Dumb pricing mistake #1 that people make

product pricing

There is a simple mistake that most business owners of products and service providers make.

I used to, but once I learned how to set my prices properly it totally changed my profitability.

Dumb Pricing Mistake #1 is pricing your product and service based on its cost.

Now don’t get me wrong. You have to know your costs.

Costs are expenses like labour, materials, shipping, overheads like electricity, studio rental, internet, computer, motor vehicle and so forth.


How to Fix it Pricing Formula.

Pricing a service or product has two ends to the formula.

One end is what the product or service costs. The other end is what the product or service will sell for in your marketplace, to your perfect customer.

But here is what I’d like you to do.

Start from the selling price first.

Work out what your product is worth in your marketplace to your perfect customer. (See below for an example).

Then apply this simple formula.

The Selling Price – Product Cost = Profit.

Example: How do I know what my product is worth?

I’ll walk you through a step by step of how I determined pricing for my product-based business. In my previous business, we designed, manufactured and sold (primarily online) handbags and women’s travel accessories.

  1. The first step is to collect data. To establish some base pricing  I used Google to search for websites that contained the same types of products that I sold. I looked at each site to determine who their customer was, and eliminated any sites that were targeted a different customer. This took me from an initial grouping of 10 competitors down to 5. This elimination process can’t be underestimated, because my target customer has needs and desires specific to them.Once I narrowed to 5 websites, I combed through each one looking for very similar products. For example, I would check their large leather shoulder bag  with 2 straps, a zip opening and 2 outside pockets against my large leather shoulder bag with similar features.
  2. The next step was to collect information on the competitor’s ‘unique value proposition’  of their products. What makes them different to me, and how would that impact the price of my product in comparison.
  3. I also looked at other elements like cost of shipping and handling, credit card fees, speed of service and return policy.

Using this information I was able to put some pricing on my products, but not with the idea to make them cheaper. In fact some of the products I increased the price, but offered a bonus like free shipping, or a value-add product.

Do you struggle with setting your prices?

P.S. Thanks Derek Halpern, I totally ripped off your title idea. You are awesome!


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  1. I’m a personal organiser and I hate pricing what I do. Some of my clients just can’t pay much, and others are able to pay a lot more. So it is really hard to find the right amount to charge.

    How do I do this?

    • Jenny Spring says:

      Hello Jose.

      It is difficult when you have two very different ‘perfect’ customers.

      How about you set up three pricing levels.

      A base level that your thrifty client can afford. And a second and third level that has more options and higher value for those who want a premium service.

      Thanks for your comment.


  2. Hi Ladies,

    I have a furniture store and find pricing a nightmare. We often get told we are so ‘reasonable’ which led me to think that our prices were too low, but then on the other hand I’d have people want discount for buying items or want to know what;s the best price. When you have the pressure of rent due next month, bills to pay, staff wages…..you take the sale when you can get it and I now know that really had a huge negative effect on my business and our brand. We closed down at the end of our lease in August 2012 with the intention of getting going again, but with a lot of retailers telling me to wait until things pick up……but when’s that? It’s a very frustrating place to be, when you believe in your product and value proposition in the market, but customers have you are at the mercy of your customers??? What can a small business owner really do but lower prices or have more frequent sales?

    • Jenny Spring says:


      I hear your pain, and I see some many retailers struggle with this same question.

      Pricing is a huge question, and requires the utmost focus for any business owner, whether they be a retailer, or a business to business consultant.

      The thing is, and I am going to guess you’ve head this — it is almost never about the ‘price’, but it is always about the ‘value’. If it were about the price, we wouldn’t buy sports cars, we wouldn’t buy that pair of orange shoes that are so high that our feet hurt…

      It is about the emotional connection we have to that item, that service, that something. To your business.

      It is about how it makes us feel. It is about how you make us feel.

      Take a few minutes to read Bernadette Jiwa’s blog post on discounts here: http://thestoryoftelling.com/stand-out-brand-story/. Its a short post with a big message.

      So I’m going to ask you a question, that may seem unrelated, but isn’t! Can you describe to me your ideal customer.


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