Pricing Your Product

5 min read

By Kevin — CPA, MBA, CEO of IOL Inc.

Pricing is the single most important decision a startup founder makes. It determines your revenue, your margins, your positioning in the market, and ultimately whether your business survives. Yet most Filipino founders spend more time on their logo than their pricing strategy.

Why Pricing Matters More Than You Think

A 1% improvement in pricing leads to an 11% improvement in profit on average. Compare that to a 1% improvement in volume (which only improves profit by 3-4%). Pricing is the highest-leverage growth tool you have.

The 6 Pricing Strategies

1. Cost-Plus Pricing

The baseline approach: calculate your total costs, add a profit margin, and divide by the number of units. Kevin's example: if your monthly costs are ₱130,000 and you want a 40% margin, your revenue target is ₱182,000. With 10 clients, that's ₱18,200 per month per client.

Best for: service businesses, agencies, consulting. Simple to calculate, ensures profitability, but ignores customer willingness to pay.

2. Value-Based Pricing

Price based on the value your product creates for the customer, not what it costs you. If your SaaS tool saves a business ₱100,000/month in manual labor, charging ₱25,000/month gives them a 4x ROI. They're happy, and your margin is excellent.

Best for: B2B SaaS, enterprise tools, anything with measurable customer impact. Requires understanding your customer's economics deeply.

3. Penetration Pricing

Start with low prices to capture market share quickly, then raise prices once you've built a customer base. Grab, GCash, and other Philippine startups used this approach — subsidizing rides and transactions to build network effects.

Best for: marketplace businesses, network-effect products, businesses where the cost to switch is high once customers are onboarded.

4. Competitive Pricing

Position your price relative to competitors: at parity, above (premium), or below (value). Research what competitors charge, then decide where you want to sit. Below-market works for commodities; above-market requires clear differentiation.

Best for: markets with established pricing norms. Common in e-commerce and consumer products in the Philippines.

5. Bundle Pricing

Combine multiple products or features into packages at a discount compared to buying individually. This increases average transaction value by 15-30% typically. The customer perceives value; you increase revenue per sale.

Best for: products with multiple tiers, add-ons, or complementary offerings. Common in SaaS (Basic/Pro/Enterprise plans).

6. Psychological Pricing

Leverage cognitive biases. The most common: charm pricing (₱999 vs ₱1,000) which exploits the left-digit effect. Anchoring works too — show a higher "original price" to make the actual price feel like a deal.

Best for: consumer products, e-commerce, subscription services. Works in combination with any other strategy.

Which Strategy Fits Your Business?

Pre-revenue startups should start with cost-plus to ensure survival, then evolve toward value-based as they understand customer impact. Marketplace businesses should consider penetration pricing. B2B companies with measurable ROI should go straight to value-based.

The worst approach? Guessing. Use data, talk to customers about willingness to pay, and test different price points. Pricing isn't set-it-and-forget-it — it's an ongoing optimization.