Someone asked me last month why my first physical product was priced at $34 when the "obvious" number was $19.99. Fair question. I'd spent eleven weeks building the thing, and the honest answer is that $19.99 would have put me out of business before I sold fifty units. The $34 number wasn't confidence. It was arithmetic plus a couple of hard conversations with suppliers I almost didn't have.
Pricing a product for a new business is where most founders quietly break their own model. You pick a number that feels competitive, you launch, and six months later you realize you've been paying customers to take your inventory. I've done this. Twice. The second time cost me roughly $4,200 in margin I never recovered.
This is what I actually learned about getting the price right the first time.
Key takeaways
- Your cost per unit is the floor, not the price. Shipping, packaging, payment fees and returns all live inside that floor.
- The 5 C's of pricing — Costs, Customers, Competitors, Compatibility, Channel — give you a frame when the spreadsheet runs out of answers.
- New businesses almost always underprice, not overprice. Raising a price later is harder than launching high and discounting.
- Test one variable at a time. Changing price and packaging and channel simultaneously tells you nothing.
- Your first price is a hypothesis, not a verdict.
How to price products for a new business
Start with the number that has nothing to do with what you want to earn: what it costs you to put one unit in a customer's hands.
How to calculate product cost per unit
Most people calculate materials and stop. That's the mistake. Your true landed cost per unit is:
- Raw materials or wholesale purchase price
- Manufacturing labor if you're making it yourself — and yes, your hours count
- Packaging, insert cards, tape, boxes
- Inbound shipping and any customs or duty
- Outbound shipping you absorb (the difference between what you charge and what the courier takes)
- Payment processor fees, usually a fixed amount plus a percentage
- A returns and damages allowance — budget 2% to 5% of units
When I ran this properly on my first product, my "$11 unit cost" turned out to be $16.40 once packaging, fees and a return allowance were included. That single correction moved my break-even point by hundreds of units.
A product pricing calculator helps, but the input matters more than the tool. If your inputs are optimistic, the output is fiction.
What are the 5 C's of pricing?
The 5 C's of pricing are Costs, Customers, Competitors, Compatibility, and Channel. Together they cover what you spend, what people will pay, what the market offers, how the price fits your positioning, and where the transaction happens. Each one pulls your price in a different direction, and the job is finding the range where they overlap.
Costs and customers
Costs set your floor. Customers set your ceiling. The gap between them is your negotiating room, and it's usually wider than founders assume.
To understand customers, forget surveys for a moment. Ask people what they currently pay to solve the problem your product addresses. If they pay nothing, you're competing against free, and that changes everything. If they pay $80 a month for a clumsy alternative, a $45 product is a relief, not a stretch.
Competitors, compatibility, channel
Competitors give you a reference point, not a target. Undercutting everyone is a business model, and it's a brutal one for a company with no purchasing power.
Compatibility means your price has to make sense next to your own catalog and your brand. A premium position with a bargain-bin price confuses buyers. I watched a friend launch a genuinely premium skincare line at drugstore prices and get dismissed as "probably cheap ingredients."
Channel is the one people forget. Selling through a retailer means they take a wholesale margin — often half the retail price. If you price at $30 direct and want retail distribution, you need to be able to sell to the retailer at roughly $15 and still profit. Price for the channel you want, not just the one you have.
A simple pricing formula you can actually use
The basic markup formula is price = cost per unit ÷ (1 − target margin).
Say your landed cost is $16.40 and you want a 65% gross margin:
$16.40 ÷ (1 − 0.65) = $46.85
That's your floor-plus-margin number. Now sanity-check it against the 5 C's. If competitors sit at $39 and $55, you're in range. If everyone sells at $18, you have a problem with your cost structure, not your pricing.
| Pricing model | Best for | Main risk |
|---|---|---|
| Cost-plus markup | Physical goods with stable costs | Ignores what customers will pay |
| Competitor-based | Commodity categories | Race to the bottom |
| Value-based | Software, services, niche goods | Hard to quantify early |
| Penetration pricing | New brands buying market share | Trains buyers to expect discounts |
| Skimming | Genuinely novel products | Invites fast competitors |
Launch pricing for a brand-new business
Here's the thing most advice skips: your launch price and your steady-state price don't have to match.
Penetration pricing means launching low to grab volume and reviews fast. It works when your marginal cost drops as you scale, and it backfires when buyers anchor permanently to the low number. I made this error with a digital template pack — launched at $9 to "get traction," sold 400 copies, then couldn't sell at $29 for the next year.
Skimming means launching high, selling to the people who need it most, then dropping price in stages. Safe for physical goods with real differentiation. Dangerous for anything a competitor can clone in a month.
My current approach, after getting burned, is to launch at the price I actually want and offer a founding customer bonus instead of a discount. Same revenue per unit, no anchor problem.
How to price a food product
Food has a specific trap: spoilage, shelf-life and retailer margins.
If you want grocery or specialty retail placement, expect to sell wholesale at roughly half your retail price, and to pay for slotting, promotions or both. A jar that retails at $12 might net you $5.40 wholesale before your own costs. Build your recipe and packaging around that number, not around what a farmers market customer will pay.
Farmers markets and direct-to-consumer let you keep far more per unit, which is why so many food brands start there and stay longer than planned.
Testing and iterating your price
You cannot know your right price from a spreadsheet. You learn it by selling.
Validating before launch
The Van Westendorp method asks four questions: at what price is this so cheap you'd doubt the quality, so cheap it's a bargain, so expensive you'd think twice, and so expensive you'd never buy. The overlap between the middle two answers gives you an acceptable range. It's rough, but it's better than guessing.
A willingness-to-pay survey works too, with one caveat: what people say and what they do diverge constantly. Treat it as a directional signal only.
Validating after launch
Run an A/B price test only if you can genuinely segment traffic and can afford the reputational noise. Simpler: raise the price by 10% and watch conversion for two weeks. If conversion drops less than the price increase gains you, you were underpriced. That test told me I could charge $34 instead of $29 on a service — conversion moved from 6.2% to 5.4%, and revenue per visitor went up.
Mistakes I made so you don't have to
- Pricing off competitor screenshots instead of my own cost sheet
- Forgetting that Etsy, Amazon and Shopify all take a different bite
- Treating a launch discount as permanent — and then having to honor it
- Never revisiting price after the first six months, even when my costs changed
Every one of these is fixable. What isn't fixable is a customer base that has learned your product is worth less than it is.
Your first price is a hypothesis. Treat it like one, write down why you chose it, and set a date to review it. The founders who get pricing right aren't the ones with a perfect formula — they're the ones who keep testing the number instead of defending it.
