Pricing strategy: choosing a method before choosing a number

A pricing strategy is the rule you use to arrive at a price: what the number is derived from, and what would make it change. Most small companies have prices without a strategy — they were set once by looking at a competitor, adjusted twice under pressure, and have not been examined since. That is not a disaster, but it means every pricing conversation starts from scratch and usually ends in a discount.

Choosing a method does not tell you the number. It tells you what evidence the number should respond to, which is what makes a price defensible in front of a customer and reviewable a year later.

The methods worth knowing

• Cost-plus: work out the fully loaded cost and add a margin. Simple, defensible, and blind to what the customer would have paid.
• Competitive: price against what comparable suppliers charge. Fast to justify, and a slow route to a commodity market if it is your only input.
• Value-based: price against the value the customer gets — money saved, revenue enabled, risk removed. Hardest to do and usually the most profitable where it applies.
• Penetration: deliberately low to win share, with a stated plan for when and how it rises. Dangerous without the second half.
• Skimming: start high with early adopters and come down as the market widens. Works when you are genuinely first.
• Dynamic: prices move with demand, time or segment. Requires data and a customer base that tolerates it.
• Freemium or tiered: a free or cheap entry point that converts. Really a packaging decision more than a pricing one.

Whichever method you choose, know your fully loaded cost first — including the founder's time, the software, and the share of overhead the work consumes. Not because cost should set the price, but because it sets the floor below which the work is charity. Companies that cannot state their cost per unit are usually the ones discovering, a year later, that their best-selling line loses money.

Choosing and testing

1. Calculate the fully loaded cost of what you sell, including time. This is the floor.
2. Establish what alternatives cost your customer, including doing nothing and doing it themselves.
3. Ask five recent customers what problem buying from you solved and what it was worth. This is the only real input to value-based pricing and it costs a few phone calls.
4. Pick the method that fits your position — value-based where you can quantify the benefit, competitive where buyers compare directly, cost-plus where neither applies.
5. Set the price, then write down the reason. A price with a written rationale can be defended by anyone in the company; one without can only be defended by whoever set it.
6. Change price on new customers first. It is the cheapest way to test and the least damaging if you are wrong.
7. Decide your discount rule in advance — what triggers one, how much, who approves — because discounts given ad hoc become the real price list.
8. Review annually against cost changes, win rates and what customers say when they refuse.

The signals you are priced wrong

Two symptoms are worth watching. If you win nearly every deal quickly, you are almost certainly priced too low — a healthy loss rate on price is a sign you are testing the ceiling. If you lose on price constantly but customers who buy stay for years, the problem may be that you are selling to the wrong segment rather than that the price is high. And if every deal closes at a discount, the list price is fiction: either raise the discipline or lower the list and stop pretending.

In Ettex, the prices themselves live in Ettex Invoices — line items with quantities, rates, multiple tax rates and discounts, notes and terms fields, sequential auto-numbering with your own prefix, and a client book so the same rate reaches the same customer twice. The cost side comes from Ettex Books, where a chart of accounts and categorised entries let you work out what a unit actually costs. The comparison of options and the margin model belong in Ettex Sheets, the written rationale and the discount rule in Ettex Docs, and if you sell online, the published prices sit in Ettex Sites.

Plainly: Ettex has no pricing tooling. There is no price optimisation, no elasticity modelling, no competitor price tracking, no margin analytics and no approval workflow for discounts. It records what you charge and what things cost; the strategy is a decision you make and write down. That is the honest division — pricing is a judgement about customers, not a calculation software can run for you.

Common pricing mistakes

• Pricing from cost without ever asking what the customer would pay.
• Copying a competitor whose costs, positioning and customers are different from yours.
• Never calculating fully loaded cost, so the floor is unknown.
• Penetration pricing with no stated plan for raising it, which is just a low price.
• Discounts with no rule, which quietly become the real price list.
• Prices unchanged for years while costs rose, absorbing the difference in margin.
• Raising prices for everyone at once instead of testing on new customers.
• No written rationale, so every negotiation restarts the argument internally.

A pricing strategy is a written answer to "what is this number based on". Know your floor, ask customers what the work was worth, choose a method deliberately, and set the discount rule before you need it.