The Price is Right... Or Is It? Your Complete Guide to Pricing Strategies for Small Business

Neha stood in her tiny studio apartment, surrounded by vibrant hand-painted tote bags, scarves, and cushion covers. For two years, she'd been working as a graphic designer at an advertising agency while nurturing her real passion – creating wearable art inspired by Indian folk motifs. Last month, she'd finally quit her job to pursue "Neha's Canvas" full-time.

The decision felt right. Her Instagram following had grown to 12,000 people who loved her designs. Her friends constantly told her she was "too talented to be stuck in a corporate job." She'd saved up six months of expenses. What could go wrong?

Everything, apparently.

Neha had launched her online store three weeks ago with prices she thought were reasonable – ₹1,200 for hand-painted tote bags, ₹2,500 for scarves, ₹3,500 for cushion covers. She'd calculated roughly: fabric cost ₹200, paint and supplies another ₹100, plus her artistic time and skill. These weren't mass-produced items; each piece took 4-5 hours of detailed work. Surely people would understand the value?

Her website had 2,847 visits. Her Instagram posts got hundreds of likes and comments saying "gorgeous!" and "so beautiful!"

Total sales? Three items. All to her college friends.

When Beautiful Doesn't Mean Profitable

"I don't understand," Neha told her older sister Meera, a chartered accountant, during their weekly video call. "People love the designs. They share my posts. But no one's buying. Maybe Indian customers just don't appreciate handmade art?"

Meera raised an eyebrow. "Or maybe you don't understand pricing. Tell me, how did you decide on ₹1,200 for a tote bag?"

"Well, the fabric is ₹200, paints are ₹100, that's ₹300 in materials. The bag takes me 4-5 hours. I thought ₹900 for my time and skill seemed fair, so ₹1,200 total."

"And what about the camera you bought for product photography? The laptop you use for digital mockups? Your internet connection? The packaging materials? Website hosting fees? The Instagram ads you're running? The electricity? And have you checked what similar hand-painted bags are selling for?"

Neha's confident expression crumbled. "I... I didn't think about all that. And honestly? I saw some designer brand selling hand-painted bags for ₹4,500, so I thought ₹1,200 was being generous."

Meera sighed. "Neha, pricing isn't generosity or guesswork. It's strategy. And you've just made one of the most common mistakes – picking a price without understanding whether that price actually works for your business, your costs, AND your market position."

"Wait, there are... strategies? Plural?" Neha grabbed her notebook, suddenly realizing she was about to learn something crucial. "I thought pricing was just... cover your costs and add some profit?"

"Oh, my creative little sister," Meera smiled, "let me introduce you to the world of pricing strategies. Make some tea – this is going to be a long conversation."

Understanding Pricing Strategies: What Are They Really?

"A pricing strategy," Meera began, opening her laptop, "is not just the price you charge. It's the reason you charge that price and the method you use to arrive at it. And trust me, the strategy you choose can make or break your business."

She pulled up a simple diagram. "Think of pricing strategies like different tools in a toolbox. A hammer is perfect for nails but terrible for screws. Similarly, each pricing strategy works brilliantly in certain situations but fails miserably in others."

Neha nodded, her notebook open, ready to take notes.

"Let's start with the most basic one – the one you probably thought you were using, but weren't using correctly."

Strategy #1: Cost-Plus Pricing – Simple But Limited

"Cost-plus pricing," Meera explained, "is exactly what it sounds like. You calculate all your costs, add your desired profit, and that's your price."

Formula: Total Costs + Desired Profit = Price

"This is the safest, most straightforward method. You know exactly what everything costs you, you add a markup – say 30% or 50% – and you're done. No mystery, no guesswork."

When does this work?

• When you're running a very small, often part-time business

• When you're selling to a small, known customer base (like local community)

• When you're doing custom work where each project is unique

• When profit margins are predetermined by industry standards

• When you don't face much competition

"Think about it," Meera continued. "Your neighborhood tailor who stitches blouses charges ₹300 because fabric costs ₹150, thread and supplies ₹20, and she wants ₹130 for her work. Simple cost-plus. The local electrician charges ₹500 per visit plus materials – that's cost-plus pricing."

Real examples:

• Local tailors and alteration services

• Small repair shops

• Neighborhood contractors

• Home tutors (cost = time, markup = skill premium)

• Freelance services in early stages

"But here's the critical limitation, Neha," Meera said seriously. "Cost-plus pricing only works well for small-scale, often non-full-time businesses serving local markets with minimal competition. The moment you scale up, go full-time, or face real market competition, this strategy falls apart."

Why it fails for scaling businesses:

1. Ignores market reality: Just because your costs + markup say ₹1,200 doesn't mean customers will pay ₹1,200. The market might only support ₹800, or it might easily support ₹2,000 – you'll never know with cost-plus.

2. Leaves money on the table: If customers happily pay ₹1,200 without hesitation, you're probably underpriced. You could've charged ₹1,500 or ₹1,800 for the same product.

3. No competitive positioning: You're pricing in a vacuum, ignoring what others charge for similar value.

4. Doesn't account for brand value: Your established brand name might command premium over a newcomer, even with identical costs.

5. Inefficiency gets passed to customers: If you're inefficient and take 6 hours to make what competitors make in 4 hours, should customers pay for your inefficiency?

Neha looked troubled. "So you're saying my ₹1,200 calculation was wrong even though I included my time?"

"Not wrong for a part-time hobby," Meera clarified. "But you quit your job to go full-time. You need a business, not an expensive hobby. Cost-plus pricing is your starting point for understanding your baseline, but it can't be your strategy if you want to build a real business."

"Then what should full-time businesses use?" Neha asked, leaning forward.

"Let me show you the other strategies. Each one works for different business models and market situations."

Strategy #2: Price Skimming – Start High, Then Glide Down

"Remember when Apple launches a new iPhone?" Meera asked. "They price it high. Really high. Then, six months later, the price drops. This isn't random. It's a deliberate strategy called Price Skimming."

"Price skimming," Meera explained, "is when you launch a product at the highest price customers are willing to pay, then gradually lower it over time."

When does this work?

• When you have something innovative or unique

• When there's a group of customers willing to pay premium for being 'first'

• When you need to recover development costs quickly

"Think about it," Meera continued. "When a new smartphone launches, tech enthusiasts camp outside stores to get it first, paying top dollar. They don't care that the price will drop in six months because they value being early adopters. The company makes maximum profit from these customers, then drops the price to attract the next tier of buyers who were waiting."

Real examples:

• Tech companies with new gadgets

• Book publishers with new releases (hardcover first, paperback later)

• Gaming consoles at launch

• Fashion brands with new collections (full price in season, sale price later)

"But here's the thing, Neha," Meera said seriously, "this only works if your product is truly innovative or scarce. You can't use price skimming for hand-painted tote bags when hundreds of artists are already selling similar products, no matter how beautiful yours are!"

Neha nodded, slightly deflated. "So that designer brand charging ₹4,500 can do it because they've built a name over years. I can't."

"Exactly! Now let's look at the opposite strategy..."

Strategy #3: Penetration Pricing – Start Low, Build Trust, Grow Gradually

"Penetration pricing," Meera said, "is when you enter the market with a deliberately low price to attract customers quickly, then gradually increase it once you've built a customer base."

Neha's face lit up. "Like how that new phone company offers internet at ₹99 for the first three months!"

"Perfect example! Or how Netflix initially offered incredibly low subscription prices to get people hooked, then raised them gradually."

When does this work?

• When you're entering a crowded market

• When customers have many similar alternatives

• When you need to build trust and recognition quickly

• When you can actually sustain low prices initially

"But," Meera warned, "penetration pricing is risky for small businesses. You need deep enough pockets to survive selling at low margins initially. Remember Maya's story from that entrepreneur community?"

Neha did remember. Maya's cookie business story was famous – how she'd priced her cookies at ₹50 without calculating all her costs. She'd been doing penetration pricing accidentally, bleeding money she didn't have.

"The Costing Connection," Meera emphasized, pulling up a spreadsheet. "Before you even think about penetration pricing, you need to know your numbers inside out."

She reminded Neha of Maya's painful lesson:

• Direct Costs: Materials directly tied to each unit (fabric, paint, packaging)

• Indirect Costs: Overhead expenses (electricity, internet, equipment depreciation, photography, marketing, website hosting)

• Fixed Costs: Costs that don't change with production volume (rent, subscriptions)

• Variable Costs: Costs that increase with production (materials, packaging, shipping)

Neha gulped. "Should I... should I recalculate my costs properly?"

"Absolutely!" Meera said firmly. "But first, let me tell you about all the other strategies. Then we'll figure out which one suits your business and do the proper costing."

Freemium Pricing is the new Avatar of Penetration pricing largely followed by SAAS and other digital solutions. Canva can be a widely known example, where some of the basic features are free for anyone to use but you pay 'premium' for using advanced features or content; Free+ Premium = Freemium!

Strategy #4: Premium Pricing (Prestige/Snob Pricing) – When High Price IS the Value

"Now this," Meera said with a slight smile, "is where things get interesting. Premium pricing – also called prestige pricing or snob pricing – is when you deliberately price high because high price itself communicates luxury, exclusivity, and status."

Neha looked confused. "Wait, you mean... the high price is the actual selling point?"

"Exactly! For some products, lowering the price would actually destroy their appeal."

The Psychology Behind Premium Pricing:

Think about luxury brands – Chanel handbags, Rolex watches, luxury cars. Could they profitable sell these products for much less? Absolutely. But would people buy them if they were cheaper? Not the same people, no.

"There's a famous story," Meera said, "about a jeweler who couldn't sell turquoise jewelry at ₹5,000. Out of frustration, he accidentally wrote the price as ₹15,000 instead. The entire collection sold out in days. Why? Because at ₹5,000, customers thought it was fake or low quality. At ₹15,000, they believed it was genuine and exclusive."

When does premium pricing work?

• When your brand has strong emotional or aspirational value

• When the target customer equates high price with high quality

• When exclusivity is part of the appeal

• When you're selling luxury, status, or prestige

• When lower prices would actually damage brand perception

Real examples:

• Luxury fashion brands (Gucci, Louis Vuitton)

• Premium cars (Mercedes, BMW)

• High-end restaurants

• Luxury hotels and resorts

• Apple products (even though they use penetration for services)

• Designer jewelry and watches

"The key difference," Meera explained, "between premium pricing and value-based pricing – which we'll discuss next – is that with premium pricing, the high price itself is a feature. Customers want to know it's expensive. They want others to know it's expensive. The price creates the perceived value, not just reflects it."

The Snob Effect:

"There's even a term for it in economics – the Veblen Effect or Snob Effect," Meera continued. "As price increases, demand increases instead of decreasing, because people desire the product MORE when it's expensive. It signals wealth, taste, and status."

"Think about it – would a ₹50,000 handbag signal the same status if it cost ₹5,000? No! The exclusivity comes from the price being out of reach for most people."

Critical Requirements for Premium Pricing:

1. Exceptional quality – The product must deliver on the promise

2. Brand story – Strong narrative about heritage, craftsmanship, exclusivity

3. Target audience – Customers who value status and luxury

4. Consistent positioning – Never discount, never compromise on presentation

5. Limited availability – Scarcity adds to exclusivity

"For small businesses," Meera noted, "premium pricing can work if you're targeting a niche luxury market. But you need the entire package – impeccable quality, beautiful branding, exclusive positioning, and the patience to wait for the right customers."

Neha thought about her hand-painted bags. "So I can't just charge ₹4,500 like that designer brand without the years of brand building, the boutique presence, the celebrity endorsements..."

"Exactly," Meera confirmed. "Premium pricing isn't about being expensive. It's about being expensively positioned in every aspect of your business – from quality to presentation to customer experience. It's a complete strategy, not just a high price tag."

Strategy #5: Competitive Pricing – Follow the Leader (Carefully)

"Competitive pricing is exactly what it sounds like," Meera explained. "You base your prices on what competitors charge, not just on your costs or perceived value."

This strategy has three approaches:

1. Match the Competition: Your price matches the market average. Service stations do this beautifully – drive down any street and petrol prices are nearly identical.

2. Aggressive Underpricing: You deliberately price lower than everyone else to grab market share. "If they raise prices, I keep mine same. If they lower, I go even lower."

3. Dismissive Premium Pricing: You price above everyone else and simply don't react to what competitors do. Luxury brands use this – but note this is different from pure premium pricing. Here you're still aware of competition but choose to position above them.

"The problem with competitive pricing," Meera said, "is that you're always looking at others, never at what actually makes sense for YOUR business. It's like following someone else's GPS instead of checking where YOU actually need to go."

Neha thought about this. "So when I looked at that ₹4,500 designer bag and assumed I should price near there, I was trying competitive pricing without understanding if that made sense for my brand positioning."

"Bingo!" Meera smiled.

Strategy #6: Value-Based Pricing – Price What It's Worth, Not What It Costs

"Value-based pricing," Meera said with emphasis, "is when you price based on how much value customers believe they're getting, not on your costs."

Neha looked confused. "Isn't that... subjective? How do I know what customers think it's worth?"

"That's the challenge – and the opportunity! Let me give you an example. There's a small café near my office. They sell regular coffee for ₹40. Same coffee, same cup, same everything costs ₹200 at the five-star hotel restaurant across the street. What's the difference?"

"The... ambience? The experience?"

"The perceived value!" Meera said triumphantly. "The hotel doesn't price based on coffee bean costs. They price based on the entire experience – the comfortable seating, the prestigious location, the service, the atmosphere. Customers aren't just buying coffee; they're buying the feeling of being in a luxury space."

When does this work?

• When you can clearly demonstrate unique value

• When your brand has emotional or aspirational appeal

• When your product solves a specific problem exceptionally well

• When customers care about benefits, not just features

"Think about it, Neha. What if instead of positioning your tote bags as 'just another hand-painted bag,' you told a story? Each bag is a unique piece of wearable art, inspired by centuries-old Indian folk traditions, hand-painted by a professional artist, no two pieces identical. Suddenly, you're not selling tote bags – you're selling individuality, artistic heritage, and a statement piece!"

Neha's eyes widened. "But... I am doing all those things! I just never thought to emphasize them!"

"That's value-based pricing in action. Your costs might be ₹300-500 per bag, but the value customers perceive could be ₹1,800-2,500 or more if you communicate it right."

Strategy #7: Dynamic Pricing – The Flexible Chameleon

"Dynamic pricing," Meera continued, "is when you adjust prices based on demand, time, or circumstances."

Common examples:

• Airlines charging more during holidays

• Uber's surge pricing during rush hour

• Hotels charging more during wedding season

• E-commerce sites adjusting prices based on your browsing history

"This strategy requires sophisticated systems, so it's typically not the first choice for micro businesses. But," Meera added thoughtfully, "you could use a simplified version. Maybe offer early-bird discounts for bulk festival orders, or charge a premium for urgent custom requests with short turnaround."

Strategy #8: Psychological Pricing – The Mind Games

"Ever wondered why prices end in .99?" Meera asked. "₹199 feels significantly cheaper than ₹200, even though it's just ₹1 difference. That's psychological pricing."

Other examples:

• Bundle pricing (3 bags for ₹3,200 instead of ₹1,200 each)

• Charm pricing (₹1,999 instead of ₹2,000)

• Prestige pricing (₹5,000 for premium products to signal quality)

• Anchor pricing (showing ₹2,500 crossed out, now ₹1,800)

"For small businesses," Meera noted, "psychological pricing is often combined with your primary strategy. It's the finishing touch, not the foundation."

The Industry Factor: Why Your Pricing Strategy Must Match Your Market

"Here's something crucial most new businesses miss," Meera said seriously. "Different industries follow different pricing norms. You can't just pick a strategy because it sounds good – you need to understand what works in YOUR industry."

She pulled up several tabs on her laptop and showed Neha some examples:

Tech Industry: Typically uses price skimming Why? Innovation-driven, early adopters willing to pay premium, rapid obsolescence

Telecommunications: Often uses penetration pricing Why? High customer acquisition costs, focus on long-term subscriptions, intense competition

Luxury Goods: Premium/prestige pricing Why? Brand perception is everything, exclusivity is part of the value, high price signals quality

Grocery Stores: Competitive and cost-plus pricing Why? Thin margins, high volume, commodity products

Service Industries: Often value-based pricing Why? Difficult to quantify costs, perceived value varies greatly

Handmade/Artisan Products (like yours!): Mix of strategies Why? Depends on positioning – mass-market artisans use competitive pricing, premium artisans use value-based pricing, luxury artisans use premium pricing

"So," Neha said slowly, "I need to figure out which segment of the handmade market I belong to first?"

"Exactly! Are you:

• A budget-friendly option competing on price? (Competitive/Cost-plus pricing)

• A quality artisan competing on craftsmanship? (Value-based pricing)

• An exclusive luxury brand competing on prestige? (Premium pricing)

• An innovative newcomer with unique techniques? (Price skimming – though rare in handmade goods)"

Neha thought carefully. "I think... I'm in the quality artisan space. My work is really good, but I'm not at that exclusive luxury level yet. I want people to buy because they appreciate the art and uniqueness, not because it's a status symbol."

"Perfect!" Meera smiled. "That clarity alone will help you price correctly. But before we get to your specific pricing, let me tell you about the two ways businesses die from pricing mistakes."

The Two Deadly Pricing Mistakes

Meera held up two fingers. "There are two ways businesses die from bad pricing. Let me tell you about both."

Mistake #1: Underpricing (The Slow Death)

"This is what happened to Maya, and what could happen if you price too low. You underprice because:

• You don't calculate all costs correctly

• You want to be 'affordable' to attract customers

• You think volume will compensate for low margins

• You're scared to charge what you're worth"

The devastating effects:

• You work harder and make less money

• You can't afford quality improvements

• You can't afford marketing

• You attract price-sensitive customers who'll leave for cheaper options

• You burn out trying to make impossible math work

• Your business slowly dies despite having happy customers

"Remember Maya?" Meera said. "She had customers, great reviews, worked 12-hour days... and was still broke. That's underpricing. The saddest part? Her customers would've happily paid ₹65-70 if she'd just asked, because the cookies were genuinely good!"

"Let me show you what underpricing looks like in real numbers for your bags:"

Scenario: Underpricing

• Fabric & materials: ₹300

• Paint & supplies: ₹150

• Packaging: ₹50

• Direct cost per bag: ₹500

• Monthly indirect costs:

  - Equipment depreciation: ₹2,000

  - Photography equipment: ₹1,500

  - Internet & website: ₹1,000

  - Marketing (Instagram ads): ₹3,000

  - Electricity: ₹800

  - Product photography props: ₹700

  Total monthly indirect: ₹9,000

  If you make 20 bags per month: Indirect cost per bag: ₹9,000 ÷ 20 = ₹450

  REAL COST PER BAG: ₹500 + ₹450 = ₹950

  If you price at ₹1,000 per bag: Profit per bag: ₹50

  Monthly profit (20 bags): ₹1,000; That's ₹1,000 per month for full-time work. Less than what you'd earn in two days at your old job!

"See the problem?" Meera asked. "Even if you sell everything, you can't survive. That's underpricing. And this doesn't even account for your time, skill, or the years of practice that went into mastering your craft!"

Mistake #2: Overpricing (The Fast Death)

"You priced too high because:

• You compared yourself to the wrong competitors

• You overestimated your brand recognition

• You didn't understand your target customer's willingness to pay

• You priced based on quality alone, ignoring market positioning"

The devastating effects:

• No one buys, no matter how good the product

• Cash flow dries up immediately

• You can't cover fixed costs

• Inventory piles up unsold

• You're forced to discount heavily, damaging brand perception

• Business dies quickly, often before you can pivot

"The difference," Meera explained, "is that underpricing kills you slowly while you work yourself to death. Overpricing kills you quickly while you sit confused with unsold inventory. Both are deadly."

"At ₹1,200 per bag, you were asking too much for an unknown brand. Customers saw similar-looking bags from more established artists at ₹800-1,000. Why would they risk ₹1,200 on someone new? But if you go too low – say ₹600 – you can't survive even if you sell out. You're trapped."

Neha looked worried. "So how do I find that sweet spot?"

Finding YOUR Right Price: The Costing Foundation

"Before we pick a strategy for your bags," Meera said, "let's make sure you actually know your costs." She opened a fresh spreadsheet:

NEHA'S REAL COSTS CALCULATION

• DIRECT COSTS (per tote bag):

  - Fabric: ₹200

  - Paints & supplies: ₹100

  - Packaging box: ₹30

  - Tags & care labels: ₹20

  = Total Direct: ₹350

  
  

• INDIRECT COSTS (Monthly, divided by 20 bags):

  - Laptop depreciation: ₹3,000 ÷ 12 months = ₹250

  - Camera & lighting: ₹2,000 ÷ 12 months = ₹167

  - Internet & website hosting: ₹1,200

  - Instagram ads & marketing: ₹3,000

  - Electricity: ₹800

  - Photography props & setup: ₹500

  - Packaging materials (bulk): ₹300

  - Transportation (fabric shopping, courier): ₹800

  = Total Monthly Indirect: ₹7,017

  If producing 20 bags per month: Indirect cost per bag: ₹7,017 ÷ 20 = ₹351

  
  

  TOTAL REAL COST PER BAG: ₹350 + ₹351 = ₹701

  
  

  DESIRED INCOME (minimum):

  Your old salary was ₹40,000/month

  For 20 bags: ₹40,000 ÷ 20 = ₹2,000 per bag for your time and skill

  
  

  MINIMUM VIABLE PRICE: ₹701 + ₹2,000 = ₹2,701

  
  

  But wait! This assumes you sell all 20 bags.

  Reality check: 50% sell-through rate initially

  So double the per-unit income need: ₹4,000 per bag

  
  

  REALISTIC MINIMUM PRICE: ₹701 + ₹4,000 = ₹4,701

  
  

Neha's jaw dropped. "₹4,701? But... that's more than the ₹4,500 designer bags I thought were too expensive!"

"Exactly," Meera said gently. "This is why so many creative people fail in business. They think ₹1,200 is plenty because they only count fabric and paint. But your real costs are much higher, and your time has real value."

"See why costing calculation is the foundation?" Meera emphasized. "Without knowing your real costs:

• You can't do penetration pricing (might lose money like Maya)

• You can't do competitive pricing intelligently (might underprice yourself into bankruptcy)

• You can't do value-based pricing confidently (no baseline to work from)

• You can't do cost-plus pricing at all (need to know costs!)

No strategy works without accurate costing. Period."

"But," Meera continued, "this also shows you why you can't just blindly use cost-plus. The market won't support ₹4,701 for a hand-painted tote bag from an unknown artist, even if that's your real cost. So now you have three choices."

Neha's Pricing Transformation: Putting It All Together

"Okay," Meera said, "let's figure out the right strategy for YOUR business. You have three paths forward."

Option 1: Reduce Costs

• Use slightly cheaper materials (₹150 fabric instead of ₹200)

• Increase production volume (30 bags instead of 20, reducing per-unit indirect costs)

• Reduce marketing spend initially

• Work from home instead of renting studio

New calculation: Could potentially get cost down to ₹500 per bag, plus ₹1,500 for your time = ₹2,000 minimum

Option 2: Increase Perceived Value

• Better photography and presentation

• Strong brand storytelling

• Limited edition collections

• Certification of authenticity

• Build social proof through collaborations

This justifies higher pricing through value-based strategy

Option 3: Combination Strategy

• Optimize costs where possible

• Increase perceived value significantly

• Choose right target market

• Use appropriate pricing strategy

"Let's go with Option 3," Meera suggested. "Here's the systematic process:"

Step 1: Know Your Costs ✓ Real cost per bag: ₹701 (after optimization) Minimum income need: ₹1,500 per bag (realistic target) Minimum price: ₹2,201

Step 2: Research Your Competition

• Mass-market printed bags: ₹300-600 (not your competition)

• Hand-painted local artists: ₹800-1,200 (your direct competition)

• Established artisan brands: ₹1,800-2,800 (aspiration level)

• Designer/luxury brands: ₹4,000-8,000 (not realistic yet)

Step 3: Define Your Positioning "Who are you competing with, Neha?"

After discussion, Neha realized: "I'm not competing with ₹500 mass-market bags. My folk art designs, hand-painting technique, and artistic background put me in the ₹1,800-2,500 established artisan range, not the ₹800-1,200 beginner artist range. But I need to prove I belong there first."

Step 4: Understand Your Customer "Who's actually buying ₹1,800-2,500 hand-painted bags?" Meera asked.

Neha thought: "People who appreciate art, care about unique handmade items, can afford premium but not luxury prices. They're shopping at art exhibitions, boutique stores, design festivals, conscious lifestyle brands."

Step 5: Choose Your Strategy

Neha's Decision: Modified Value-Based Pricing with Growth Plan

Phase 1 (Months 1-3): Building Credibility

• Price: ₹1,499 per bag (psychological pricing under ₹1,500)

• Strategy: Slightly lower than established competition to build portfolio

• Focus: Getting testimonials, photos of products in use, building social proof

• Profit: ₹798 per bag (after ₹701 cost)

• Target: 15 bags sold = ₹11,970 monthly

Phase 2 (Months 4-6): Establishing Value

• Price: ₹1,899 per bag

• Strategy: Value-based with strong storytelling

• Added value: Better packaging, authentication certificate, care instructions

• Profit: ₹1,198 per bag

• Target: 20 bags sold = ₹23,960 monthly

Phase 3 (Months 7-12): Premium Positioning

• Price: ₹2,299-2,499 per bag

• Strategy: Full value-based pricing

• Added value: Limited edition collections, collaboration pieces

• Bundle: 2 bags for ₹4,200 (savings of ₹798)

• Profit: ₹1,598-1,798 per bag

• Target: 22 bags = ₹35,156-39,556 monthly

Why this works:

• ✓ Above her ₹2,201 realistic minimum (eventually)

• ✓ Positioned in established artisan segment where she belongs

• ✓ Not competing on price with beginners

• ✓ Not overpriced compared to her current brand recognition

• ✓ Growth plan allows building reputation before premium pricing

• ✓ Leaves room for promotional bundles without losing money

• ✓ Communicates quality without being exclusionary

The Relaunch: Six Months Later

Neha relaunched "Neha's Canvas" with her new pricing and positioning. Here's what changed:

Before:

• Price: ₹1,200 (overpriced for unknown brand, underpriced for her costs)

• Messaging: "Hand-painted tote bags"

• Placement: Generic Instagram posts

• Sales in 3 weeks: 3 bags (only friends)

• Profit: Negative (couldn't even cover costs with 3 sales)

• Mental state: Devastated, questioning her decision to quit

After:

• Price: ₹1,499 initially, moved to ₹1,899 by month 4

• Messaging: "Wearable art inspired by Indian folk traditions. Each piece hand-painted by professional artist Neha Sharma. No two pieces identical."

• Placement: Art exhibitions, design markets, Instagram with proper hashtags, boutique consignment

• Sales in 3 months: 42 bags (14 per month average)

• Profit in first 3 months: ₹33,516 (₹798 per bag × 42 bags)

• After 6 months: Moved to ₹1,899 pricing, selling 18-20 bags monthly, making ₹21,564-23,960

"It's not magic," Neha told a fellow artist who asked for advice. "It's about understanding the complete picture – your real costs, your market position, and which pricing strategy actually matches your business reality. I almost quit because I didn't understand either end – I was both overpriced for my brand positioning AND underpriced for my actual costs!"

She added, "The breakthrough was when Meera made me calculate everything – not just fabric and paint, but internet, electricity, equipment depreciation, marketing, everything. Only then could I see what price I actually needed. And only after researching my competition did I realize where I fit in the market."

Quick Overview: Other Business Scenarios

While we've followed Neha's journey with her hand-painted bags, here's how other small business enthusiasts in different industries might approach pricing:

Raj's Artisan Pickle Business:

• Challenge: Crowded food market with everything from ₹50 commodity pickles to ₹250 luxury brands

• Strategy: Value-based pricing at ₹149, emphasizing grandmother's 60-year-old recipe, organic Ratnagiri mangoes

• Lesson: Positioned in premium ₹140-180 segment, not luxury ₹220+ or commodity ₹60-90. Strategy matched market reality.

Arjun's IT Consulting:

• Challenge: Hard to quantify value, varies by client, competing with both freelancers and agencies

• Strategy: Value-based with package pricing (Basic/Professional/Enterprise at ₹15,000/₹35,000/₹75,000)

• Lesson: Service pricing needs clear value communication; packages make comparison easier and reduce price negotiation

Priya's Home Bakery:

• Challenge: Similar to many food businesses, intense local competition

• Strategy: Started with competitive pricing (matched market at ₹600 per kg) to build customer base, then shifted to value-based for custom cakes with premium pricing (₹1,200-1,500 per kg)

• Lesson: Can use different strategies for different product lines and different business stages

Meera's Financial Consulting:

• Challenge: New CA in practice, competing with established firms

• Strategy: Started with cost-plus (₹500/hour based on time) but quickly learned it undervalued expertise. Shifted to value-based (₹15,000 flat fee for tax returns regardless of hours)

• Lesson: Cost-plus works initially but doesn't scale; clients pay for value and results, not hours

Vikram's Fitness Coaching:

• Challenge: Gym trainers charge ₹500/session, online programs charge ₹5,000/month, luxury trainers charge ₹20,000/month

• Strategy: Premium positioning at ₹12,000/month for personalized programs, not competing with gym trainers or cheap online programs

• Lesson: Chose premium pricing strategy with complete value package – custom nutrition plans, 24/7 WhatsApp support, weekly video check-ins

Anita's Eco-Friendly Cleaning Products:

• Challenge: Conventional products are ₹50-100, hers cost ₹200-300

• Strategy: Premium pricing targeting environmentally conscious urban professionals, not competing on price at all

• Lesson: Serve a specific customer segment willing to pay for aligned values; trying to compete with conventional products on price would be suicide

The common thread? Know your real costs including all indirect expenses, understand your competitive landscape, choose a strategy that matches your actual market positioning, and be willing to adjust as you learn.

The Bottom Line

As Neha photographed another batch of her hand-painted bags for a boutique order, she reflected on her journey. "You know what the biggest lesson was?" she told Meera during their weekly call. "Pricing isn't just a number. It's a decision that communicates who you are, who you serve, and what you stand for."

"And," she added with a laugh, "it has to be based on real math, not artistic optimism. Thanks, Maya, for learning that cost calculation lesson so publicly that the rest of us didn't have to!"

The Golden Rules of Pricing:

1. Calculate your real costs FIRST – Include EVERYTHING: direct materials, indirect overhead, equipment depreciation, marketing, utilities. Missing even one category can destroy your profitability.

2. Understand that Cost-Plus Pricing has limits – It works for very small, often part-time businesses with local customers. But if you're going full-time or scaling up, you need more sophisticated strategies.

3. Know your industry norms – Different markets follow different pricing patterns. Handmade goods follow different rules than tech products. Food businesses work differently than services.

4. Understand your positioning – Are you budget, premium, luxury, or somewhere between? Your price must match this positioning, not contradict it.

5. Choose a strategy that matches reality – Don't pick price skimming if you're not truly innovative. Don't use premium pricing if you haven't built the brand to support it.

6. Avoid the two deadly mistakes – Underpricing kills slowly through exhaustion and unsustainability. Overpricing kills quickly through no sales and cash flow crisis. Calculate your real minimum viable price, then ensure market can support it.

7. Remember Maya's lesson about indirect costs – Indirect costs are real costs. Equipment depreciation, electricity, internet, marketing, transportation – these aren't optional add-ons. They're essential expenses that MUST be included in your calculations. Ignore them at your peril.

8. Test and adjust – Your first price doesn't have to be your forever price. Neha started at ₹1,499, moved to ₹1,899, and plans to reach ₹2,299-2,499 as her brand grows. Pricing is a journey, not a one-time decision.

9. Communicate your value clearly – If you don't tell customers why you cost what you cost, they'll assume you're just expensive. Value-based pricing only works when customers understand the value.

10. Different strategies for different situations – You might use competitive pricing for one product line and value-based for another. Premium pricing for limited editions and psychological pricing for everyday items. Mix strategies intelligently.

Pricing isn't a dark art or pure guesswork. It's a strategic decision based on accurate costing, market reality, competitive positioning, and business goals. Get it right, and you build a sustainable business. Get it wrong, and even the most beautiful product won't save you.

So before you print those price tags, before you list your product online, ask yourself:

• Have I calculated my real costs, including ALL indirect expenses?

• Do I understand my market and where I fit in the competitive landscape?

• Does my pricing strategy match my business positioning and stage?

• Can I survive at this price, and will customers actually pay it?

• Am I making either of the two deadly mistakes – underpricing or overpricing?

Answer these honestly, and you're already ahead of most small businesses struggling with pricing.

Now, if you'll excuse Neha – she has a design consultation with a boutique owner who wants to stock 30 of her bags. At ₹1,899 each. And she knows exactly why that price works – for her costs, for her positioning, and for her business.

Remember: The right price isn't the highest price you can charge or the lowest price that attracts customers. It's the price that reflects your value, covers all your costs (direct AND indirect), ensures sustainable profit, and matches the expectations of your target market. Find that sweet spot, and you've found your recipe for success.

What's your pricing story? Are you underpricing and working yourself to exhaustion like Maya almost did? Or overpricing and wondering why customers aren't buying like Neha initially experienced? Share in the comments – we all learn from each other's pricing journeys!

P.S. Still not sure about your costs? Grab a piece of paper right now and list EVERYTHING:

• Direct materials

• Packaging

• Equipment depreciation (cost ÷ expected life in months)

• Utilities (electricity, gas, water)

• Internet and subscriptions

• Marketing and advertising

• Transportation and delivery

• Photography and content creation

• Website and technology

• Insurance and licenses

• Any other business expense

Divide monthly costs by your production volume. That's your real cost per unit. Only then can you choose the right pricing strategy.

Because as Neha learned the hard way – you can't build a pricing strategy on incomplete information. And as Maya proved – missing your indirect costs doesn't make them disappear. It just makes them quietly destroy your business while you're too busy working to notice.