Pricing is the most impactful lever in any business — and the one most founders manage worst. The difference between pricing at £80/hour and £120/hour is not 50% more revenue. On margin, it could be three or four times the profit. Yet most founders set their prices based on what feels comfortable, what competitors appear to charge, or what they think customers will accept — none of which is a reliable method.
Here is a systematic approach to pricing that holds up under scrutiny.
Why cost-plus pricing is almost always wrong
The most common pricing method is cost-plus: calculate your costs, add a percentage margin, and charge the result. The logic seems sound. The problem is that it is entirely focused on you — what you need — rather than on the customer and what your product or service is actually worth to them.
Cost-plus pricing has two failure modes. First, it often results in underpricing — especially for service businesses where the "cost" is largely time, and founders undervalue their time. Second, it produces prices that are disconnected from value, making it impossible to justify them to customers or raise them as your value proposition improves.
Value-based pricing: the right framework
Value-based pricing starts from a different question: what is the outcome of buying this product or service worth to the customer?
If a consulting engagement helps a business generate £200,000 in additional revenue, charging £5,000 for it is not expensive — it is a compelling return on investment. The £5,000 price point is not derived from the cost of delivering the engagement. It is derived from the value created.
To use value-based pricing, you need to:
- Define the specific outcome your product or service creates — not the feature or the process, but the measurable result.
- Quantify that outcome in terms your customer cares about: revenue generated, cost saved, time recovered, risk avoided.
- Capture a fraction of that value — typically 10–30%, depending on the competitive context and how clear the causality is.
The three-tier pricing structure
If you offer a single price point, you are leaving money on the table. Buyers have different needs, different budgets, and different willingness to pay. A three-tier pricing structure — Good, Better, Best — serves this range while typically pulling most buyers toward the middle option.
- Entry tier — Lower price, stripped-down offering. Exists to make the middle tier feel accessible and well-priced. Also serves customers who genuinely cannot budget for more.
- Core tier — Your main offering at the target price. This is where most of your volume should come from.
- Premium tier — Enhanced version with additional access, speed, customisation, or outcomes. Serves your highest-value customers and raises the perceived value of the middle tier.
How to test whether your price is right
There are two simple signals that your pricing is wrong:
You are closing too easily. If almost everyone says yes with minimal negotiation, your price is below what the market will bear. A healthy close rate for premium offerings is 20–40%. A 90% close rate usually means you are undercharging.
Every conversation becomes a price negotiation. If the first response to your price is pushback, you may be selling to the wrong customers, or your value proposition is not landing clearly enough before you quote the price.
Raising your prices
Most founders raise prices far too infrequently. A business that has not raised prices in two years has effectively given itself a pay cut — costs rise, inflation erodes margin, and skills and reputation improve without compensation.
Raise your prices for new customers first. Then, if the business warrants it, for existing customers on renewal. Give existing customers notice. Explain what has changed. Most customers who genuinely value what you do will accept a well-communicated price increase. Those who leave were almost always your lowest-margin, highest-maintenance relationships.
The price you charge signals the value you deliver
Price is not just about economics. It is a signal. Buyers use price as information about quality, commitment, and capability. A premium-priced service signals that the provider believes in the value of what they offer. An underpriced service often signals the opposite — even when the actual quality is high.
Pricing with confidence, based on a clear understanding of the value you create, is not just a financial exercise. It is a statement about what you believe your business is worth. Get that right, and the economics follow.