Why most founders get pricing wrong (and how to fix it)
Most founders fall into the same trap when they start pricing their product.
You’ve coded until your eyes are about to fall out, and you’ve obsessed over every detail of your product or service.
Now comes the moment of truth: pricing it. And what do most founders do? They calculate how long it took to build, figure out the cost, and then slap a little extra on top for profit.
That should make sense, right? You put in the time; you deserve to be paid for it. But that kind of thinking is a mistake, a big one. And it’s killing your growth.
You’re undervaluing the impact you have on your customers, and worse yet, you’re setting yourself up for a race to the bottom.
If you want your startup to grow like wildfire, you’ve got to start pricing based on value, not time and not cost.
Let’s look why this is the strategy that makes sense and how you can start using it today
Why you shouldn’t set your price based on time
You’re probably thinking, “I spent all this time developing my product, shouldn’t I be compensated for that?”
Well, yes. And you will. But here’s the thing: Your customers don’t care how long it took you to build your product. They don’t care if you spent a hundred hours or a thousand hours on it. All they care about is the result you deliver for them.
Let’s say you’re a developer, and you charge $100 an hour for your services. If you work 8 hours a day, that’s $800 a day. Sounds pretty good, right?
Congratulations, you just capped your earnings at $800 a day.
No matter how great your work is, no matter how much value you deliver to your clients, that $800 is your ceiling. It doesn’t matter if your solution generates millions of dollars in revenue for them—you’re still stuck with that hourly rate.
Even worse, as you get better at what you do, your income can actually decrease. Why? Because you’re getting faster. You’re solving problems in less time, which means you’re charging for fewer hours.
Does that sound fair to you? Of course not.
Now, how can you change that? Instead of charging for time, you charge for the outcome you deliver. You’re no longer bound by the clock. Instead, you’re getting paid based on the value you create.
Suddenly, your income isn’t capped at $800 a day. If your product or service delivers $100,000 in value to your customer, you could charge $10,000, $20,000, or more.
This is what happens when you price on value: you’re no longer selling hours, you’re selling results. And people pay handsomely for results.
Why you shouldn’t set your price based on time
So if pricing based on time is a losing game, what about pricing based on cost? Surely that’s better, right?
Wrong again. Your costs have absolutely nothing to do with the value you’re delivering to your customer.
Let’s take a look at an example. You’ve developed a piece of software that costs you $50,000 to build. It’s easy to think, “I’ll just add a profit margin and charge $70,000.”
But let’s say that software is going to save your customer $2 million in operational costs. What’s more important to them—the $50,000 you spent to build it or the $2 million it’s going to save them?
Clearly, the value is in the savings, not in your costs.
By pricing based on cost, you’re leaving money on the table. You’re undervaluing what your product is worth to your customers, and they’d be willing to pay a whole lot more if they knew how much you were helping them.
Stop thinking about what it costs you to build. Start thinking about what it’s worth to your customers.
Why you should price on value
Let’s get to the good stuff. If pricing based on time or cost is such a disaster, what’s the solution?
The answer is simple: value-based pricing.
Here’s how it works: instead of thinking, “This product took X hours to build, so I’ll charge Y,” you ask yourself, “What is this product worth to my customer? How much value does it deliver?”
If you’ve built a marketing tool that helps companies increase their sales by 20%, you’re not going to price it based on how long it took to code. You’re going to price it based on how much money it helps your customers make.
People are happy to pay a lot for something that makes them more money, saves them time, or reduces their risk. That’s the real value you’re delivering, and that’s where your price should come from.
Switching to value-based pricing doesn’t just increase your revenue—it changes the entire relationship you have with your customers.
You’re no longer seen as just another vendor. You become a partner. Someone who’s invested in their success, paid on the impact you’re making.
That’s powerful. It builds trust, and it makes customers more loyal to you because your success is tied directly to theirs. If a customer is paying you based on the value you deliver, they’re not going to argue over price.
They know they’re getting a great return on their investment. You’re not a cost on their balance sheet—you’re a revenue driver, a problem solver, and they’ll stick with you.
How to price based on value
“Okay, this sounds great, but how do I actually figure out the value my product delivers?”
It all comes down to understanding your customer’s problems and the impact your product has on them.
Here’s what you need to do:
1. Identify their pain points – What is your customer’s biggest problem? What’s keeping them up at night? Is it lost revenue, inefficiency, wasted time, or something else?
2. Quantify the value of tour solution – How much money can you save them? How much more revenue can you help them generate? How much time can you free up for them? Quantify it. If you’re helping them save $100,000 a year, that’s the value you’re delivering.
3. Price based on impact – Once you know the impact you’re having, your pricing should reflect that. If your solution saves them $100,000 a year, they’ll happily pay $10,000 or $20,000. After all, it’s still a massive win for them.
Another tip, which for some businesses works wonders, is to consider using a performance-based model.
Rather than charge a flat fee, you charge a percentage of the results you help them achieve. If your product increases their revenue by 20%, you take a slice of that pie.
How to make the shift today
You’ve heard the case for value-based pricing, and now it’s time to put it into action.
Here’s what you need to do:
1. Stop pricing based on time or cost – It doesn’t matter how many hours you spent or what it cost you to build. That’s irrelevant. Start thinking in terms of value.
2. Get to know your customers – Talk to them. Find out what their biggest challenges are. Figure out how much your product is worth to them. You need to know their problems better than they do and how much it’s worth to solve them.
3. Set prices based on impact – Once you understand the value you’re delivering, set your price accordingly. Don’t be afraid to charge more if you’re solving big problems. Customers will happily pay for results.
4. Experiment and refine – Value-based pricing isn’t an exact science. You’ll need to experiment, talk to customers, and adjust as you go. But once you get it right, you’ll see a massive difference in your revenue and the strength of your customer relationships.
This will take you down the path for startup pricing success.
Final thoughts
Value-based pricing is a mindset shift that can transform your startup.
It allows you to capture the true worth of what you’re offering and aligns your revenue with the success you create for your customers.
When you make the shift, you’re no longer selling hours or covering costs—you’re selling outcomes. And outcomes are what customers are willing to pay for.
So don’t get trapped in the old ways of thinking. Start pricing on value today, and watch your startup grow like never before.
