How Do You Know When You're Charging the Right Price? These 5 Pricing Strategies Can Help You Figure it Out

In the last article, I shared 12 pricing factors to consider for peak operational performance.

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Earlier this year, I had the pleasure of interviewing Shawn Palmer on the Business Infrastructure podcast to discuss specific pricing strategies to implement in balancing those 12 factors. Shawn is a military veteran and an entrepreneur in his own right. He currently serves as a business advisor with Washington-based OneRedmond – a non-profit dedicated to entrepreneurial growth and sustainability.

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In that interview, Shawn shared five specific pricing strategies but first talked about understanding the law of supply and demand, which determines your "revenue box" and ultimately your price range. This is a topic covered in more detail in the last article as well as in this previous one. Watch and listen to this short snippet:

Pricing Strategy #1: Per Unit

A per unit pricing strategy sets product or service prices based on a standard unit of measurement, like weight or quantity. This makes it easy for your customers to quickly compare prices to aid in their purchasing decisions. While this strategy is effective for diverse product sizes or service offerings, it can overlook broader value aspects like quality, features, or brand reputation.

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Palmer shared a Mexican restaurant as an example where out of 33 entrees, the menu is strategically designed to show the lower-priced meals at the top and the higher-priced (and lower margin) meals at the bottom. Customers can easily scan the menu, quickly compare prices, and ~80% of them will select something from the top or lower-priced/higher-margin section of the menu.

Pricing Strategy #2: Component

A component pricing strategy involves breaking down the total price of your product or service into individual components or features and assigning a separate cost to each. This allows your customers to see the specific costs associated with different aspects of your offering. While this strategy can aid transparency it may also complicate pricing comprehension for your customers. And remember, a confused mind never buys!

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Palmer shared a timely example of university registration. Tuition is often priced such that a certain level of credits is given regardless of how you put together the “components” or courses you’d like to take so long as you meet a certain threshold.

Pricing Strategy #3 & #4: Subscription & Membership

When explaining the subscription and membership pricing strategies, Palmer mentioned that he likes to talk about them together because they are “…similar in form, but different in practice.”

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He went on to say, “Subscription is rooted in periodicity. That is, for a stated price, you get some deliverable once a month, once a week.” As an example, think of a monthly magazine subscription like the Harvard Business Review or The Smooth Operator bi-weekly LinkedIn newsletter.

Conversely, Palmer stated, "Membership is a stated price for unlimited access. We think we subscribe to cable TV, but that’s a membership because it’s unlimited access. You get the exact same price, but the value received is different based on how much you decided you wanted to access that." Examples include streaming services like Netflix and Hulu where a flat fee is charged per month for unlimited viewing.

Pricing Strategy #5: Block

A block pricing strategy involves grouping the cost of your product or service into different blocks or tiers based on certain predefined criteria, such as quantity, usage, or features. Each "block" has its own price, and customers pay according to the block that corresponds to their specific needs. This strategy often provides volume discounts or incentives for customers to increase their usage or purchase larger quantities. It can encourage larger purchases and cater to a range of customer needs.

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Palmer shared a personal example of how he prices his public speaking gigs. You can listen to exactly how he does the audio version of his podcast interview.

How Do You Know When the Price is Right?

Discovering the optimal or right price for your products and/or services is largely experimental. You’ll know when you’ve stuck the landing in determining the right price when your company achieves profit while managing demand and customer expectations.

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The above pricing strategies are not static and can certainly be leveraged in a hybrid approach. Palmer shared pay-per-view events like boxing matches as an example – this can be a streaming event available via a membership but that also requires an additional, one-time, a la carte type payment in order to watch it.

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There are so many valuable nuggets that Shawn Palmer shared in his interview on the Business Infrastructure podcast. You can check out the full, unedited video version below or the edited audio version here.

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About the Author

Alicia Butler Pierre is the Founder & CEO of Equilibria, Inc. – an operations management firm specializing in business infrastructure for fast-growing small businesses. She’s a software inventor, author of the two-time Amazon bestseller Behind the Fa?ade: How to Structure Company Operations for Sustainable Success, and host of the top 2% Business Infrastructure podcast.

Alicia’s also an adjunct instructor of Lean Principles at Purdue University and serves as the USA Chair of the G100’s Micro, Small, and Medium Enterprises. The Process Excellence Network recognized her as a Top 50 Thought Leader in Operational Excellence. A chemical engineer turned entrepreneur, she’s advised, designed, and optimized processes for companies including Shell Oil, Coca-Cola, and The Home Depot.