How to price a product: cost floor, alternatives, value and buyer interviews

To price a product, find three numbers and then test between them: the lowest price that covers your costs, the prices of the buyer's current alternatives, and the value the product creates for them. Your first price usually sits above the cost floor, near or above the alternatives, and well below the full value. Buyer interviews tell you where in that range to start, and your first sales tell you whether you were right.

This page walks through those steps with one hypothetical product. For the broader choice of strategy, see pricing strategy.

The example

Suppose you are launching an inventory-counting app for independent restaurants, sold per location per month. All numbers below are hypothetical and chosen to show the arithmetic.

Step 1: Set a cost floor

List what it costs to serve one customer for a month, not only what it cost to build. Stripe's pricing guide suggests including materials, labor, support, shipping and overhead, and checking that subscription customers pay back their acquisition and support costs over time.

For the app:

• Hosting and data: $12 per location per month.
• Support: about one hour per location per month at a loaded cost of $30 an hour, so $30.
• Cost to serve: $12 + $30 = $42 per location per month.

Then check acquisition payback. If it costs about $600 in sales and marketing to win a location, the months to earn that back are $600 divided by the monthly margin:

• At $79: $600 / ($79 − $42) = $600 / $37 ≈ 16 months.
• At $129: $600 / ($129 − $42) = $600 / $87 ≈ 7 months.

So the practical floor sits above $42: it is the lowest price at which payback fits your cash plan.

Step 2: Map the buyer's alternatives

Buyers compare your price to what they would otherwise do, and that includes doing nothing. Stripe notes that competitor pricing helps anchor your range but should not dictate your decision.

For a restaurant, the alternatives might be a manager counting stock on a clipboard and typing it into a spreadsheet, a feature inside their point-of-sale system, or a dedicated inventory tool. Suppose interviews show the dedicated tools owners mention cost roughly $80 to $150 per location per month. That becomes your reference band. Write down where each number came from; a price an owner remembers is weaker evidence than an invoice.

Step 3: Estimate the value

Value is what changes for the customer if the product works. Stripe's example: a product that saves someone $10,000 a year "might be a bargain at $2,000."

For the app, suppose managers say counting takes about four hours a week and the app would cut that to one. That saves 3 hours × 52 weeks / 12 months = 13 hours a month. At a manager's loaded cost of $25 an hour, that is 13 × $25 = $325 a month per location.

Two cautions. First, time saved is only valuable if the owner uses it for something else; ask. Second, leave out benefits you cannot yet support, such as less food waste, until interviews give you a reason to include them.

Step 4: Pick a range to test

Put the three numbers side by side:

A reasonable test range is $99 to $149. At $129 the customer keeps about $196 of the estimated $325, and you are inside the band they already compare against.

Step 5: Test the price with buyer interviews

Now talk to the people who would pay. Start with what already happened, as GOV.UK's interview guidance recommends, then move to a concrete offer.

• "Walk me through the last stock count. Who did it, how long did it take, and what went wrong?"
• "What do you use now, and what does it cost you, including staff time?"
• "Who decides on a new tool like this: you, a partner, a head chef?"
• "Here is the offer: counts by phone, weekly variance report, $129 per location per month, cancel any time. What would you need to see before trying it?"

Listen for comparisons ("that's more than our POS add-on") and for who else must agree. Ask the price question to each person once, about one offer; changing the price mid-conversation invites bargaining rather than an honest reaction. How to research willingness to pay covers turning this into a commitment test, and willingness to pay compares survey methods if you need a larger sample.

People who see many restaurant purchases, such as sales professionals in restaurants or procurement professionals in restaurants, can tell you how groups usually buy software and what they typically push back on.

Step 6: Launch, then watch the right signals

Stripe recommends treating the launch price as a working hypothesis. After launch, track:

• Win rate at each price if you offer different prices to different prospects.
• How often you discount and by how much. Frequent discounting means the list price is not the real price.
• Objections in lost deals, recorded in the buyer's words. How to interview lost deals helps here.
• Payback against the target you set in step 1.

Decide in advance what would make you change the price, for example "if fewer than one in five qualified trials convert at $129, test $99."

Next step

Fill in the table for your own product with the numbers you have, mark which ones are guesses, and plan interviews to replace the guesses. If you need owners, managers or buyers outside your network, search on Instant Expert. It finds people whose work matches your question, you review them, it sends your invitations, and you pay for each call that gets booked. Pricing research lists more questions by method.