Most first-time founders underprice their product. They anchor on their own costs, or on what they'd personally pay, or they fear that a higher price will scare off the few customers they have. Pricing is the fastest lever on revenue you control: a 20% price increase on new customers takes an afternoon, while growing traffic 20% can take months.

Price on value, not cost

Your hosting costs $2 per customer, but that has nothing to do with what the product is worth. Ask instead: what does this save or earn the customer? A tool that saves a freelancer three hours a month at $50 an hour creates $150 of value. Charging $15 leaves most of that value on the table. Charging $39 is still an easy yes.

A useful rule of thumb is to capture 10–20% of the value you create.

Pick a value metric

Your value metric is the unit you charge for: seats, projects, contacts, API calls, revenue processed. A good value metric:

  • grows as the customer gets more value (more contacts in an email tool means more value)
  • is easy to understand and predict (customers hate surprise bills)
  • expands naturally, so revenue from existing customers grows over time and net revenue retention goes above 100%

Seat-based pricing is simple but discourages sharing. Usage-based pricing scales well but makes bills less predictable. Many products use tiers with usage limits as a middle ground.

Use three tiers

Three tiers is the classic structure for good reason:

  • Starter for individuals and small users, priced to remove friction
  • Pro as the plan you actually want most people on, highlighted as "most popular"
  • Business with higher limits, team features, and priority support. It also makes Pro look reasonable by comparison (the "anchor").

Differentiate tiers by your value metric and by features that matter to bigger customers (SSO, roles, audit logs), not by locking basic functionality.

Offer annual billing

Offer annual plans at roughly two months free (about a 17% discount). You get a year of cash upfront to extend your runway, and annual customers churn far less. Show annual pricing by default on the pricing page.

Free trial or freemium?

  • Free trial (7–14 days, often without a card): best when value shows up quickly and the product is focused. It creates urgency.
  • Freemium: best when the free product spreads the paid one, like collaboration tools where free users invite others, or when the market is huge. It needs careful limits so free users don't take up all your support time.
  • Card-required trials convert at higher rates but get fewer starts. Test both.

How to raise prices

  1. Raise prices for new customers first. Watch the conversion rate for 2–4 weeks.
  2. Grandfather existing customers, at least for a while. It builds goodwill, and loyal customers become advocates.
  3. Add value with the increase. Pair it with a new feature or higher limits.
  4. Give notice. If you do move existing customers, give 30–60 days' notice and explain why.

If raising the price doesn't noticeably hurt conversion, you were underpriced. Raise again.

Check the math

Use the customers needed calculator to see how price changes the number of customers you need. Moving from $9 to $29 cuts it by about 70%. Then plug your new ARPU into the LTV calculator to see the effect on unit economics.