How to Price Your Product

How to price your product comes down to three anchors: the value it creates for a specific buyer, the price of the alternatives that buyer already has, and your own costs. Choose a pricing model that fits how the product is used, set a first price you can defend, test it with real buyers, and adjust as evidence comes in.

Pricing is the sixth milestone on the route, and it closes the launch phase. By now you have an idea you have tested and some sense of where your first customers come from. In the interviews I do with indie founders, pricing is a decision many say they got wrong at first, usually in the same direction: too low. Another regret I hear is spending months agonizing over a number that real buyers would have settled in a week. This page covers what a price rests on, the models to choose from, the mistakes that repeat, and how to know when pricing is settled enough to move on.

What the pricing decision really is

Pricing is two decisions, not one. The first is the model: how the customer pays. Monthly, once, per use, per seat, after a free trial, or never unless they upgrade from a free plan. The second is the level: how much.

Founders tend to obsess over the level and choose the model by copying a competitor. That is backwards. The model shapes almost everything else: your cash flow, how many customers you need, whether you can afford to sell personally, what your support load looks like, and what laws apply to you. Get the model right and the level can be tuned over time. Get the model wrong and no price level fixes it.

A first price is also not a permanent commitment. It is the best hypothesis you can form with the evidence you have. What matters is that it is high enough to tell you something true about demand.

The three anchors of a price

Value to the buyer

The ceiling of any price is the value the product creates for the person paying. For a business buyer, that is often measurable: hours saved, revenue gained, a cost avoided, a risk reduced. For a consumer, it is closer to how much the problem bothers them and how much they already spend on it.

The way to find this is the same way you validated the idea: talk to buyers about their situation, not about your price. Rob Fitzpatrick’s The Mom Test recommends asking about specific past behavior rather than opinions about the future. “What do you use for this today, and what does it cost you?” tells you far more than “Would you pay $30 for this?”, which most people answer politely and inaccurately.

The price of the alternatives

Buyers never compare your price to nothing. They compare it to what they do now: a competitor, a spreadsheet, a freelancer, an employee’s time, or simply living with the problem. Your price has to make sense next to that alternative. You can charge more than a competitor if you are clearly better for a specific buyer, and you can charge less as a deliberate position, but you should know which one you are doing and why.

Your costs

The floor is your cost to deliver. For software, the cost per customer is often low, which tempts founders to price low. But the real cost includes your time, support, payment fees, hosting, any paid APIs, and the cost of finding each customer. A price that covers server costs but not the cost of acquiring the customer is a slow way to run out of money.

The common pricing models

Model	How the customer pays	Fits best when	Watch out for
Subscription	Monthly or yearly fee	Value and costs are ongoing	Churn; US auto-renewal rules
One-time payment	Single price, permanent use	Value is delivered mostly at once	Needing a constant flow of new buyers
Usage-based	Pays for what they use	Usage varies widely between customers	Unpredictable bills for customers
Per seat	Pays per user	Value grows with team size	Teams sharing logins to save money
Free trial, then paid	Full product free for a period	Value shows quickly	Trial ending before value appears
Freemium	Free limited plan, paid upgrades	Big market, cheap free users, natural limits	Free plan good enough for everyone
Tiers	Several plans at different prices	Buyers differ in size or needs	Too many plans, confusing choice

Two of these choices come up so often that they each have their own article.

Subscription vs one-time payment compares recurring and single payments: cash flow, churn, buyer resistance, hybrids such as paid updates and lifetime deals, and the US auto-renewal rules that apply to subscriptions, including the current status of the FTC’s click-to-cancel rule.

Free trial vs freemium covers the two common ways of letting people try before they pay: when a time-limited trial works better than a permanent free plan, what each costs a small team, and the rules on trials that turn into paid plans.

What the decision depends on

Beyond the three anchors, a few factors shape the right answer for your situation.

Who the buyer is. Businesses usually have budgets and expect to pay for tools; consumers are more price-sensitive and more resistant to yet another subscription. The same tool can carry a very different price depending on which of the two it is sold to.

How you will sell. Price and sales method have to match. If every customer needs a demo and a call, the price must pay for that time. Jason Lemkin of SaaStr suggests that a dedicated salesperson becomes easier to justify once the annual contract value reaches about $5,000 to $10,000. Below that, most founders rely on founder-led sales early and self-serve checkout later.

How many customers you can realistically reach. Revenue is price times customers. If your market is a few thousand businesses, a low price cannot produce a meaningful income no matter how well you execute. A narrow market needs a higher price.

How you want to run the business. A solo founder supporting thousands of low-paying customers is in a very different job from one serving a hundred higher-paying ones. Neither is wrong, but the price decides which job you have.

How founders set a first price

There is no formula, but the founders who handle this well tend to follow a similar sequence.

1. List the alternatives and what they cost. Include the non-product ones: a spreadsheet, a part-time assistant, doing nothing.
2. Estimate the value for your best buyer. Use what they told you in conversations, not what you hope.
3. Pick a model that fits usage and costs. Then pick a price that sits clearly below the value and makes sense against the alternatives.
4. Ask for money early. Pre-orders, deposits and paid pilots are the strongest pricing evidence you can get. The article on how to pre-sell before you build covers how.
5. Say the price out loud and watch the reaction. If nobody hesitates, it is probably too low. If everybody walks away, it is too high or the value is not clear.
6. Keep the structure simple. One or two plans are easier for buyers to choose from and easier for you to learn from.
7. Revisit after real sales. Change the price once you have evidence, not before.

The mistakes that repeat

Underpricing. This is a mistake I hear about again and again. Founders price low out of fear of rejection, or because the product is new, or because a competitor is cheap. A low price attracts buyers who are price-driven, makes it hard to afford support or marketing, and hides whether the business could work at a sustainable price. Raising prices later is possible, but it is harder than starting higher.

Copying a competitor’s model without its circumstances. A well-funded competitor can run a generous free plan for years. You probably cannot.

Asking people what they would pay. Hypothetical answers about future spending are unreliable. Watch what people do when there is a real price and a real payment button.

Too many plans too early. Three or four tiers with feature matrices look professional but slow down buyers and make results hard to read.

Selling unlimited lifetime deals. A burst of cash at launch can turn into years of serving customers who will never pay again. If you offer one, cap it.

Ignoring the rules on recurring billing. In the US, online subscriptions and free trials that convert to paid fall under the Restore Online Shoppers’ Confidence Act (ROSCA), which requires clear disclosure of material terms, express informed consent and a simple way to cancel. The FTC’s 2024 click-to-cancel rule was vacated by a federal appeals court in July 2025 and the FTC reopened rulemaking in March 2026, but state laws such as California’s automatic renewal law already impose detailed requirements, including cancellation through the same channel used to sign up. The subscription vs one-time payment article has the details.

Never revisiting the price. Many founders set a price at launch and leave it for years, even as the product improves. A price should be reviewed whenever the product, the buyer or the costs change meaningfully.

How founders running several businesses approach it

If you run more than one business, pricing gets both easier and harder. Easier because you have reference points from earlier products and fewer illusions about how buyers react. Harder because each product has its own buyer, and the temptation is to reuse a model that worked elsewhere. A subscription that suits a business tool can fail badly for a consumer product in the same portfolio. Treat each product’s pricing as its own decision, with its own conversations and its own evidence. The page on how to manage multiple businesses covers the wider trade-offs.

How to know you are ready for the next milestone

Pricing is never finished, but it is settled enough to move on when most of these are true:

• People who do not know you have paid the current price, without heavy discounts.
• You can explain in one sentence why the price is what it is, in terms of value to the buyer.
• The price covers your costs, including your time and the cost of finding customers, with room to spare.
• Your checkout, renewal and cancellation flows are clear and, for recurring billing, follow the rules that apply to you.
• You have a plan for when you will next review the price.

If people keep saying the price is too high, look first at whether the value is clear, then at whether you are talking to the right buyer, and only then at lowering the number. If nobody ever objects, try a higher price on new customers.

Where this sits on the route

Pricing closes the launch phase. Before it comes how to get customers for a new business, where you find out who buys and through which channels; those first conversations are also your best pricing research. After it comes the first milestone of the sustain phase, when to pivot, push on or quit, where you judge whether the business, now with real customers and a real price, is working well enough to continue as it is.