The Pricing Puzzle | Tips to nail your pricing strategy

Tip 1: Know Your Costs Inside Out

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Understanding your costs goes beyond listing expenses—it’s about precision and clarity.

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Most small business owners know their direct costs, like materials or software subscriptions. But the real challenge is uncovering and allocating your indirect costs.

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Let’s say you run an e-commerce store. You already know the price of goods sold (COGS), but have you factored in the transaction fees from your payment processor? What about the portion of your marketing budget spent driving traffic to this product?

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Or take a service-based business, like a consultancy. Your hourly rate needs to cover not just the time spent with clients, but also non-billable hours—time spent on admin, training, or client acquisition.

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Here’s an exercise: categorise your costs into three buckets:

1. Fixed Costs: Things like rent, insurance, and salaries. These don’t change with the number of sales.

2. Variable Costs: These scale with your business, like shipping fees or production materials.

3. Semi-Variable Costs: These blur the lines—think overtime pay or tiered software subscriptions that rise as your business grows.

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Why does this matter? 

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Because each category plays a role in determining your break-even point.

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For instance, if your fixed costs are high but your variable costs are low, you’ll need volume to make up for it. 

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Conversely, businesses with high variable costs need tight control over margins to avoid profit erosion.

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Here’s an example: A small clothing boutique learned this lesson the hard way. They set prices based on COGS and added a markup but failed to account for seasonal storage fees and rising credit card processing rates. Over time, these “invisible” costs ate into profits.

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The takeaway? 

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Precision in cost allocation is the difference between thriving and just surviving.

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Tip 2: Understand Your Market and Customers

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Setting your price isn’t just about costs—it’s about how your product fits into the bigger picture.

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Your customers don’t care how much it costs you to make something. They care about the value it brings to their lives.

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Take, for example, a small coffee shop competing against a national chain. If you price your cappuccino the same as theirs, customers might compare you directly and choose the chain. 

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But if you emphasise the quality of your locally roasted beans, personalised service, and community vibe, you can justify charging more.

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This is where understanding your market and customers comes in. Start by asking yourself:

• Who are my ideal customers? Are they budget-conscious or willing to pay for premium offerings?

• How does my product or service stand out from competitors?

• What pain points am I solving that others aren’t?

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Market research is your best friend here. Look at competitors in your niche. What are they charging, and why? Is their pricing based on volume, quality, or brand prestige?

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For example, let’s say you own a boutique bakery specialising in cakes. You notice one bakery in your area charges €40 for a standard birthday cake, while another commands €400 for a custom creation of similar size.

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The difference lies in their business models and how they position themselves.

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Low-cost bakeries focus on high turnover at lower prices. They keep their costs down by using standard recipes, bulk-bought ingredients, and streamlined production. Their customers value affordability and quick service over uniqueness.

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On the other hand, high-price bakeries position themselves as artisan brands. They focus on distinct offerings, like custom flavors, intricate designs, or organic, locally-sourced ingredients. These bakeries attract customers who are willing to pay a premium for quality, craftsmanship, and exclusivity.

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The lesson here? Pricing isn’t just about the product—it’s about how you frame its value to your target customer.

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If you’re competing solely on price, you’ll need volume to survive. But if you position your business as unique and high-quality, you can justify higher prices and focus on delivering an exceptional experience.

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Knowing your audience also helps you avoid the “race to the bottom” trap. Trying to beat competitors solely on price often leads to thin margins and burnout. Instead, position your offering based on the value it delivers—whether that’s convenience, quality, or a unique experience.

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The bottom line? 

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Price is never just a number. It’s a reflection of how customers perceive your brand and the problem you’re solving for them.

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Tip 3: Experiment with Pricing Models

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Your pricing model can make or break your business. It’s not just about the number on the price tag—it’s about how you structure it.

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Different pricing models work for different types of businesses, and the right one can help you maximize revenue while appealing to your ideal customers.

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Take a subscription box business, for example. Instead of charging customers for each individual item, many businesses bundle products into a monthly fee. This approach creates predictable recurring revenue and locks in customer loyalty over time.

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Now compare that to a boutique retail shop. They might benefit more from a tiered pricing model where customers can choose between standard, premium, and luxury options. This lets the business capture a broader range of customers without underpricing their high-end products.

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Even within the same industry, pricing models can vary. A meal delivery service, for instance, might offer:

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1. Per Meal Pricing:

This model is perfect for businesses that want to offer flexibility to their customers. It’s ideal for businesses like HelloFresh, which charges customers per meal or per delivery, depending on their selected plan. Customers who don’t want a subscription commitment can choose to buy meals on a one-off basis, giving them the flexibility to order when they need it. It’s a great model for attracting people who want convenience without the long-term commitment.

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2. Subscription Pricing:

Subscription pricing works well for businesses that want stable, recurring revenue. A good example is Gousto, another meal delivery service, which offers weekly meal plans on a subscription basis. Customers choose their meals each week and pay for them in advance, ensuring a steady stream of income for the business. This model builds customer loyalty and makes budgeting easier, as revenue is predictable and consistent.

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3. Bundle Discounts:

This pricing strategy encourages larger orders by offering a discount on multiple items purchased together. Domino’s Pizza uses this model effectively with their “Two for Tuesday” deal, where customers can buy two large pizzas for a discounted price. Bundles increase the overall order value and provide customers with a sense of getting more for their money. It’s particularly effective for businesses that want to upsell or encourage customers to spend a little more.

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The best pricing models match your business goals. Want predictable cash flow? Subscription pricing could be your answer. Need to move inventory quickly or increase average order size? Bundle discounts are the way to go.

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But here’s the catch: pricing models aren’t static. Markets change, customer behaviours shift, and your business evolves. Testing different approaches is essential to find what works best.

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Pricing isn’t one-size-fits-all, so don’t be afraid to experiment until you find the sweet spot.

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Tip 4: Factor in Psychological Pricing

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Sometimes, the way you present your prices can have just as much impact as the price itself. That’s where psychological pricing comes in.

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This strategy taps into consumer behaviour—how they perceive value and make decisions based on pricing cues, often without even realising it.

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One of the most common techniques is charm pricing: ending your price with .99 or .95, instead of rounding up. A study by The Journal of Consumer Research found that products priced at €9.99 sold significantly better than those priced at €10. 

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Even though the difference is just one cent, customers tend to perceive prices ending in .99 as a much better deal, even if the actual difference is negligible.

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Let’s look at a business example: A boutique coffee shop might price their regular coffee at €3.99 instead of €4. The psychology is simple: customers perceive it as being “under €4,” which makes them more likely to make a purchase. Even in a high-quality, artisanal setting, these small details can influence buying behaviour.

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Just remember, charm pricing does not work in every context. It can backfire. Luxury / boutique brands will also not see benefits from this type of strategy.

You’ll never see a .99 at the Apple store for instance!

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Another technique is price anchoring. If you’ve ever walked into a store and seen a product with an extremely high price tag next to a less expensive item, you’ve experienced price anchoring. 

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By displaying a high-priced item, you’re subconsciously making the other products look more affordable. For example, a jewellery store might display a luxury watch worth €5,000 next to watches priced around €500. The €500 watch suddenly feels like a bargain in comparison.

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Bundle pricing also plays into this. When you offer customers the option to buy a bundle at a slight discount, it can make them feel like they’re getting more value for their money. 

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For example, a small bakery could offer a “Breakfast Combo”—coffee, muffin, and sandwich—for €6.99, which sounds like a deal when customers expect to pay €3 for the coffee alone. 

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Even though the price is discounted, the perceived value is higher because the customer feels like they’re getting more.

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The goal of psychological pricing isn’t to trick your customers—it’s about aligning their perception with the value you’re offering. Small adjustments like charm pricing or price anchoring can make a big difference in how people view your product and whether they’re more likely to buy.

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Tip 5: Simulate Scenarios Before You Commit

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Before you commit to a pricing strategy, you need to test it.

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Pricing decisions can make or break your business. That’s why it’s important to run simulations and see how different pricing options could impact your revenue, customer behaviour, and margins.

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Let’s say you own an online store selling handmade candles. You’re considering raising the price of your best-seller by 10%. Before you make the change, simulate what would happen.

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Would your sales drop, or would you make up for it with higher margins?

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Alternatively, what if you tried running a promotion—like a “Buy 2, Get 1 Free” deal? How would that affect your overall sales, and would it lead to more customer retention or just a temporary boost?

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These are the types of scenarios you should be simulating before pulling the trigger.

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Imagine a small boutique clothing store that tested offering a discount versus free shipping. After running simulations, they found that offering free shipping led to more sales without hurting their margins as much as the discount would have.

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This data-driven approach can save you from making costly pricing mistakes.

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Instead of guessing how changes might affect your business, simulations give you a clearer picture of potential outcomes.

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Take out the guesswork with the Trezy Pricing Calculator

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Finding the right price for your products or services doesn’t have to be a guessing game. With the right tools, you can experiment, analyse, and make data-backed decisions to optimise your pricing strategy.

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That’s where the Trezy Pricing Calculator comes in. It’s an intuitive tool designed to help small business owners like you simulate various pricing scenarios. Whether you’re testing different price points, evaluating promotional strategies, or adjusting for market changes, the Trezy Pricing Calculator gives you the clarity you need to make the best choice.

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No more second-guessing. The calculator lets you visualise how price changes will impact your revenue and margins—so you can make smarter, more informed decisions.

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Ready to take control of your pricing strategy? Try the Trezy Pricing Calculator today and start optimising your prices for maximum profitability.

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Explore the Trezy Pricing Calculator.