Small Business Pricing Strategy | Tory Burch Foundation

For founders, putting a price on a product can often feel like a shot in the dark. Set it too high and you risk losing customers; too low and you may regret it later. So how do you strike the balance? 

Enter FiBrick CEO Ramona Cedeño. A certified public accountant and financial planner, and the author of Simple Choices Big Rewards in Money, she joined our webinar series to break down everything you need to know about pricing strategy, from the essential elements to the strategic framework that sets you up for long-term growth. 

“Pricing is a leadership decision,” Cedeño said. “When we don’t do the homework to determine what the optimal pricing is, that can be the difference between succeeding or failing. You owe it to yourself to get it right.”

WHY THE RIGHT PRICING MATTERS

Pricing strategy is more than just a number on a page; it impacts every part of your business, especially market positioning and cash flow. 

Market positioning: Your price range telegraphs what you stand for, drawing in the appropriate audience segment. If you’re known for quality, responsiveness and excellent service, your customers will be willing to pay a premium. Prioritize value, and you’ll pull in a cost-conscious crowd.

Cash flow: Let’s say you offer a lot of discounts at the beginning of the year because the season is slow and you want to incentivize the customer. That means the quarter’s cash flow is going to suffer significantly. “Does your pricing give you the cushion to sustain that cyclical cash flow?” Cedeño asked. “You need to map that out.”

4 SIGNS YOUR PRICING IS COSTING YOU MONEY. 

High revenue, but low cash

Top-line sales are robust, but your bank account tells a different story. Surprise: expenses are eating into the profits. 

Constant busyness—with thin margins

Orders are coming, clients keep calling—great, right? No, not if your margins are shrinking. Not only are you wasting inventory, but you’re wasting time—both yours and your team’s. Remember, that growth requires margin. 

Scope creep

Initial pricing may not account for, say, returned inventory or extra work. And if you underprice to gain a client, you may end up paying for it later if the scope expands or requires more resources than planned. 

Discounts

Offer a discount at the beginning and you set the tone for the rest of the engagement. “It tells the other person that you are willing to give something up,” Cedeño said. 

HOW TO PRICE FOR GROWTH. 

“If your price only covers what you see”—like immediate costs or competitor rates—”it will never support where you want your business to go next,” said Cedeño. 

1. Look at the full picture. 

 Start with your growth plan. Pricing should include every business expense (see #2 for a checklist) as well as your long-term goals. Factor in future needs, like additional hires or overhead.  

2. Know your total costs. 

Project how your pricing will cover your expenses, starting with your cost of goods—the costs directly tied to your product or service. These include materials, labor and packaging. No detail is too small. “If you have someone bring inventory into the warehouse,” said Cedeño, “add it.” 

Note that the above doesn’t include labor from employees who, for example, do administrative tasks or sell. “Direct labor means getting the product ready for sale before the customer walks in the door,” Cedeño clarified. Your cost of goods includes “anything you are using to deliver your services,” she said. That means that for tech companies, software hosting counts, too.

Then, there are your day-to-day operating costs, from fixed overhead costs—e.g., rent, equipment, marketing, software—to risk management, such as legal and insurance.

A crucial expense that’s often overlooked? Taxes. Cedeño recommended setting aside a portion of your profit, anywhere from 25 to 35 percent. You can also set up a payment plan with the IRS. She asked founders to consider this: “When you’re thinking about what you want your net income to be—is that before or after taxes?” 

Finally, don’t forget to include salaries—including your own. “At least once a week, a business owner tells me how hard they work and yet they cannot pay themselves a decent salary,” said Cedeño, who suggested early-stage founders take 70 to 80 percent of net income. (If you’re a single-member LLC or an S-corp, you need to leave money in the business.) Those who are more established should review their profit and loss statement (P&L) to identify where costs can be cut and revenue increased. 

Pricing is a leadership decision. When we don’t do the homework to determine what the optimal pricing is, that can be the difference between succeeding or failing.

3. Use data, not guesswork, to guide pricing. 

Never calculate a price without the numbers to back it up. Determine the market value locally, state-wide and within your industry.  

Then, examine the range. If a company is selling the product for half the price—how are they surviving? If others are charging more, what are they adding to the perceived value that makes it worth it? 

4. Focus on margin, not volume. 

It’s easy to get excited about big sales numbers or having a lot of customers, but if your margins are slim and you’re not making a profit, that won’t matter. “You’re putting in so much effort without making money,” said Cedeño.

5. Don’t price based on the competition. 

“The fact that the accounting firm next door prepares a tax return for $1,000 doesn’t mean I have to,” Cedeño said, urging founders to focus on their added value. For example, do you have a reputation for handling urgent matters immediately? If so, account for that in your costs. “Accessibility is priceless when you need it,” she pointed out. 

6. Revisit and review. 

Even someone like Cedeño makes it a habit to review her pricing. “Don’t set it and forget it,” she said. “Price with a growth mindset and evaluate and update on a regular basis.” If you think it’s time to review your pricing, consider using Cedeño’s FiBrick Pricing Calculator, a handy Excel that walks you through the math of determining your optimal pricing structure. If the estimated gross margin and net income in the P&L fall below your targets, think about what other line items need to change to improve those figures—and, don’t forget, this is all pre-tax.

HOW TO INCREASE VALUE AND MARGINS.

 Now that you know what your prices should be, how do you get there? 

Start by introducing pricing structures, such as bundles and add-ons to increase your unit economics. For example, a $10 product can be bundled with a warranty. That boosts perceived value with minimal or no additional costs. Offering premium options—e.g., speed, access, customization—does the same. 

Volume is another way to lift your average order value. “Once you have your ideal pricing, if you can sell more without incurring more operating expenses,” Cedeño said, “that’s an amazing place to be.” 

Service providers, she added, should skip the hourly rates; those are hard to scale. 

HOW TO RAISE PRICES WITHOUT LOSING CUSTOMERS.

There’s a psychological component when adjusting your pricing—customers will resist an increase if they’re used to paying less. 

Instead of relying on discounts, introduce tiered pricing with a clear path to the next level. “The day the discount goes away,” said Cedeño, “customers will look somewhere else for something cheaper.” Tiers will set them up for the next step once they can afford it. 

For founders with direct-client businesses, Cedeño suggested a phased approach. Test the higher prices with new customers first and gauge the reaction before moving on to existing customers, starting with those who are absorbing the most resources and whom you’d be OK losing. 

What if you’re targeting a luxury price point without the brand recognition to match? If you’re in a service industry, Cedeño advises highlighting the pain point you’re solving for your clients. For product-based founders, the answer lies in marketing. “Create buzz on how good your product is and how it makes people feel,” she explained. “Make sure the price makes sense and that you’re able to tell the appropriate story.”