How to Price Your First Product or Service
Choosing your first price can feel like guessing. Too high, and you may not sell. Too low, and you could work hard for nothing. A first price doesn’t need to be perfect. To set one:
- Work out what each sale costs you, including your time.
- Find out what customers compare you with and what it’s worth to them.
- Choose a price between your costs and that value, then test it and adjust.
Work out what it costs you
Costs come in two kinds, plus your own time.
Variable costs: what each sale uses up
Variable costs rise and fall with how much you sell. For a weekend coffee cart, that’s the beans, milk, cup, and lid in each drink. For a small house-cleaning service, it’s the supplies and travel costs for each job. Together, they’re your variable cost per sale.
Include small items, like card payment fees and the milk you pour away at closing.
Fixed costs: what you pay either way
Fixed costs stay about the same on slow days and busy ones. For the cart, that might be the espresso machine, permits, insurance, and a flat stall fee. For the cleaning service, it might be insurance and equipment.
Total them for a period that fits how you work, such as a weekend or a month, and count sales over the same period. Spread one-off purchases across the time you expect to use them.
Count your own time
In a service business, you’re largely selling your time, so add its cost to your variable cost per sale. Count travel time, writing quotes, and answering messages too:
time cost per job = total hours per job × the hourly amount you want to earn
That hourly amount isn’t just a wage: it also has to cover things like paid time off.
At the cart, your hours don’t change with each cup, so add your pay for the weekend to fixed costs instead.
If the numbers only work when you don’t pay yourself, they don’t work yet.
Choose a pricing approach
Your costs set a floor: the lowest price that covers all of them, including your time, at a realistic number of sales. Three common approaches help you decide how far above it to go.
Cost-plus pricing
Cost-plus pricing starts from your full cost per sale, which includes a share of your fixed costs:
full cost per sale = variable cost per sale + (fixed costs for the period ÷ expected sales for the period)
Then it adds a markup, an amount on top that becomes your profit:
cost-plus price = full cost per sale + markup per sale
It’s simple, but it only earns the profit you planned if you make the sales you estimated. It also ignores the customer: it tells you what you need, not what your offer is worth.
Value-based pricing
Value-based pricing starts from what the result is worth to the customer and what they’d do instead. Someone hiring a cleaner may be paying for a weekend back. At the coffee cart, it might be a good cup where there wasn’t one.
You can’t judge value from your kitchen table, so this approach depends on talking to customers.
Competitor-based pricing
Competitor-based pricing uses what similar options charge as a reference point, since customers compare you with the café down the street or the cleaner they used before.
Treat those prices as a guide, not a rule. A larger business may spread its costs across more customers, so matching its price could mean selling at a loss.
Where your price sits
Positioning is how you want customers to see your offer compared with the alternatives. It helps you choose a spot between your floor and what customers think it’s worth.
A cart serving carefully sourced beans invites comparison with a specialty café. A cart at a sports tournament, built around speed, is up against the vending machine. Both can work, at different prices.
Customers often notice when price and positioning don’t match. A premium look with a bargain price can make them wonder what’s wrong.
Decide how to charge
For a service, you can charge by the hour or by the job. Hourly pricing protects you if work runs long, but customers may watch the clock. A set price per job gives customers a clear total, but you carry that risk, so see the job before you quote.
You can also offer a bundle, like a drink and a pastry for one price, or tiers, like a standard clean and a deep clean. Keep to two or three options, and check each still covers its costs.
Why underpricing can backfire
A low price feels safe when you’re nervous. It often isn’t.
- Your costs may be higher than they look. Small costs, waste, and your own time add up. A thin margin, the gap between price and cost, leaves little room for mistakes.
- Raising prices later can be harder. Early customers often treat your first price as the normal one.
- A low price sends a signal. Some people read it as low quality, and the customers it attracts may leave for someone cheaper.
- Busy isn’t the same as profitable. A full schedule at a thin price can wear you out.
An introductory offer can still work if you show the regular price, say when the offer ends, and then charge the regular price. Rules on advertising introductory and sale prices vary by location, so check what applies where you sell, with a qualified professional if you’re unsure.
Check the numbers on paper
Break-even is where your sales cover all your costs for a period, with nothing left over. For a price you have in mind, first work out your contribution per sale: what’s left from each sale after its variable costs. That’s what pays your fixed costs.
contribution per sale = price − variable cost per sale
sales needed to break even = fixed costs for the period ÷ contribution per sale
For the coffee cart, that’s how many cups you must sell each weekend to cover your costs, including your own pay. If you’d only reach it on your busiest possible weekend, the price, the costs, or the plan needs another look.
A higher price with fewer sales can still leave you better off:
profit for the period = contribution per sale × expected sales for the period − fixed costs for the period
Work it out for each price you’re considering, with a realistic sales estimate.
Test your price, then adjust
Friends may say they’d happily pay, partly to be kind. A deposit, a booking, or a repeat customer is a stronger signal. At the cart, tally who reads the menu board and who buys. For the cleaning service, track which quotes become bookings.
If almost everyone says yes instantly, you may be charging too little. If people hesitate, check whether the problem is the price or how you’ve explained the value. When what you’ve tracked keeps pointing the same way, or your costs change, adjust, and give existing customers notice.
How to talk about price with early customers
- Describe what they get, then state the price. Give the number and stop, without apologizing.
- Ask open questions. “What would you compare this to?” tells you more than “Would you pay this much?”
- Find the real concern. Ask what’s holding them back. If it’s budget, offer a smaller package, not a lower price for the same work. If the value is unclear, explain what’s included.
BizWizard gives you a place to work through questions like these with your own idea, including your pricing. An AI guide explains unfamiliar terms in context and asks questions about your business. See How It Works, or Request Access and tell us what you’re thinking of starting.