How to Price Your Product or Service as a New Entrepreneur (2026)

Most new entrepreneurs price too low, thinking it's the safe option. It isn't. Underpricing attracts the wrong customers, destroys your margins, and makes scaling impossible. Here's how to price your product or service correctly from the start.

Most new entrepreneurs price too low. They pick a number that feels safe — low enough that nobody could reasonably object — and tell themselves they'll raise prices once the business is more established. This logic is backwards.

Underpricing doesn't reduce risk. It creates new risks: margins too thin to sustain the business, customers who don't value what you offer, and a positioning problem that becomes harder to fix the longer you live with it. Raising prices from a low base is one of the hardest things in business. Getting pricing right from the start is far easier.

This guide walks you through exactly how to do that.

What Are the Main Pricing Strategies?

There are four primary pricing strategies used by most small businesses and startups. Understanding all four helps you choose the right one for your situation.

1. Cost-plus pricing: Add a desired profit margin to your total cost of delivering the product or service. Simple and reliable for physical goods. Less applicable for services and digital products where your cost of delivery is mostly time.

2. Competitive pricing: Set your price relative to competitors — at, above, or below their rates. Useful as a reference point but dangerous if used as your primary pricing driver, because you have no idea whether your competitors are pricing profitably.

3. Value-based pricing: Set your price based on the outcome your product delivers to the customer, not what it costs you to create. This is the most powerful and profitable pricing strategy for service businesses, consultants, and software products.

4. Penetration pricing: Start artificially low to build a customer base quickly, then raise prices later. Works for specific situations (venture-backed growth phases, certain consumer markets) but is often used as an excuse for underconfidence rather than as a genuine strategy.

For most new entrepreneurs offering services or digital products, value-based pricing is the right framework.

How Do I Calculate a Price Using Value-Based Pricing?

Value-based pricing starts with a single question: what is this worth to the customer?

Not what does it cost you to produce. What does the customer gain — in money saved, revenue generated, time freed, or problem eliminated — as a result of buying it?

The value-based pricing formula:

Identify the specific outcome your product or service delivers
Quantify that outcome in dollar terms (or time, which converts to dollars)
Price at 10–30% of the value you deliver

Example: You offer bookkeeping services for small business owners. The owner currently spends 8 hours per month on bookkeeping, which they value at $100/hour (their effective hourly rate). You save them 8 hours × $100 = $800 of their time per month. Value-based pricing would put your service at $80–$240/month — a price at which the owner is clearly ahead financially, and you're earning a fair rate for your work.

Example: You build a template pack that helps freelancers create proposals 3x faster. A freelancer who sends 10 proposals per month saves 10 hours. At their time value of $60/hour, that's $600 of value per month. A $49 one-time price is clearly worth it. A $149 price might still be worth it. Charging $9 leaves significant money on the table.

How Do I Know If My Price Is Too Low?

Your price is too low if any of these are true:

People buy without hesitation. A zero-friction purchase is sometimes a sign of a strong product. More often, it's a sign that the price is so low it doesn't trigger the normal evaluation process. If nobody ever pushes back on your price, you're probably undercharging.

You attract difficult customers. Low prices correlate with low-commitment customers who question every invoice, demand constant revisions, and are least likely to provide testimonials. Higher-paying customers tend to be more professionally demanding in productive ways and easier to retain.

Your margins don't support growth. If you can't afford to hire help, invest in marketing, or improve your product with your current pricing, your prices are too low. A sustainable business needs margin.

You're overworked at capacity. If you're fully booked and the business still isn't generating enough profit, the problem is almost certainly pricing, not volume.

How Do I Know If My Price Is Too High?

Your price is too high if:

Your conversion rate drops dramatically. If you're having plenty of conversations but very few result in sales, and the objection is consistently price, your pricing may be misaligned with the value your product visibly communicates.

Important distinction: "Your price is too high" and "you haven't communicated the value clearly enough" produce the same behavior (low conversion) but require different fixes. Before assuming your price is wrong, investigate whether your communication of value is wrong.

You're targeting the wrong customer. A price that's too high for small individual consumers may be perfectly appropriate for business buyers. Before lowering your price, consider whether you're talking to the wrong segment.

What Should I Charge for Freelance Services?

Freelance service pricing depends on your skill level, specialty, and the market you serve — but the formula is straightforward:

Target hourly rate = Annual income goal ÷ 1,000

This accounts for roughly 20 billable hours per week × 50 weeks, minus downtime, admin, and non-billable work.

If your goal is $60,000/year: $60/hour minimum rate. If your goal is $100,000/year: $100/hour minimum rate. If your goal is $150,000/year: $150/hour minimum rate.

For project-based work, estimate the hours, multiply by your rate, and add 30% for scope creep and revision cycles. New freelancers consistently underestimate project time — the buffer is not optional.

Specialist premiums: A general VA charges $20–$35/hour. A "VA specializing in podcast production for B2B brands" charges $55–$85/hour for functionally similar work. Specialization is the most reliable path to higher rates.

Should I Offer Packages or Hourly Rates?

Packages are almost always better than hourly rates for service businesses.

Hourly billing penalizes efficiency — the better you get, the less you earn for the same deliverable. It also puts clients in the uncomfortable position of watching the meter run, which creates friction and resentment.

Package pricing solves both problems. You set a fixed monthly retainer or project fee that the client understands upfront. You're incentivized to be efficient. The client knows exactly what they'll spend.

How to build your first service package:

Identify the most common outcome your clients want
Define the specific deliverables required to achieve that outcome
Set a fixed price that reflects the value of the outcome — not the hours you'll invest
Name the package in terms of the outcome, not the deliverables ("Social Media Growth Package" not "3 posts/week + monthly analytics report")

How Do I Handle Price Objections?

Price objections are a normal part of selling and should not automatically trigger a discount. Before cutting your price, understand what the objection is really saying.

"That's more than I expected" usually means the customer doesn't fully understand the value yet. The correct response: explore what outcome they're hoping to achieve and connect your price directly to that outcome. Discounting skips this conversation.

"That's more than I can spend right now" is a budget constraint, not a value objection. The correct response: offer a smaller scope at a lower price — a starter package that delivers meaningful value at a price point that fits. Don't discount the same deliverables for less money.

"I found someone cheaper" is an invitation to differentiate. The correct response: calmly acknowledge that cheaper options exist, and explain specifically what the difference in quality, reliability, or outcome looks like. If the other option genuinely matches yours, you've learned something about your market. If it doesn't, most buyers understand the difference when it's articulated clearly.

Should I Offer Discounts to Early Customers?

Early customer discounts can make sense as a deliberate strategy — but they need to be structured carefully to avoid creating problems.

What works: A limited, time-bound "founding member" price that acknowledges you're asking early customers to take a risk on an unproven product. This is honest, creates urgency, and lets you raise prices naturally when the early cohort is full.

What doesn't work: Ad-hoc discounting for any customer who pushes back on price. This trains buyers to always push back (because it works), erodes your pricing authority, and makes future price increases very difficult.

The rule: If you offer a discount, it should be for a specific, stated reason that won't apply to future customers. "Founding member pricing — limited to the first 20 customers" works. "Sure, I can knock 20% off" does not.

How Often Should I Review and Raise My Prices?

Review your prices at least twice per year. Raise them when any of the following is true:

You're consistently fully booked or sold out
Your cost of delivering the product has increased
Your skill level or track record has improved significantly
Comparable competitors charge meaningfully more
You haven't raised prices in over 12 months and inflation has continued

The mechanics of a price increase for existing clients: give 30 days notice, explain the reason briefly and confidently ("to reflect the expanded scope of what I offer and the results I'm consistently delivering for clients"), and offer existing clients the option to lock in current rates for 90 days. Most clients who value your work will stay.

Start Pricing Confidently Today

Pricing is a skill that improves with practice and feedback. The worst thing you can do is stay at a price you know is too low because raising it feels uncomfortable. The discomfort of a price conversation is temporary. The consequences of chronic underpricing compound for years.

If you're still exploring what business to start, Daily Business Idea delivers personalized business ideas daily — tailored to your skills, budget, and income goals. Download it free on iOS or Android and find the right fit before you worry about pricing at all.

More reading: How to Write a Business Plan | How to Find Your First Customers | Best Side Hustle Ideas by Skill Level