Idea to Pricing: A Simple Formula for Your First 3 Offers

You’ve got an idea, but how do you turn it into something people will pay for? The process can feel overwhelming, especially when pricing comes into play. Pricing isn’t just about numbers - it’s about understanding your customers and proving your product’s value. Here’s a simple, actionable formula to guide you:

Validate Your Idea: Identify the problem your product solves, gather feedback from real potential customers (not just friends), and test demand before building anything.
Create 3 Offers:
- Basic: Solve one key problem with an easy-to-understand solution.
- Mid-Tier: Add more features or functionality for teams or advanced users.
- Premium: Offer a complete solution with exclusive benefits for high-value customers.
Set Prices: Base prices on costs, perceived value, and competitor benchmarks. Use psychological pricing techniques to influence customer choices.
Test and Refine: Validate pricing with small-scale tests, adjust based on feedback, and tailor offers to match different customer needs.

This approach helps you focus on customer value, test pricing effectively, and create offers that appeal to a range of buyers. Remember, your first offers don’t have to be perfect - they’re stepping stones to learning what works.

4-Step Formula: From Idea to Pricing Your First 3 Offers

How to Price Your Offer & Close More Sales (The 3-Part Offer Framework)

Step 1: Validate Your Idea

Before diving into pricing strategies, the first step is making sure your idea addresses a problem people genuinely care about. And no, your friends' opinions don’t count - seek feedback from strangers who are ready to pay.

Identify the Problem You're Solving

Start by clearly defining the pain point your idea tackles. Many successful entrepreneurs begin by addressing their own frustrations, which gives them an edge in understanding their target audience. But personal experience alone isn't enough. You need to dig deeper and figure out how potential customers currently deal with the problem. Are they juggling multiple tools? Spending money on temporary fixes? Wasting hours on manual workarounds?

Here’s the thing: there’s a gap between actual value and perceived value. Actual value is the measurable benefit of solving the problem, while perceived value is often lower because potential customers may not fully understand or trust what you're offering. Your goal is to pinpoint that "aha" moment when your solution demonstrates its worth.

Take the 2020 example of Prepared, a video streaming service for 911 dispatchers. Their "aha" moment came when a dispatcher used their tool to guide a bystander through CPR while waiting for first responders. That life-saving moment instantly proved the product’s value.

Once you’ve nailed down the problem, it’s time to gather direct insights from your target audience.

Collect Customer Feedback

To get real feedback, step outside your comfort zone. Friends and family often sugarcoat their opinions, so instead, connect with people who actually experience the problem you’re solving. Use cold emails or LinkedIn to reach out. For instance, the founders of Kubecost interviewed over 120 teams in just two months back in 2020. They were looking for genuine excitement - customers whose enthusiasm showed they were ready to pay.

When conducting interviews, steer clear of leading questions. Jeanette Mellinger, a UX expert, offers this advice:

"Make space for the things you don't want to hear - those are the ones that will make your product better".

Actions speak louder than words. Statements like "I would buy that" are meaningless. Real validation comes when someone shares their email, schedules a follow-up, or even puts down money.

Once you’ve confirmed there’s a real need, the next step is to test the market’s willingness to pay.

Test Market Demand

After identifying customer pain points and validating their needs, it’s time to see if they’ll actually invest. A straightforward way to do this is by setting up a simple landing page with a clear call to action - whether it’s an email signup, a pre-order form, or a "notify me" button. This "fake door" method helps gauge interest before you commit to building anything.

Focus on testing your riskiest assumption first. For example, if your business model hinges on customers paying $30 per month, validate that price point before worrying about additional features. A great example is Popl, a digital business card company. In 2024, they discovered through customer interviews that professional users valued their product far more than casual social users. Co-founder Nick Eischens used this insight to shift the company’s direction, aligning the product with real market demand.

Step 2: Create Your First 3 Offers

Now that you've confirmed there's demand for your product or service, it's time to craft three well-defined offers. These offers should cater to different customer needs, ensuring you address a broader audience while showcasing the value you bring.

Offer 1: Basic Solution

Start simple. Your basic offer should tackle one pressing problem with minimal effort while delivering meaningful results. As JD Meier wisely says, "If you can't write the offer on a sticky note, it's not ready".

When naming this offer, focus on the outcome rather than the features. For example, instead of something generic like "Foundations Workshop", go for a name like "Launch Your First Offer in 7 Days", which clearly communicates the result customers can expect. Consider formats like a power hour, a short challenge (e.g., 7 days), or a straightforward 3-step process.

For pricing, you can begin with a freemium model or a simple flat fee. Choose a price that feels slightly ambitious but still aligns with the value you’re delivering. Keep in mind that B2B buyers are unlikely to switch to a solution that costs two or three times more than their current option. The goal here is to make your basic offer an easy and logical first step.

Offer 2: Mid-Tier Package

Your mid-tier offer should cater to customers who need more robust functionality, especially teams or groups. Think about adding features like collaborative tools, version history, shared folders, or administrative controls.

Positioning is key here. A premium plan can serve as a psychological anchor, making your mid-tier package feel like a balanced and attractive choice. Highlight the tangible benefits this package offers - time saved, reduced workload, or faster results. Structuring tiers with feature-based limits or usage caps can also encourage users to upgrade naturally as their needs expand.

Offer 3: Premium Package

For customers seeking a complete solution, your premium package should deliver a transformative experience. This tier is for those who value exclusivity and advanced features, such as custom integrations, white-label options, dedicated account management, or enhanced security settings.

This premium option not only appeals to high-value customers willing to pay more but also reinforces the appeal of your mid-tier package by acting as a psychological anchor. To ensure these premium features resonate, consider testing them manually through a "Concierge Test" to gauge whether high-value customers are ready to invest.

You might also reward early adopters with perks like a permanent discount or a free account to build goodwill and thank them for their trust. As JD Meier reminds us, "Your first offer isn't about perfection - it's about proof". Use the feedback you gather post-launch to refine and improve your packages over time.

With these three offers in place, the next step is to determine pricing that reflects the distinct value each one delivers.

Step 3: Set Your Prices

Now that you've outlined your three offers, it's time to determine pricing that reflects their value while balancing costs, customer expectations, and market trends.

Apply the Pricing Formula

Start by calculating your baseline costs. This includes the sum of material expenses, labor value (such as your hourly rate or desired profit), marketplace fees, and necessary expenses like software subscriptions. This total represents the lowest price you can charge without taking a loss. Next, figure out your overhead percentage by dividing your annual operating costs by your annual gross sales. This percentage indicates how much of each sale needs to cover your business operations.

From there, factor in the value your offer provides. Ashley Murphy, Senior Director of Market Insights and Pricing at Toast, recommends a value-based approach:

"I typically encourage a value-based pricing strategy. This type of strategy is centered around customers' value drivers and willingness to pay."

For example, if your basic offer saves a customer 10 hours of work, and they value their time at $50 per hour, the perceived value is $500. Your pricing should capture a portion of that benefit beyond just breaking even.

Most products aim for profit margins between 40% and 50%. Small businesses often start with a markup of 30% to 50%. Using a cost-plus pricing formula (Selling Price = Cost Price + Profit Margin), you can calculate your prices. For instance:

If your basic offer costs $100 to deliver and you aim for a 40% margin, your price would be $140.
A mid-tier package costing $200 with a 45% margin would be priced at $290.
A premium package, with its higher perceived value, might justify a 50% margin or more.

Once you've established a baseline, it’s time to look at how competitors are pricing similar offerings.

Analyze Competitor Prices

Study the pricing strategies of at least three competitors offering similar solutions. Look at whether they use flat fees, per-user pricing, or usage-based models. Pay attention to the actual price customers pay after discounts, not just the listed rates.

Also, examine what competitors include in their packages. Enhanced customer support, premium materials, or extra features may justify their higher prices. Keep in mind:

"Your price has nothing to do with what it cost you to build the product. It has everything to do with the value it creates for your customers." – Starthawk

Psychological pricing strategies, such as anchoring, can also work in your favor. For example, positioning a high-priced premium package next to a mid-tier option can make the latter seem like a better deal. If competitors charge $500 for a similar mid-tier solution, pricing yours at $290 could make you the smart choice without triggering a price war.

Check Profitability

Before finalizing your prices, ensure they're sustainable by running a break-even analysis. Use this formula:

Break-Even Point (Units) = Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)

For instance, if your monthly fixed costs are $2,000 and your basic offer generates $90 in profit per sale after variable costs, you'd need to sell about 23 units per month to break even.

Another useful metric is the gross profit margin:

Gross Profit Margin = (Net Sales − COGS) ÷ Net Sales

For example, if your mid-tier package sells for $290 and costs $200 to deliver, the gross profit margin is roughly 31%. If this falls below the typical 40–50% range, you may need to either lower costs or adjust your pricing.

Testing different scenarios can help confirm that your pricing not only covers expenses but also supports growth. As Laura Willett, Small Business Consultant and Faculty at Bentley College, emphasizes:

"Accurately pricing your product is critical at any point in the economic cycle but no more so than in a recession."

Ultimately, your prices should cover costs, reflect the value you bring to customers, and position your offerings effectively within the market.

Step 4: Refine Your Offers Before Launch

You've worked out your pricing and ensured profitability. Now, it's time to test and fine-tune your pricing strategy.

Test Your Prices

Once you've set your initial pricing, it's crucial to validate it with real-world feedback. Before going all-in, run small-scale tests to see how customers respond. For instance, you can try using multiple landing pages to showcase different pricing structures. This approach helps you figure out if your pricing resonates with actual customers, not just in theory.

Another effective method is the concierge test. Here, you manually provide premium features to a small group of users at your proposed price point. If they’re willing to pay, you’ve confirmed both the value of your offering and the price itself. Many successful companies have used this hands-on approach to validate their pricing.

You might also consider the Gabor Granger method to gauge price sensitivity. Ask potential customers if they’d buy at three price levels: your lowest profitable price, a realistic price, and a "stretch" price. This helps you pinpoint the price where interest starts to drop. Keep in mind that B2B buyers are unlikely to accept prices that are 2X or 3X higher than what they currently pay, even if your product offers more value. Your pricing should feel like a logical upgrade, not an extreme jump.

Here’s a key rule to remember: focus on maximizing revenue, not just conversion rates. Sometimes, a higher price with fewer buyers can bring in more revenue than a lower price with a higher conversion rate. Test both scenarios to find the sweet spot.

Match Offers to Customer Segments

Once your prices are validated, it’s time to tailor your offers to specific customer groups. Different segments have unique needs, budgets, and priorities. For example, solo entrepreneurs might gravitate toward a basic package, while established businesses might prefer a premium option that delivers faster results. The goal is to align each offer with how that group perceives value.

Choose the right value metric for each segment. For customers with unpredictable needs, consider outcome-based pricing - like charging per lead or per completed project - to minimize their perceived risk. On the other hand, high-volume users often prefer the simplicity of a flat fee.

To fine-tune your pricing for each group, use the Van Westendorp Price Sensitivity Meter. Ask customers when they’d consider your offer "too cheap to be good" versus "too expensive to consider". The sweet spot lies between these two points. As JD Meier wisely points out:

"The market doesn't care about your idea. It cares about your impact".

Your offers should clearly reflect the outcomes each segment values most.

Create Launch Materials

With your prices set and offers tailored, the next step is creating compelling launch materials that highlight value. Focus on clear, benefit-driven descriptions for each package. Use this simple formula: [Action or Outcome] + [Specific Result] + [Timeframe]. For example, instead of calling it "Basic Package", you could say, "Launch Your First Profitable Offer in 7 Days." This tells customers exactly what they’re getting and when they’ll see results.

Your materials should also outline what’s included, who the offer is for, and what transformation buyers can expect. Skip the technical jargon and long feature lists. Instead, emphasize the problem you’re solving and the value you’re delivering. If your offer can’t be summed up on a sticky note, it’s probably too complicated.

Finally, use psychological anchoring to guide customer decisions. Start by presenting your premium package first. This makes mid-tier options feel more affordable and accessible in comparison. Additionally, pricing strategies can shape perception - round numbers like $100 imply luxury, while specific prices like $99 suggest careful calculation and value. Choose the approach that aligns with how you want your brand to be perceived.

Conclusion

You've navigated the journey from validating your idea to refining your offer. Pricing, as it turns out, is an ongoing experiment shaped by real-world customer feedback. As Starthawk aptly states:

"Pricing is your most direct and honest feedback loop on the value of your product."

Start with the prices you've chosen, but stay adaptable. As you move into the launch phase, pay close attention to how customers respond. Look for patterns: which groups see your offer as a great deal, and who might be willing to pay more for added features? If your conversion rates are high but revenue feels underwhelming, it might be time to increase your prices. On the other hand, if potential customers seem hesitant, consider lowering your price or adding more value. The key is to make pricing adjustments feel natural and incremental - not overwhelming or abrupt. Tools like A/B testing and direct customer feedback can help you refine your approach based on actual behavior, not just assumptions.

Remember, your first few offers are stepping stones - they're not meant to be perfect. They’re designed to help you generate revenue and understand what your customers truly value. As Eric Ries puts it:

"You're not starting a business. You're starting an experiment."

So, launch confidently, listen to the market, and adapt. The insights you gather will guide you toward what works best. The market has the answers - you just need to pay attention.

FAQs

How can I test my product idea to ensure it’s worth pursuing?

Validating your product idea is a smart way to confirm there's genuine interest before diving into full-scale development. Start by pinpointing your target audience and understanding their biggest challenges. Reach out to 15-20 potential customers for brief interviews. These conversations can reveal valuable insights into their frustrations and whether they’d pay for a solution. For example, ask questions like: “What’s your biggest frustration with [problem]?” or “Would you consider paying $49 to $99 for a solution like this?”

Once you've gathered insights, it's time to test the waters. Create a straightforward landing page that outlines your solution and includes a clear call-to-action - whether that’s a pre-order button or an email sign-up form. Use $50-$100 on targeted social media ads to drive traffic to the page. If you see pre-sales or at least 100 sign-ups, that’s a strong signal of interest.

Another option is to test with a simple prototype or mock-up. Track how many visitors take action - aim for a conversion rate of 5-10% to confirm demand. Use the feedback and data from these tests to fine-tune your idea and pricing, giving you the confidence to move forward.

What sets the basic, mid-tier, and premium offers apart?

The basic offer is all about providing the core product or service at the lowest price possible. It's a straightforward option that works well for customers who want a simple, no-frills solution. The mid-tier offer steps things up by including added features or benefits, striking a balance between cost and value - making it an attractive choice for many. Finally, the premium offer pulls out all the stops, offering the most extensive features, exclusive perks, or upgrades. This top-tier option comes with the highest price tag, reflecting its elevated status. Together, these tiers are crafted to meet a range of customer needs and budgets, offering something for everyone.

How can I choose the best pricing strategy for my first offers?

To determine the ideal pricing strategy, start by focusing on the 5 Cs: your business objectives, how much value your customers see in your product and their willingness to pay, your costs, what your competitors are charging, and the broader market conditions. With these factors in mind, select a pricing model that aligns with your goals. Options could include cost-plus pricing, penetration pricing to attract new customers, premium pricing to position your product as high-end, or a tiered approach like the “good-better-best” structure.

After choosing a strategy, test your pricing in the real world. This could involve market experiments or leveraging AI tools to gather customer feedback and fine-tune your approach. The ultimate goal is to set prices that reflect the value you provide while staying competitive and meeting the expectations of your target audience.