How to Price a Product — and Why Most Beginners Get It Wrong
Proper product pricing means setting a price based on costs, the market, and the value you bring customers—not guessing or looking at competitors and undercutting them by a few tens of thousands of dong. If you sell but keep feeling “I sell all the time without making a profit” or “I price very low because I’m afraid customers will say it’s expensive,” this article is for you.
Pricing is one of the decisions that directly affect profitability, brand positioning and the long-term viability of a business model. Yet it is also among the least-taught skills in entrepreneurship programs in Vietnam. Let us start from the beginning.
Why Pricing Too Low Is a Dangerous Trap
Many New Business Owners Think: “If I set a low price, more customers will buy, and I can make up the difference through volume.” It sounds reasonable, but reality is not that simple.
Suppose you open a small café and price a milk coffee at just 18,000 đồng to be “cheaper than competitors.” If ingredients plus operations cost 14,000 đồng per cup, you earn only 4,000 đồng per cup. To pay rent and wages and make a profit, you need to sell a huge number daily, which is almost unrealistic for a new café.
Low pricing also causes a harm that few people notice:
- Incorrect positioning in customers’ eyes: Low prices are often associated with low perceived quality. Mid-range and premium customers may not even try your product because they think it is “cheap.”
- Difficult to raise prices later: Once you position yourself as “the cheapest place,” future price increases will provoke negative reactions from existing customers.
- No reinvestment budget: Thin margins mean you have no money to improve products, marketing or customer care.
- Exhausted without making progress: Selling more without increasing profits is the fastest route to burnout and closure.
Method 1: Cost-Plus Pricing
This is the simplest and most common method, especially suitable for beginners.
How to do it: Calculate the total cost of producing one unit, then add your target profit margin.
Formula:
Selling price = Production/provision cost + Desired profit margin
Suppose you sell a box of handmade cakes. Ingredients cost 60,000 đồng, packaging and shipping cost 20,000 đồng, and the monetary value of time and labor is 30,000 đồng, making total costs 110,000 đồng. If you want a 40% profit, the selling price is: 110,000 × 1.4 = 154,000 đồng.
Advantages: Easy to calculate, ensuring no sales at a loss.
Limitations: This method does not consider how much customers are willing to pay, and sometimes leaves money on the table because they could actually pay more.
Important note: Many people overlook hidden costs when calculating production costs, such as equipment depreciation, utilities, selling-platform fees (Shopee, TikTok Shop) and even their own time. Include everything before adding a profit margin.
Method 2: Market-Based Pricing (Competitive Pricing)
This method involves researching competitors’ prices and determining your position within that picture.
Steps to follow:
- List 5–10 direct competitors selling similar products or services.
- Record each competitor's pricing, target customer segment, and distinguishing features.
- Decide where you want to position yourself: below the market (competing on price), at the same level (competing on value), or above it (a more premium segment).
- Set a price matching that positioning—and prepare convincing reasons to support it.
Suppose you start a logo design service. After researching, you find that mainstream prices range from 200,000 to 500,000 đồng per logo. If you also have branding skills, deliver more professional files, and offer after-delivery support, you have every basis to charge 700,000–1,000,000 đồng and explain that difference to customers.
Note: Market-based pricing does not mean always undercutting competitors. If you have no competitive cost advantage, a race to the bottom on price only harms the entire market.
Method 3: Value-Based Pricing
This is the most advanced method—and also the most profitable if applied correctly.
Core Principle: Pricing is based neither on costs nor competitors, but on the value customers receive from your product/service.
Suppose your consulting service helps a small business improve its sales process and increase monthly revenue by 50 million đồng. Your actual cost of providing the consultation may be only 5–10 million đồng. But if you charge just 5 million, you are pricing by cost, while the client receives 10 times the value of what they pay. Value-based pricing lets you charge closer to the actual value you deliver.
To apply this method, you need to:
- Understand customers’ problems in depth and the consequences of leaving them unresolved.
- Quantify the results you deliver (how much money you save, revenue you generate, time you save…).
- Develop the ability to communicate that value clearly during sales.
This method best suits services, highly personalized products or solutions to specific business problems.
When Should You Use Each Method?
No method is absolutely right; you can combine all three depending on the stage and product type:
- Just starting, with no data yet: Start with Cost-Plus to avoid losses, then compare with the market.
- Standard products with high competition: Use Competitive Pricing for clear positioning.
- Professional services, customized solutions: Move toward Value-Based Pricing to maximize profits in line with the value you create.
Take Action Now: Product Pricing Checklist
Before finalizing the price of your next product or service, check each of the following:
- ☐ Have fully listed all costs — including hidden costs such as time, platform fees, and depreciation?
- ☐ Have identified minimum profit margin necessary for the model to be sustainable?
- ☐ Have surveyed at least 5 competitors in the same segment and record their prices?
- ☐ Have identified point of difference of your product/service compared with competitors?
- ☐ Have asked yourself: “What value does the customer receive?” and can express it in numbers or specific results?
- ☐ Have you calculated how many orders per month you need to sell at your proposed price to reach your income target?
- ☐ Have checked whether this price accurately reflects brand positioning do you want to build?
If any box remains unchecked, that is something you need to clarify before finalizing the price.
Frequently asked questions
Which product pricing method is best for someone just starting a business?
Beginners should start with Cost-Plus pricing to avoid selling at a loss, then compare with market prices and adjust to suit their desired positioning.
Should I price higher or lower than my competitors?
There is no fixed answer. If you have a clear differentiator and can communicate that value to customers, higher pricing is entirely reasonable. Lower pricing should be used only when you have a genuine cost advantage, not out of fear that customers will call you expensive.
How do I know if my prices are too low?
Some signs: customers buy without asking the price, your closing rate is unusually high, you work more but profits do not rise, or you have no budget to reinvest in products/marketing.
Can value-based pricing be applied to physical products?
Yes, but it is more suitable for services or products solving a specific problem. For ordinary physical products, combining Cost-Plus and Competitive Pricing is usually more practical.
Should I lower my prices to compete when the whole market is cutting prices?
Consider carefully. Cutting prices to follow market trends without accounting for profit margins can trap you in selling at a loss. Instead, consider adding value through service, warranties, or support so your current price remains attractive.
