it could damage your brand and attract those outside of your target market.

Competitors 

No matter what pricing strategy you decide to go with, you should know who your competitors are, what they provide, their target customer, etc. You do not need to price at or below your competitors to be successful though. 

“The most common mistake is probably pricing too low,” warns Nick Loper, founder of Side Hustle Nation , which helps people find legit ways to make extra money. He offers a simple formula for a service-based business owner. “If you’re too far below the competition, customers will start to wonder about the quality of your service.”

He shares this example from the Startup Nation Podcast:  

“ Carter Osborne started out charging $75 an hour for his college admissions essay consulting service, but the going rate was actually much higher. Today he’s at $225 an hour and customers are far less skeptical. It’s interesting how powerful an authority signal your price can be!” 

Sector / Industry

The sector your business is in can also have a very significant impact on your business’ pricing strategy. Consumers will have different expectations based on your industry, which in turn can impact all pricing strategies, particularly those such as dynamic pricing and hourly-based pricing. 

Customers for a taxi or rideshare business will already be expecting dynamic pricing, for example, but someone taking an art class would most likely expect to pay a flat fee (though the rate may vary depending on the experience of the instructor and other factors). 

That doesn’t mean you can’t go outside industry norms, but if you do, understand you may have to spend more time explaining why your price is worth it. 

One way to counter potential objections? Niche down, Rosenblum recommends. “When you try to sell to everybody, nobody feels like you’re actually specifically serving them. As you get more specific about who you serve, you also create more value in your service, as it becomes more relevant and supportive of the unique challenges of your clients/ students.”

With a service-based business, you’re often selling results, whether that’s a clean home, a delicious catered lunch, or an accurate tax return that minimizes the amount of tax you’ll pay. You need to be able to understand the true value your business provides. 

Here’s an example of how Rosenblum approached her pricing:

“I do a ‘top down and bottom up’ approach. First, bottom up. I assign value to each item included in the package and then add up all of the value included. 

“Second, top down, based on the price that I want to charge, am I creating at least 10x the amount of value? If not, what else could I include that would be high value for the client and improve their speed to result and increase their level of ease and convenience? 

“Then finally, I did review the price against other programs in my industry for price and value created.” 

For her Cash Flow CEO program she landed on the current price of $1995. She says she can point to “over $25,000 of valuable components for an overall transformation”. Her clients are tapping her expertise to develop a service-based business they love, and she’s doing the same. 

How Nav Can Help

Pricing your service or product is an important key to building a financially healthy business. Cash flow is another. Managing your cash flow can help you sustain your business through the normal ups and downs of running a business. Nav helps you manage your cash flow and credit together, all in one place

Learn how to establish a strong business credit history . And when you need financing, Nav can help you find the right small business loans and business credit cards .

Track your cash flow in a flash

See your business cash flow trends and balance forecasting — any time, anywhere — with Nav’s Cash Flow Health.

This article was originally written on July 30, 2024.

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Gerri Detweiler

Education Consultant, Nav

Known as a financing and credit expert, Gerri Detweiler has been interviewed in more than 4000 news stories, and answered over 10,000 credit and lending questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.

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• How to budget your money 

1. Examine your income

• 2. Choose your budgeting strategy 
• 3. Reduce spending 

4. Automate savings and investments

• 5. Track your progress 
• How to budget on a low income 

Why is budgeting important?

How to budget: tips, tools, and techniques.

Affiliate links for the products on this page are from partners that compensate us and terms apply to offers listed (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate banking products to write unbiased product reviews.

• A budget can help you stay on top of expenses, pay off debts, and achieve your financial goals.
• There are several strategies for budgeting. Each has its own unique pros and cons.
• Checking in on your budget, adjusting it, and analyzing your spending habits regularly is critical.

A budget is, at its simplest, a plan for how you'll spend your earnings. It ensures you have the funds to cover your essentials — like housing, groceries, utilities, and your monthly debt payments — while also working toward other financial and savings goals .

In short: Budgets allow you to get the most out of your paycheck. Without one, there's a chance you could run out of money before your next pay date. 

How to budget your money 

Budgeting is critical if you want to stay on top of bills, pay off debts , or save for the future, and there are several ways to go about it. 

"Building a budget doesn't have to be overly complicated or time-consuming," says Brittany Castro, former in-house CFP  for Mint. "It's actually the first step in putting yourself in control of your finances because it means you know where your money goes each month."

How to plan a budget

Budgeting as a beginner can be daunting. Use these steps when making a personal finance budget for the first time: 

• Examine your income and expenses so that you can understand how much you're making, how much you're using, and if you're spending more than you're making
• Choose your approach to budgeting, such as the 50/30/20 rule or the envelope system, when determining how much to save each month
• Figure out where you can cut back on spending — and make strategies to help you stick to those cutbacks
• Automate your savings and investments so you can continue to make money off of your extra income without too much effort
• Find ways of tracking your budgeting process that work for you, such as using budgeting apps and/or creating a budgeting spreadsheet

To start budgeting, you first need a good pulse on your monthly income — more specifically, how much you take home each after taxes. If you're unsure what your net income (your income after taxes) looks like off the top of your head, you can typically use pay stubs or bank statements to get these numbers.

Once you have your income estimated, you'll also need to estimate your monthly expenses — things like your rent or mortgage, utility costs, groceries, insurance, and gas. If you have debts (like credit cards or personal loans ), add these in as well. Then compare the two numbers.

"If your expected expenses are greater than your expected income, you will need to earn additional income, cut out some purchases, go into debt, or do a combination of these three," says Todd Christensen, an accredited financial counselor and education manager at Money Fit. 

If your income outweighs your expenses, though, that means you have extra cash to put in savings, add to an emergency fund , or put toward other financial goals.

2. Choose your budgeting strategy 

The next step is to create your budget — a specific plan for how you'll use your earnings each month and eventually achieve your financial goals. 

There are several strategies for doing this, each with its own pros and cons. Here are a few of the options you might consider:

50/30/20 rule

According to Christensen, the 50/30/20 rule has become increasingly popular in the last 20 years. "It suggests you live on 50% of your income — housing, transportation, cell phone, utilities — enjoy 30% with dining out, recreation, or travel, and save and invest 20%."

The benefit here is that it's a simple, easy-to-learn approach, and it doesn't force you to account for every single purchase or expenditure. On the downside, it doesn't take into account your circumstances and may not work in every scenario. (If you live in a high-cost housing market, for example, adhering to that 50% rule may be unrealistic.)

70/20/10 rule

The 70/20/10 rule is similar to the 50/30/20 rule in that it has a loose budgeting structure. The categories for this budgeting strategy are: 70% goes to wants and needs, 20% goes toward savings and investments, and 10% goes toward debt payments or donations. 

Zero-balance or traditional budget

With a zero-balance budget, you're trying to get your income minus your expenses to equal zero. That means you use all your income each month — first, toward your essentials, and then, toward your wants and financial goals. Under this strategy, if you were to find yourself with an unspent $300 at the end of the month, you'd put that money in savings, make an extra loan payment, or make some other use of it.

The advantage of a zero-balance budget is that it accounts for every dollar, ensuring you make the absolute most of your earnings. The main drawback is that it's time-consuming. Tracking each expenditure and every dollar you earn can be tiresome. It's also difficult to use on unpredictable incomes (you never know how much you can allot for each expense). 

Pay yourself first budget

The pay yourself first strategy starts with your financial goals and works backward. So, say you know you want to put $500 toward your mortgage and $500 into savings each month. You'd start by subtracting that $1,000 from your monthly take-home pay (for example, $4,000 - $1,000), and then use that number ($3,000) for your monthly bills and expenses. 

This strategy's big perk is that it prioritizes your goals and allows flexibility in spending. On the downside, it may create stress if you leave yourself with too little to cover your monthly costs.

The envelope budget

The envelope system is a monthly budgeting method created by financial author Dave Ramsey. It requires putting cash into individual envelopes for each expense or category of expenses (e.g., housing, utilities, food, and entertainment). You then pull cash out of the envelopes as costs arise during the month. 

If you run out of money in an envelope, it's a sign you overspent or need to allot more to that category. If you have lots left over, you can adjust the budget for the next month and put those funds elsewhere.

The benefit of this method is that it's visual and tangible, making it easy to understand your budget and how you can improve it. Unfortunately, it's also time-consuming, and cash isn't always accepted — especially in today's digital economy.

3. Reduce spending 

While you go about creating a budget, it's important to fully analyze your expenses. You should ask yourself: Are those expenses necessary? If so, are there ways to reduce them or make them more affordable? This might mean renegotiating your pricing, switching service providers, or looking for coupons or special deals.

Here are some budgeting tips to cut down what you spend:

• Increase friction: Friction is when something like spending money becomes a little more difficult. An example of adding friction when spending would be removing your saved credit card information from your favorite site so that you have to manually re-add it in every time. This is a great way to make it harder for you to spend easily. 
• Wait before buying something: Set a 48-hour waiting rule for your purchases. If there's something you'd like to buy, sleep on it. If it still seems like a good idea in two days, then make the purchase. This helps you steer clear of unnecessary impulse buys.
• Audit your monthly subscription services: There are so many subscription services these days, and it's easy to lose track of just how much you're spending. Take a hard look at your subscriptions and consider cutting any you're not actively using. Look at streaming services, apps, subscription boxes, and even Subscribe and Save subscriptions on Amazon.
• Refinance any loans to get lower rates: You'll be surprised how much interest adds up on any loans you have. Refinancing your mortgage , car loan, and sometimes even your student loans could reduce your interest rate, monthly payment, or both, freeing up cash flow that you can put toward your budget for other, more important, expenses. Make sure to shop around with several lenders if you're considering this route.
• Meal plan: Planning your meals ahead of time helps you stay on track at the grocery store and avoid eating out in a pinch. You'll want a plan for every day of the week, including breakfasts, lunches, dinners, and snacks.

Cutting back even slightly could free up more cash for paying down debts, achieving your financial goals, or just reducing overall financial stress. 

No matter which budgeting method you choose, it's important to make saving a part of your plan. Typically, the best option is an automated deposit into your savings account, as this reduces hassle and keeps your goals on track. To maximize your savings, you might consider a high-yield savings account , which earns money at a higher rate than other options. 

Once you've automated your savings, you can also think about investing any income you might have left over. If this is something you're interested in, consider talking to a certified financial planner before diving in. They can help you choose the best investments for your goals.

5. Track your progress 

Budgets are ever-evolving tools, and you'll need to track your progress, adjust, and recalibrate often — especially in the beginning. You'll also need to adjust your spending habits as you go.

"The key is to identify your spending trends and ensure they match up with your spending priorities," Christensen says. "If you're spending $50 a week on soft drinks, but you would rather prioritize the purchase of a new gaming console, then it's time to change your soft-drink purchasing behavior."

Though you can certainly manually check in on your budget, Christensen recommends using a budgeting app that connects to your bank account, as these can streamline the process. For example, Rocket Money is an app that helps you create a budget, negotiate your bills, and reduce your spending — and it has a free plan.

Some budgeting apps offer credit monitoring services , as well. Consider tracking your credit score and credit card use when you're tracking your budget to better understand all of your financial needs.

You can also create an expense tracking spreadsheet in Excel, ask for receipts for every purchase, and total them up at the end of each week or month.

How to budget on a low income 

If you're struggling financially, budgeting is particularly important. As Lisa Fischer, chief growth and lending officer at Mission Lane , explains, "Keeping a close eye on spending is crucial for all consumers, but especially those who may be living paycheck to paycheck."

Not only can budgeting help you monitor your spending habits and stay on track with bills and expenses, but it can also ensure you prioritize saving, which should improve your financial outlook down the line.

In addition to budgeting, you can consider applying for rental or housing payment assistance, food pantries, and health care sharing plans to reduce your costs. Financial, debt, or credit counseling might be helpful as well. If this is something you're interested in, the nonprofit National Foundation for Credit Counseling is a good place to start.

If you want to make the most of your income while also achieving your long-term financial goals, having a budget is crucial. As Castro explains, "You need a solid budget and financial plan in order to set yourself up for long-term financial wellness, avoid running into problems such as racking up credit card debt, and build your net worth over time."

There are many ways to go about budgeting, and you may need to try a few before you find the right fit. You can also speak to a financial advisor for help choosing the best budgeting route for your household.

How to budget: FAQs

The best way to start a budget is to figure out how much you're making and compare it to what you're spending. Then you can figure out what budgeting method you want to use.

Cash stuffing is a budgeting technique that involves assigning monthly spending and saving categories to different envelopes. Then you put the amount of money you want to spend on those categories into the envelopes.

The 50/30/20 rule is a budgeting technique in which you assign 50% of your income to living expenses (such as rent and utilities), 30% of your income to non-necessary expenses (such as concerts or travel), and 20% to savings and investments.

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