7 Pricing Strategies to Maximize the Profit
Deciding on a price for your product or service can be tricky. Set it too high, and people disappear, or too low, and you leave money on the table. The good news? You don’t have to guess! Relying on a pricing strategy helps you stay competitive and aligned with customer needs. By the end of this article, you’ll have a better idea of how to set prices with confidence and adjust when needed.
What are pricing strategies?
Pricing strategies are different approaches a business uses to decide how much to charge for their product or service. In doing so, a business must consider their strategic marketing plan and the ongoing market situation. Instead of guessing or going with what “feels right,” it’s crucial to pick a strategy that ensures you can grow revenue and stay competitive while communicating your product’s value effectively.
In practice, a pricing strategy helps you answer questions such as:
- What is the real value we’re offering?
- How does our price compare to competitors?
- Should we launch high or low?
- When should we adjust?
Top 7 pricing strategies (with examples)
There’s a broad range of pricing tactics to consider. While each one has its strengths, some tend to show up more often in the real world because they’re practical and easy to implement across different industries. Companies should choose the pricing strategy that best fits their goals and market conditions, in order to achieve their financial objectives.
#1 Cost-plus pricing
Cost-plus pricing (also known as cost-based or markup pricing) is one of the most widely used strategies, as it follows this simple formula: Total Cost + Markup = Price. Your total cost is the sum of direct costs (materials, manufacturing, labor) and indirect costs (rent, utilities, admin). And markup is a percentage to the total production cost (e.g. 20–50%) to ensure profit. It usually depends on industry standards, retailer requirements, or forecast demand.
Specifically, cost-plus thrives in industries where production costs are clear and products aren’t easily differentiated. Some examples include:
- Manufacturing,
- Retail & distribution,
- Construction & contracting,
- Food & hospitality.
To illustrate, let’s say a contractor is building a custom deck. The expected costs are $6,000 (materials + labor + equipment rental + overhead allocation), and there’s a 20% markup. This means: $6,000 + ($6,000 x 0.20) = $6,000 + $1,200 = $7,200.
#2 Competitive pricing
Competitive pricing means you determine your price primarily based on what your competitors are charging. This helps you stay competitive and aligned with customer needs. Choosing the right strategy for you largely depends on your industry, business goals, and type of product/service.
#3 Value-based pricing
Value-based pricing sets prices based on the perceived value of the product or service to the customer. This strategy ensures you can grow revenue while communicating your product’s value effectively.
#4 Dynamic pricing
Dynamic pricing involves adjusting prices based on ongoing market situations. It allows businesses to be flexible and adjust when needed.
#5 Penetration pricing
Penetration pricing involves setting a low price to enter a new market. This is one of the common pricing strategies you should know about to increase your presentation threshold.
#6 Price skimming
Price skimming involves setting a high price at launch and lowering it over time. It is a great option to educate and entice your audience while maximizing initial revenue.
#7 Economy pricing
Economy pricing focuses on keeping prices low by minimizing costs. This strategy is simple and attractive for price-sensitive segments.
Additional Strategies for Success
Beyond the primary seven, businesses often utilize other approaches to maximize profit:
- Premium pricing: Sets high prices to reflect the quality and exclusivity of the product.
- Bundle pricing: Involves offering multiple products or services at a discounted price, in order to increase sales and maximize profit.
5 actionable pricing tips
- Position your offering properly — Make sure your pricing reflects the quality and exclusivity of the product.
- Feel free to combine multiple strategies for pricing — You don’t have to stick to just one; choose the pricing strategy that best fits your goals.
- Revisit your pricing annually (at least) — Pricing should be revisited periodically, testing the changes before any radical moves.
- Test before rolling out big changes — This ensures you don't leave money on the table.
- Keep your pricing simple and transparent — Simple and transparent pricing drives conversion.
