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Setting the right price is challenging. If you set it too high, you may lose customers. If it’s too low, your profits can fall. A solid pricing strategy can help you find the right balance and manage these risks.

Use your pricing strategy to:

  • set your prices
  • respond to changes in the market
  • reach your business goals.

Follow these steps to decide on a strategy and prices that work for your business.

1. Set your pricing goals

Setting your pricing goals early makes it easier to choose a pricing strategy.

To set your pricing goals, you need to know what you want to achieve. The most common goal is to make profit on your products or services. But there are many other pricing goals. For example, you might want to set your prices to:

  • become a market leader – be the most successful or most recognised business among your competitors
  • increase your market share – get a bigger slice of total sales in your market, usually by attracting customers from competitors
  • improve your brand reputation – make your business more trusted or respected
  • increase demand for your product or service – get more people to want or buy what you’re selling.

Keep your business plan and marketing plan goals in mind as you set your pricing goals. This makes sure they complement one another.

Also consider things that may influence your ability to reach your goals. For example:

  • your competitors’ position in the market
  • your ability to supply your products or services to the market.

2. Research your market

Research helps you find the best price for your product or service. Check market prices and trends regularly to stay competitive and meet customer needs.

Market testing

Show your products or services to a sample of your customers and get their feedback. This helps you set your prices and predict customer buying behaviour.

Ask them:

  • what they want from your product or service
  • which features are most important to them
  • how much they spend on similar products or service
  • how many they’re likely to buy.

When you have your answers, test different price options to see what sells.

Competitors

Compare your business to your main competitors to set prices that suit your market. You can use your market research to help with this.

Use your competitor's prices as a guide, but don’t copy them exactly. Make sure your price covers your costs and reflects your product or service's full value.

Don't just compare price. Compare other factors that customers find valuable, such as:

  • product features
  • quality
  • customer service.

Influences

Things outside your business can affect how much you charge for your products. For example:

  • Price sensitivity: Some products can see a big change in demand if the price goes up or down by a few dollars. Think about how sensitive your customers might be to price changes.
  • Demand: High demand can mean you can charge more. Lower prices can sometimes boost demand.
  • Competition: More competitors can mean lower prices. New competitors may force you to adjust your price.
  • Regulation: Government fees and charges can affect your price. Check for any taxes or levies that apply.

3. Choose a pricing strategy

Use a pricing strategy that fits your business goals, market and customers. You can combine more than one strategy.

After you choose your strategy check that it's a good fit for your business.

Ask:

  • Does this strategy help me reach my pricing goals, such as making profit, increasing market share or building brand reputation?
  • Does it align with insights from my market research, including what customers value and competitors’ strategies?
  • Is the strategy realistic for my business’s size, resources and products or services?
  • Do I have a clear reason for choosing this strategy that I can explain to a customer, partner or team member if needed?

If you’re unsure, revisit your goals and research, or consider combining strategies for more flexibility.

Common pricing strategies

Calculate the total cost of making and supplying your product or service. Then add a mark-up or margin.

Make sure you include all relevant costs in your calculation, such as:

  • materials
  • labour
  • overheads
  • taxes, including goods and services tax (GST).

Businesses and independent contractors who earn money by doing work for customers (instead of selling physical products) often use this method.

Calculate all business costs at an hourly rate, include:

  • wages
  • superannuation
  • leave entitlements
  • taxes.

This is a competition-based strategy where you price your products or services at or near the market price leader. Use competitor prices as a guide, but don’t copy them exactly.

Make sure your price covers your costs and reflects your product’s value. Consider other factors like product features, quality and customer service.

Base your price on the value your product or service gives customers, not just the cost. For example, if your product saves customers time or offers unique benefits, you may be able to charge more.

Ask your customers what they value most and adjust your pricing to match. Use market testing to find out what customers are willing to pay.

Set a higher price for luxury, prestige or exclusive products and services. Customers expect top quality, performance and service at this price point. 

Start with a low price on a new product or service to attract customers and gain market share.

When you reach your goal, such as building a customer base or becoming more competitive, raise your prices to a normal or profitable level.

Start with a high price for early adopters who value new or unique products. Then lower the price for a wider market when you achieve your profit goal or demand drops.

This strategy helps you recover your development costs quickly by charging higher prices before competitors enter the market with similar products

Offer a product or service below cost to attract customers. It could be a special offer or single product line which you sell at a heavily reduced margin. You then recover the loss on the sale of other products and services with healthier profit margins.

Use this strategy carefully as it can reduce profits if not managed well. Make sure your pricing supports your overall business goals.

Dynamic pricing, also called surge pricing, is when a business changes its prices depending on:

  • how many people want to buy their products or services
  • the time of day, week, month or year
  • how much stock they have.

Dynamic pricing is legal in Australia if your prices are clear, fair and not misleading.

Dynamic pricing is common in:

  • airlines – fares can change with demand or season
  • hotels – room rates adjust for peak or off-peak times
  • ride-shares services – costs rise during busy periods or low driver availability.

Example of how to combine pricing strategies

Edwin opens the only Pilates and yoga studio in his area and charges high prices (premium pricing).

When a competing yoga studio opens nearby, Edwin offers below-cost yoga classes but doesn't drop his Pilates prices (loss leader).

Later, he matches market rates for all classes (going rate) but raises his prices for classes at peak times (dynamic pricing).

Using mixed strategies helps him stay flexible and meet his business goals.

4. Set your prices

To set your prices:

  • work out how much it costs to make each product or service you offer
  • add your profit margin
  • talk to your accountant or a business adviser if you need help setting prices.

Don’t forget to review your prices at least once a year, or whenever your costs or market conditions change.

Plan for discounts

Benefits of offering discounts include:

  • attract new customers
  • sell unwanted stock
  • encourage repeat business.

Discounts can affect your bottom line. While they may help you sell more or clear out stock, it’s important to know how they affect your overall business.

Common discounts:

  • Special offers or pricing deals. For example,10% off this week only.
  • Bundles or packages. For example, buy 2, get one free.
  • Quantity discounts. For example, save $50 when you buy 5 or more.
  • Value-add offers. For example, get a gift when you buy.
  • Seasonal or periodic discounts. For example, end-of-financial-year sale.

If you plan to offer discounts, develop a plan for how and when you’ll use them. Make sure your discounts still allow you to cover your costs and meet your business goals.

5. Check your pricing follows the law

Once you’ve set your prices, make sure they follow Australian pricing laws. This helps you avoid fines and maintains customer trust.

Common pricing laws:

  • Minimum resale prices: You can suggest a recommended retail price (RRP), but you can’t force or threaten resellers to use it.
  • Price fixing: Never agree with competitors to set prices. This anti-competitive practice is illegal.
  • Predatory pricing: Don’t sell products below cost for a sustained period to force competitors out of the market. This harms fair competition.
  • Card surcharges: Only add surcharges for card payments that reflect the actual cost of processing the payment. There are penalties for excessive surcharges.

Display your prices correctly

Check the laws about displaying prices. Your prices need to be clear, accurate and not misleading to consumers.

Common price display rules:

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