Founders often price too low, out of fear. But a small price increase can transform your profits. If your margin is 20%, a 5% price increase with the same volume raises profit by a quarter.
Three ways to set a price
1. Cost-plus (your floor)
Price = (cost per unit ÷ (1 − target margin)) + GST
If a product costs ₹300 and you want a 40% margin: ₹300 ÷ 0.6 = ₹500 before GST. Never price below the floor for long.
2. Value-based (your ceiling) What is the outcome worth to the customer? Software that saves a pharmacy two hours a day, or prevents ₹20,000 a month of expired stock, is worth far more than its development cost.
3. Competitive (your reality check) What do alternatives cost, including “doing nothing” or “using Excel”? You can price above competitors if you’re clearly better, or below if your cost structure allows it.
Your price should sit between the floor and the ceiling, positioned against the alternatives.
Indian pricing realities
- Price sensitivity is real, but it varies hugely by segment. PhysicsWallah won by making quality affordable. CRED targeted a premium audience.
- Small-ticket and pay-per-use models (sachets, recharges, per-transaction fees) often beat large upfront prices.
- Discounts are addictive. Customers acquired with deep discounts often leave when the discounts stop.
- GST: if you’re registered, factor in the correct GST rate for your product or service, and remember that consumer prices like MRP are tax-inclusive. Check current rates on the GST portal or with your CA.
Pricing tactics that work
- Good / Better / Best tiers. Most people choose the middle option.
- Annual plans with a discount improve cash flow.
- Anchoring: show the premium tier first.
- Charm pricing: ₹499 instead of ₹500 is common in consumer markets.
Test, don’t guess
Offer different prices to different groups (A/B test) or raise prices for new customers and watch conversion. If nobody ever complains about your price, it’s probably too low.
Your takeaway
Calculate your floor, estimate your ceiling, and test a price in between with real buyers. You’ve finished Level 3. Next: set up your company properly in India.