Lesson 4 of 10 12 min
Pricing
Cost-based, value-based, and competitor-based pricing.
Written by Mateo LermaLast reviewed 2 sourcesEditorial standards
All lessons in Entrepreneurship
Step 1: The lesson
How do you price a product?
Price is one of the most powerful decisions a business makes. A small price change can double — or erase — your profit.
- Cost-plus: add a markup to what it costs you. Simple, but it ignores what customers would pay.
- Competitor-based: price relative to alternatives. Useful, but you need a reason to be cheaper or more expensive.
- Value-based: price based on how much the solution is worth to the customer. Usually the most profitable, and it requires knowing your customer well.
Your costs set the floor (below it, you lose money on every sale). The value to customers sets the ceiling. Good prices live between them.
Don't underprice
New founders often price too low to win customers. It's hard to raise prices later, low prices can signal low quality, and thin margins leave no money to grow.
You can also offer options: a basic price and a premium one, bundles, or rush fees for customers who value speed.
Step 2: See it
Three ways to set a price
Cost-plus pricing adds a markup to your cost; it's simple but ignores customer value. Competitor-based pricing compares to alternatives. Value-based pricing charges based on what the solution is worth to customers, which is usually most profitable.
| How it works | Watch out for | |
|---|---|---|
| Cost-plus | Cost + a markup | Leaving money on the table |
| Competitor-based | Compare to alternatives | Price wars with no reason to win |
| Value-based | What it's worth to the customer | Needs real customer knowledge |
Step 3: Real-world example
Marcus sets a price
- Floor (cost): supplies cost about $5 per pair.
- Competitor: the shop across town charges about $20, with a week-long wait and a long trip.
- Value: customers care most about convenience and speed before events.
Marcus sets a standard price of $12 — well above his cost, below the shop, and convenient. He adds a $20 "event-ready by tomorrow" option for customers who value speed most. Many choose it.
Step 4: Knowledge check
Quiz: Pricing (3 questions)
Answer each question, then check your answer to see the explanation. Retake it as many times as you like.
Question 1 of 3
Step 5: Summary
Summary: Pricing
Prices can be set by cost-plus, competitor-based, or value-based methods. Costs set the floor, customer value sets the ceiling, and good prices live in between. Avoid underpricing, and consider options like premium tiers or rush fees.
Step 6: What you should remember
Key takeaways: Pricing
- Cost = floor. Value = ceiling.
- Value-based pricing is usually most profitable.
- Underpricing is a common founder mistake.
- Options (premium, rush, bundles) let customers pay for what they value.
Key terms in this lesson
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Sources and further reading
Rules, rates, and official figures in this lesson are based on these sources. People and numbers in examples are hypothetical.
- 1.Plan your business (opens in a new tab)
U.S. Small Business Administration · sba.gov
- 2.Manage your business (opens in a new tab)
U.S. Small Business Administration · sba.gov
Cite this lesson
Financial Literacy Club. (2026, September). Pricing. https://learnwithflc.org/courses/entrepreneurship/pricing
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