How to Price Your First Product or Service

To price your first product or service, don't start with the lowest price you can think of. Start with how much the problem is worth to your customer, look at what their other options cost, and set a price a little higher than feels comfortable. Then adjust based on how people react.

Most beginners do the opposite. They charge as little as possible to "get started", and it often backfires. Here's why.

Why can a low price make you sell less?

The psychologist Robert Cialdini tells a story in his famous book Influence. A friend of his owned a jewelry store in Arizona, and she had a batch of turquoise jewelry that just wouldn't sell. It was peak tourist season, the store was full, and she had tried everything: better display, more attention from her staff. Nothing.

Before leaving on a trip, she wrote a quick note to her employee: "Everything in this display case, price x ½". She wanted to cut the price in half and get rid of it.

When she came back, every piece was sold. Then she found out why: the employee had read the "½" as a "2". Instead of cutting the price in half, she had doubled it. And at double the price, the jewelry flew off the shelves.

Cialdini's explanation is simple. The buyers were tourists who knew nothing about turquoise, so they couldn't tell good from bad. They used the one clue they had: the price. For most people, "expensive" means "good", and "cheap" means "something is wrong with it".

Your customers are in the same position. Most people hiring a designer, a video editor or a developer can't judge the quality of the work before they buy. So your price tells them something about you, whether you like it or not. Charge too little and you look like the risky option.

And there's a second problem: when everyone competes on price, the cheapest one only wins until someone cheaper shows up. That's exactly what's happening on freelance platforms, as I showed in Upwork Is Dead. Here's the Math.

How do you set your first price?

Answer three questions:

How much does the problem cost your customer? If a store owner loses 10 hours a week answering the same emails, solving that is worth a lot more than "an hour of your time".
What are their other options, and what do they cost? Another freelancer, an agency, a software tool, or doing it themselves. Your price should make sense next to those.
Where do you want to sit? Not the cheapest. Somewhere in the middle, or a bit above if you can explain why you're worth it.

Then pick a number a little higher than feels comfortable. Almost every beginner underprices, so if the price makes you slightly nervous, you're probably closer to the right one.

Should you charge per hour or per project?

Per project, in most cases. When you charge per hour, the client pays for your time, so getting faster makes you earn less. When you charge per project, the client pays for the result, and getting faster means you earn more per hour.

It's also easier for the client. "$600 for a website that brings you bookings" is a clear decision. "$40 an hour, I don't know how many hours" is a risk. Selling results instead of tasks is also what protects you from AI, as I explain in Will AI Take Freelance Jobs?

How do you know if your price is right?

Watch how people react:

Everyone says yes right away. You're too cheap. Raise it.
Some say yes, some say it's expensive. That's about right.
Nobody says yes. The price is too high, or you're talking to the wrong people. Check who you're offering it to before you drop the price.

Guide to check your price: if everyone says yes right away it's too cheap, if some say yes and some say it's expensive it's about right, and if nobody says yes it's too high or aimed at the wrong people.

And don't keep the same price forever. Raise it a little with every new client or every few sales. The ones who leave were mostly paying for cheap. The ones who stay were paying for you.

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Frequently asked questions

How do I price my first product or service?

Start with how much the problem is worth to your customer and what their other options cost, then set a price a little higher than feels comfortable. Adjust it based on how people react.

Why is charging too little a bad idea?

Because many buyers can't judge quality before they buy, so they use price as a clue. A very low price can make you look risky, and it puts you in a race with whoever is cheaper.

Should freelancers charge per hour or per project?

Per project, in most cases. The client pays for a result, which is easier for them to decide on, and you earn more per hour as you get faster.

How do I know if my price is too low?

Look at how people react. If everyone says yes right away, it's too cheap. If some say yes and some say it's expensive, it's about right. If nobody says yes, it's too high or you're talking to the wrong people.