What’s in it for you: Nonprofits must balance financial sustainability with community impact. These articles apply differential pricing logic to the specific challenge of mission-driven fee setting.

Issue #1: Balancing mission and money: 10 tips for introducing fees. Determine if a fee is feasible by asking if you can prevent non-payers from using the service.

Issue #13: Ten essential strategies to boost revenue and expand reach. Use offer stacking to provide accessible entry points while generating surplus revenue from premium tiers.

Issue #14: Three smart fee strategies to boost your nonprofit’s revenue. Select the right model (pay-what-you-can, sliding scales, or tiered menus) for your specific impact goals.

Issue #6: Price, time, and effort: segmenting buyers. Nudge buyers to off-peak times or require inconvenience to separate those with a lower opportunity cost of time.

Issue #17: Effort-based price discounts: how companies segment customers. Require a non-monetary cost (time or effort) to attract price-sensitive buyers without cutting prices for everyone.

Issue #18: Effort-based discounts: avoid 5 common revenue traps. Shield your business from arbitrage and stockpiling by creating effective effort barriers.

Issue #5: Bundle smarter: 10 dos and don’ts. Study how products are used together to enhance customer value while avoiding substitute products.

Issue #21: Three key steps to a successful mixed bundling strategy. Implement strategic product grouping to offer buyers an incentive to purchase a complete package.

Issue #12: Beyond discounts: 5 smarter pricing strategies. Use mixed bundling to provide a “win” for the customer while protecting the perceived value of your individual items.

Issue #22: Unbundling: unlock new sales and boost profit margins. Break your existing offers into “no-frills” core products to attract price-sensitive customers.

Issue #35: Stop discounting the customer: the smart pricing shift. Protect your margins by offering smaller portions or lower-cost versions to buyers who demand a lower price.

Issue #4: Unlock more profit: 10 expert pricing tips for using add-ons. Capitalize on the lower price sensitivity of buyers once they have committed to a base purchase.

Issue #2: Unlock the psychology of good, better, best pricing. Leverage extremeness aversion to provide a safe middle ground for buyers who fear overpaying or under-buying.

Issue #37: Solve the sorting problem: implement good, better, best. Use high-end “anchor prices” to frame your standard offers as sensible bargains.

Issue #38: Ten things sellers get wrong about tiered price menus. Safeguard your menu from design errors like overwhelming customers with too many choices.

Issue #10: Are you leaving money on the table? 10 myths about price setting. Identify common fallacies, such as the belief that pricing should be based solely on costs.

Issue #8: Grow your small business: avoid these 10 common pricing mistakes. Learn how cost-based pricing and a failure to sort buyers by their willingness to pay lead to lost sales.

Issue #29: Stop losing revenue: why relying on a single uniform price always fails. Analyze why a single price point under-prices for some customers and over-prices for others at the same time.

Issue #28: The three pricing mindset shifts small businesses need. Move from the “either-or” choice of price vs. volume to the flexibility of differential pricing.

Issue #23: Is your pricing scaring away customers? Apply the “So What?” test to transform technical attributes into human benefits.

Issue #52: Five strategic pricing steps for small businesses. Stop guessing your “right” price and start pricing the outcome rather than the means.

A bare-bones pricing strategy is a practical approach to capturing budget-conscious buyers while establishing a reliable path to higher-margin accessory sales.

By offering a stripped-down model of your product at a lower entry point, you can win over customers who might otherwise walk away due to price.

However, converting these low-margin entry-level sales into a profitable system requires a deliberate design. To build this foundation successfully, you must first craft a core offer that is accessible and highly focused on the essentials.

Attract Price-Sensitive Buyers With a Compelling Base Product

Your base product should attract price-sensitive customers who are primarily concerned with affordability. To achieve this, its features and functionalities should be kept to a bare minimum—offering only the essential elements that every buyer expects. To put it another way, these should be things that, if they were missing, would kill the sale.

To make your base product appealing, keep its profit margin slim. The more likely buyers are to supplement their purchases with other items, the more aggressively you can discount the base price. For example, you could price it at cost and make your profit on the follow-on items buyers add to their purchase.

It’s just like an entertainment venue that keeps ticket prices low to attract a crowd, knowing the real profit comes from concessions and merchandise.

For instance, a luggage company could offer a “bare-bones” suitcase with basic features like in-line wheels and a telescoping handle. This base model caters to budget-conscious travelers.

Supercharge Profitability With High-Value Add-ons

While the base product targets price-sensitive buyers, strategically-priced add-ons target buyers who want a better experience or results with their purchase. Price these enhancements relatively high compared to their production cost, effectively compensating for the lower margin on the base product.

In the luggage example, the company could offer add-ons like a packing cube system, a detachable laundry bag, a personalized luggage tag, etc. By pricing these items high relative to their cost, you can generate substantial profit margins from customers who are happy to pay for extra features and customization.

To further maximize profitability, you could offer a set of add-ons bundled together at a slightly discounted price compared to purchasing them individually. For instance, you could bundle the packing cubes, laundry bag, and luggage tag into a single “Traveler’s Kit” that costs less than buying each accessory separately.

Encourage Upselling by Keeping Add-on Prices Low Relative to the Base Product

Present add-on prices as relatively low compared to the initial purchase to encourage these extra decisions. Ideally, each add-on should have a low price relative to the base product, but a high profit margin relative to its cost.

Customers are often more receptive to smaller additional costs after committing to a larger purchase. However, avoid excessive add-on costs that might make them reconsider the entire transaction.

Consider keeping the combined value of the add-ons in a buyer’s shopping cart to roughly 20% to 25% of the base price. To be clear, this refers to the total extra cost a single customer takes on in one transaction, not the combined price of your entire catalog of accessories. This isn’t a hard-and-fast rule. It’s an aid to get you thinking about the psychological impact of cumulative costs on your buyer’s final decision.

To drive these extra sales, you can strategically present your add-ons at the exact point of purchase. Remember when you ordered a sandwich and were asked, “Would you like to add a cookie for only ninety-nine cents?”

Alternatively, you can follow up a few weeks after the initial purchase to offer your add-ons. Once they experience the minor inconvenience of travel without your accessories, their value becomes obvious to them.

Put Modular Pricing into Practice

I began with a promise: that you could capture price-sensitive buyers without sacrificing your overall profitability. By walking through how to build a compelling core product, leverage high-value accessories, and use the psychology of pricing, you now have a practical roadmap to do exactly that.

Instead of building a bare-bones product from scratch, look at what you already sell. Strip out any non-essential features until you are left with a lean, core offer. Then sell those removed components as optional extras. This simple act immediately creates an entry point that is highly accessible to new buyers while paving the way for profitable add-on sales.

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It’s easy to miss a valuable idea in a fast-moving social media feed. To make things easy, I’ve gathered all of my pricing insights from my Substack Notes & LinkedIn posts over the past month right here in their original order.

(Note: What Substack calls a Note, LinkedIn calls a post. I share pretty much the exact same quick tips on both platforms.)

I now publish full articles only on Substack. If you subscribe to my free Pricing Pointers newsletter, these articles are sent directly to your email inbox so you never have to actually visit Substack to read them.

This is exactly why you might miss my “Notes,” as they only live on the Substack feed and are never emailed. That’s where this monthly Roundup comes in.

You can’t charge a “fair” price because value itself is always changing.

The actual value of your product or service is not static. It’s subjective and dynamic.

Price segmentation works because it accepts this simple truth: the value of any product or service depends on who is buying it and when (even where).

Offering lower prices for accepting inconvenience or delay acknowledges this. Time-rich but money-poor buyers value your product differently than those who are time-poor but money-rich.

Stop searching for the one perfect price. Start searching for the ideal range of prices.

A successful tiered price menu begins with identifying your core value

Most businesses struggle with tiered pricing because they pack too much value into their ‘Good’ tier. This forces a price point that scares away budget-conscious customers.

To fix this, you must strictly define your “core” offering. This consists of the essential elements that pretty much every customer expects to solve their problem.

Think of these as “deal killers.” If you remove one, the customer walks away because the product or service no longer functions for their needs.

Consider, for example, a tire dealer selling passenger tires.

Mounting the new tires and disposing of the old ones are essential components of the offer. (There’s no way I’m leaving the shop with four dirty, old tires in the back of my car.)

Periodic rotation and inspection of the tires, while valuable, is an enhancement.

To build your “Good” tier:

• Identify the “deal killers.”

• Strip away the bells and whistles.

• Provide a functional solution for the budget-conscious.

This ensures you have a competitive entry point without devaluing your premium work.

The takeaway? Stop over-engineering your entry-level offers.

Stop sorting your buyers, and let them sort themselves

It is difficult to accurately identify the maximum willingness to pay (WTP) for each individual customer. They have every incentive to hide it from you. This is why standard tactics often fall short: negotiating prices individually is expensive, while categorizing customers by demographics is frequently inaccurate.

An alternative is to create a mechanism where buyers sort themselves, revealing their willingness to pay, by the choices they make.

A menu of options at different price points shifts the burden of sorting to the buyer, who will naturally select the level of impact they are willing to pay for.

The advantage of this “self-sorting” mechanism is it’s backed by the customer’s actual spending decision. In short, the choice people make from the price menu reveals what kind of buyer they are. That is, how much they care about the price they must pay versus the results or experience they’ll get.

Setting up such a price menu doesn’t require a complex overhaul of your business model. In fact, I’d be willing to bet you’ve experienced many simple self-sorting mechanisms.

Consider how these subtle choices appear in everyday business:

• A convenience store that offers pastries at 2 for $2.49 or 1 for $1.49 is using a self-sorting mechanism.

• A movie theater that sells tickets for Saturday evening screenings at a higher price than for Tuesday afternoon screenings is using a self-sorting mechanism.

• A hotel that charges a higher price for a “Junior Executive Suite” than for a “Standard” room is using a self-sorting mechanism.

• A conference that offers “early-bird” registrants a lower admission price than “day-of-the-event” registrants is using a self-sorting mechanism.

• An electronics retailer that offers a lower price for a CPU, monitor, and printer when purchased together than when purchased à la carte is using a self-sorting mechanism.

In each of these examples, there’s a trade-off between the price the buyer pays and what they get in exchange. And their choice reveals how much paying a lower price matters to them.

Stop protecting buyers from friction.

Use behavioral hurdles to force price-sensitive customers to earn every discount you grant.

Price Sensitivity Signals & 3 Quick Notes

Stop pricing your product.

Design a menu that prices the specific situation and behavior of every individual buyer.

5 Strategic Lenses to Increase Your Sales and Profits by Designing a Tiered Price Menu

Stop hunting for one perfect price.

Build a menu that forces customers to choose their own level of impact.

Stop Asking “What’s the Right Price?” Do This Instead

There is no “perfect” price.

Abandoning the search for the one “perfect” price is the fastest way to stop leaving your hard-earned profits on the table.

Moving to a range of prices allows you to meet different customers exactly where their budget and needs reside.

This flexibility captures high-margin sales from results-driven buyers while still attracting budget-conscious buyers who would otherwise walk away.

Stop leaking margin by ending blanket price cuts.

Blanket discounts give price breaks to buyers willing to pay more.

Instead, require customers to sacrifice something to earn a discount.

An inescapable trade-off filters out buyers willing to pay more.

Protect your margins by stripping features away from your main offer.

Create a lower-priced version of your existing all-inclusive product.

This allows you to reach budget buyers without extra costs.

What features can you strip away that price-sensitive buyers won’t miss, but quality-sensitive buyers definitely will?

The fastest path to higher profits

While most businesses focus on cutting costs or launching new marketing initiatives to boost profits, these efforts often take months, even years, to show significant returns.

The true, immediate profit lever is pricing.

Stop Losing Revenue: Why Relying on a Single Uniform Price Always Fails and How to Design Self-Sorting Value Ladders

Protect your premium margins by enforcing clear value trade-offs.

Ensure every lower price point requires accepting less value.

This stops high-value customers from choosing your cheapest option.

Does your budget option feel too good for the price?

The 3 Pricing Mindset Shifts Small Businesses Need to Capture High Value Buyers AND Attract Price-Sensitive Customers

Maximize your revenue by adjusting prices based on customer demand.

Charge higher prices for peak times and lower prices for off-peak times.

This segments buyers by how much they value ease and convenience.

Which time slot (hour, day, week, month, or season) could you offer at a premium rate?

Stop Guessing: 5 Ways to Convert Your Single-Price Offering into a Customer-Segmenting Machine

A single price is a one-size-fits-none strategy

It’s too expensive for some and too cheap for others.

Stop looking for one perfect number. Give your customers a menu of options instead.

Offer a basic version for budget buyers. Offer a premium version for those who want the best results. Let them choose.

When you provide a range of options at different price points, you lose fewer sales at the bottom and less margin at the top.

When customers ask for a discount, small business owners often cut their price and sacrifice their margin.

Protect your profit margins by refusing to give money away.

Offer a lower-value version when a customer asks for a discount.

This forces buyers to prove they truly need a lower price.

What feature of your offering can you diminish or remove to create a cheaper option?

Building a profitable tiered price menu does not require complex economics, but rather a step-by-step approach to defining clear upgrades and pricing for shared value.

By offering a range of choices instead of a single, one-size-fits-all offer, you allow buyers to select the exact level of value they're willing to pay for. You avoid underpricing for some buyers and overpricing for others.

Here is how to structure, price, and launch a high-performing tiered price menu from the ground up.

Establish Your Tiered Price Menu

Imagine you sell the same item at two different prices, but you restrict the lower price to a particular group of buyers (e.g., senior citizens). Some might call that a tiered price menu. But I’m envisioning a price menu where each tier is an option for every buyer.

Tiered pricing, in this sense, is often confused with sales funnel building, but they serve entirely different strategic purposes. While both present a sequence of offers at varying price points, they differ in two fundamental ways.

First, the different tiers in a tiered pricing model are substitutes for one another. Customers choose the single level that best fits their needs; they do not buy multiple tiers. Under the “everything and more” framework (defined below), purchasing more than one tier would mean paying twice for some of the same components. In contrast, the offers within a sales funnel are complementary, designed for sequential purchases rather than substitution.

Second, a buyer can enter a tiered price menu at any level from day one. They could even purchase your best tier immediately. A sales funnel, however, is structured to nudge a buyer over time, guiding them through a specific sequence of successive purchases. The assumption is they’re not ready to immediately buy your most expensive offer, but they must be nurtured and guided to that point over time.

To visualize the difference:

• Think of tiered pricing as choosing to buy either A, (A+B), or (A+B+C).

• Think of a sales funnel as purchasing A, then later buying B, and eventually purchasing C.

Design Seamless Upgrades

Tiered pricing is also not the same thing as versioning (aka vertical product differentiation). Creating different versions of your product or service, at different price points, is just one way of creating different variants of your offering.

Each tier should be an “upgrade” from the one below it. This means that it offers additional value for a higher price.

You can use the equal price test to help you evaluate if one tier is better than the other. If both tiers were offered for the same price, would nearly every buyer select the same tier? If yes, that tier’s a true upgrade of the other.

For example, if a basic car wash and a premium detail wash were both priced $20, everyone would choose the detail wash, proving the detail wash is a true upgrade.

The easiest way to achieve this is to use the everything and more rule. Each tier should include everything the tier beneath has, plus something more. Keep in mind that “more” could be a higher level of quality, a larger quantity, a more desirable time or location, or value-enhancing supplementary products or services. (You might have guessed that you can create lower-valued tiers by doing the opposite.)

Price Your Tiers for Mutual Benefit

When pricing your upgrades, the goal is simple: make the transaction profitable for you and attractive to your customers.

Every time you create a higher tier, you incur an additional cost to deliver it, while your buyer receives additional value. To make the upgrade work for both sides, your price increase must sit comfortably somewhere in between. You must raise the price by more than your additional cost (so you make a profit), but by less than the additional value to the buyer (so they “profit” from upgrading their purchase).

This creates the rule of mutually beneficial pricing:

When your pricing fits this equation, upgrading becomes an easy, profitable decision for everyone involved.

Start from Where You Are

If you already have an existing offering, should you start by creating a lower-priced variant, making your existing offering your highest tier? Or should you do the opposite and make your existing offering your lowest tier?

If you’re facing competitive pressures from cut-price rivals, build downward and make your existing offer the premium tier. If you’re worried about how your existing customers will react, build upward and make your existing offer the entry-level tier.

The crucial thing is to give buyers a reason to upgrade (or not to downgrade). You achieve this by making sure your lowest-price tier isn’t too good for the price they pay. In other words, your lowest-priced option should feel like a good deal for budget buyers, but an unacceptable compromise for your premium customers.

Build Your Win-Win Menu

A single, “one-size-fits-all” offer is inevitably priced too low for some and too high for others. When you replace it with a clear hierarchy of choice, your buyers will naturally select the option that best matches their needs and budget.

By combining the everything and more rule with the rule of mutually beneficial pricing, you can confidently build a tiered price menu that increases your sales and profit. It’s the simplest way to protect your margins while leaving your customers feeling like they got a great deal on their own terms.

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To unlock your true profit potential, you must transition from a passive, single-price model to an active pricing strategy that captures both your quality-conscious and budget-conscious buyers.

One of the most costly mistakes you can make as a small-business owner is treating pricing as an afterthought. Pricing is not just a sales tactic; it is the fastest, highest-impact profit lever at your disposal.

This issue of Pricing Pointers identifies the five most critical pricing myths that prevent small businesses from fully harvesting the value they create in the marketplace. How many of these pricing myths are costing you money?

Myth #1: The Cost-Plus Trap

• The False Belief: Many small business owners believe the “correct” price is simply their cost of production plus a standard markup. They use cost as the starting and ending point for every pricing decision.

• The Reality: Buyers do not care about what it costs you to make your product or to deliver your service. The truth is they care only about the value they receive from you relative to their alternatives. Setting prices solely on your costs leads to a dilemma: you either overprice and drive customers away or underprice and leave massive amounts of money on the table.

• Your Takeaway: The costs that matter for pricing are your direct, avoidable costs. These are the costs that would disappear if you stopped making your product or delivering your service, but kept the doors open and stayed in business. Remember these costs only determine your minimum price. The upper limit of what you can charge depends on your product’s perceived differential value. This is how much more or less your customer thinks your product is worth compared to their best alternative.

Myth #2: The Illusion of Objective Value

• The False Belief: Value is an objective measurement based on the specific features and functionalities of a product or service.

• The Reality: Value is entirely subjective and contextual. It depends on who you ask as well as when and where you ask them. Different buyers have different maximum prices they are willing to pay based on their unique circumstances. The good news is the subjective nature of your product’s value means you can increase it simply by moving your product to a different buyer, a different time, or a different place. No product modification is necessary.

• Your Takeaway: Remember that value is subjective and context-dependent. Your pricing must take into account the specific circumstances of your customers rather than your list of product specifications. One buyer’s “got to have” feature is another buyer’s “Meh, who cares?”

Myth #3: The Efficiency of a Uniform Price

• The False Belief: Charging a single, uniform price to every customer is the most efficient way to maximize sales and profits.

• The Reality: A single, uniform price is a “one-price-fits-all” strategy. But I think it’s more accurate to say that it’s a “one-price-fits-none” strategy that sacrifices profit in two directions. First, you lose margin from The Underpriced. These are the quality-conscious buyers who would have willingly paid you more (but don’t have to because of your generous price). Second, you lose sales from The Priced Out. These are the price-sensitive buyers who would pay more than your unit cost but not as much as your asking price.

• Your Takeaway: Remember that a range of prices is always more profitable than a single price point. A price segmentation strategy will capture more sales and profits from both ends of your market.

Myth #4: The Complexity of Differential Pricing

• The False Belief: Implementing different prices for different customers is too complex, requires individual haggling, or is too costly to manage.

• The Reality: You don’t need to negotiate with every buyer; you just need a self-sorting mechanism. By offering a range of options at different price points, you allow buyers to naturally sort themselves based on their own willingness to pay. There are multiple ways of doing this: offer buyers the opportunity to purchase a different quantity, a different level of quality, a different time, a different location, or a different combination of products. The only thing that matters is that buyers who pay more get more, and those who pay less get less.

• Your Takeaway: Remember buyers can sort themselves. You don’t have to. Create a menu of options at different price points and let buyers choose the price-value trade-off that best meets their needs and budget.

Myth #5: The Fairness Fallacy

• The False Belief: Charging different customers different prices is inherently unfair and will inevitably create customer resentment.

• The Reality: Resentment occurs only when price differences are based on who the buyer is. When price differences are based on what the buyer does (e.g., buying a larger quantity, accepting a no-frills version, or choosing an off-peak time), buyers view the difference as an equitable choice they controlled.

• Your Takeaway: Remember that perceived fairness comes from giving every buyer the same opportunity to meet a condition for a lower price.

Your Pricing Transformation

To capture the full profit potential of your market, you must move away from the limiting “one-price-fits-all” approach. By offering a menu of options that embodies a price-value trade-off, you can attract budget-conscious buyers. At the same time, you preserve the high margins available from those who are willing to pay you more for a better result or experience.

Transitioning from a single number to a strategic range is the most effective way to ensure your business is rewarded for the true value it creates in the marketplace.

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To truly maximize sales and profits, you need to tailor your pricing strategy to the diverse needs and budgets of different buyers. One way you can do this is by selling a “no-frills” product or service with optional add-ons to hit every price point.

Think of add-ons as optional, supplementary products or services that enhance the results or experience of the primary purchase.

If you’ve ever bought a snack to enjoy at the cinema, you’ve purchased an add-on. If your business purchased an extended maintenance agreement to go with your new forklifts, you purchased an add-on.

Now, think about how you can flip that script and offer those same types of choices to your own customers.

Win Budget Buyers with a “No-Frills” Offer

A powerful way to increase sales to price-sensitive buyers without undermining overall profitability is to offer a “no-frills” product or service.

Lowering the price across the board to attract price-sensitive buyers can hurt your profits from buyers who were willing to pay more. The worst-case scenario is that your overall profit falls even as you sell more units.

Instead, your business can offer a basic product or service with just enough features and functionality to appeal to these price-sensitive customers. In other words, you include just the features and functionality every buyer expects — the absolute bare minimum.

This approach allows you to win new sales from buyers who prioritize price over performance. At the same time, you protect your profits from those willing to spend more for a better result or experience.

You can then enhance this “no-frills” product or service with supplementary products or services.

Use Add-ons to Customize and Boost Sales

You can significantly boost customer satisfaction, sales, and profit by offering optional products or services that will enhance your customers’ results or experience with your base product.

This transforms a “one-size-fits-all” commodity into a distinctive, customized product tailored to each buyer’s needs and budget.

Customers find the opportunity to enhance their purchase very tempting, especially if the prices of these add-ons are relatively low compared to their initial purchase.

You can apply this strategy across any sector — whether you sell products or services, and whether you sell to consumers or businesses — by giving your customers options that improve the results they get from their purchase.

Price Your Base Low and Extras High

For a no-frills product with optional add-ons strategy to be profitable, you should follow a few specific pricing guidelines.

First, your no-frills product should be priced low relative to its unit cost (rather than in absolute dollar terms). The more this entry price encourages additional purchases, the closer to your cost you can afford to set it.

Second, price your optional extras relatively high compared to their unit cost. This is where you recover the profits you sacrificed on your aggressively priced no-frills product.

Third, it’s a good idea to keep the prices of your optional extras relatively low compared to the price of the no-frills product.

While buyers are generally less price-sensitive to options than to the initial purchase, the total cost of optional purchases can become an issue if it adds up too much.

This balanced approach ensures you capture sales from every buyer segment while maintaining your overall profit margins.

From Take-it-or-Leave-it to Mix-and-Match

After reading this, I hope you’ll stop thinking you have to choose between a high price that scares away budget buyers, or a low price that leaves money on the table.

Instead, use a basic offer to get people through the door. Then, let them buy high-value extras to customize their results or experience.

Take a close look at one of your current offerings. What are the “nice-to-have” extras you’ve already packaged into your core offer? Could you peel those extras off and turn them into optional add-ons?

By lowering the price of your basic offer, you make it easy for budget buyers to say yes. And by charging separately for extras, you give big spenders a way to buy more.

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Proactively managing price-value trade-offs is the single most effective way to capture more sales from budget-conscious buyers without eroding the profits from your premium offerings.

This issue of Pricing Pointers explores the strategic design of tiered price menus. This practice allows you to expand your market reach while ensuring your most profitable customers don’t “trade down” to cheaper variants of your offering.

These safeguards are essential. Without them, discounts intended to attract new buyers can inadvertently drain revenue from your most loyal ones, turning a growth strategy into a profit leak. Remember: price-insensitive buyers will always take a discount if you don’t give them a good, solid reason to pay full price.

Here are 10 tips for preventing your high-price buyers from drifting down to your low-price options:

1. Reflect different levels of value in your price points

Ensure buyers who pay more get more, and those who pay less receive less, thereby forcing buyers to sacrifice value for a lower price. This fundamental principle ensures that customers perceive a clear justification for higher prices, preventing them from seeing lower-priced options as equivalent value.

2. Practice vertical product differentiation

Make each offering at each price point clearly better than the one below it, reinforcing the value hierarchy. When buyers consistently agree that a higher-priced version is superior, it validates your tiered price structure and reduces the appeal of downgrading.

3. Strategically modify attributes for your lower tiers

Start with an existing product and diminish or eliminate one of its desirable features. This technique ensures that the lower price is tied to a reduction in desirable features. This makes the lower tier unattractive to customers who value those specific attributes. Alternatively, you can add a negative attribute (e.g., a usage limit or watermark for a piece of software). Ideally, it should be something that’s tolerable to price-sensitive buyers but intolerable to quality-sensitive ones.

4. Avoid providing excessive value at the low end

Do not make the basic offering so attractive that higher-end buyers see little reason to upgrade. If your “Good” tier solves 90% of the problem for 50% of the price, your “Better” and “Best” tiers are dead on arrival. Giving away too much value at a low price will inevitably drain sales from your higher-margin offering.

5. Design for future upgrades from the outset

Hold back some potential features or enhancements to justify future price increases and new premium versions. This proactive approach ensures you have compelling new value to present when introducing new and better versions. This makes it easier to raise your prices and encourage upgrades in the future.

6. Stick to the “Power of Three”

Use a limited number of price points. Three often works best. Customers tend to be overwhelmed by too many choices and often gravitate towards the middle option as a safe choice. Three tiers (”Good, Better, Best”) simplify the decision-making process and can be strategically priced to encourage selection of the middle-tier offering.

7. Create a reference price for value comparisons

Your high-end option becomes a reference point in the buyer’s mind, making your standard option seem more reasonably priced. This makes the middle choice appear as a good compromise between price and value. And you may still make some high-end sales.

8. Clearly communicate the value differences between your offerings

Use descriptive labels and comparative tables to make it easy for buyers to understand the price-value trade-offs. Transparent communication helps buyers self-sort effectively. By highlighting exactly what a buyer gives up when selecting a cheaper tier, you justify the price differences. This, in turn, validates the premium price of your higher-end offerings.

9. Make annoyances work in your favor

Require buyers to trade their time or flexibility for a discount by using tactics like mail-in rebates, price match guarantees, or waiting. High-value customers typically have a higher opportunity cost for their time and will choose to pay full price to avoid the hassle.

10. Create price fences based on behavior

Make qualification for lower prices dependent on what a customer does (e.g., buying a larger quantity, accepting a less desirable time), rather than who the customer is. Behavioral fences are perceived as fairer and are more effective at preventing high-value customers from accessing lower prices.

Securing Your Strategy

I began with a promise to plug your profit leaks, and these ten tactics deliver exactly that. Stop viewing your lower price tiers as mere discounts. They are more than that. They are strategic filters that force your buyers to sort themselves by their willingness to pay.. By engineering trade-offs that your more price-sensitive customers are willing to accept, you transform a leaky price menu into a high-performance engine for profitable growth.

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To maximize both profit and reach, you must move beyond the search for a single “best” price and instead implement a strategic range of prices that allows different customers to pay according to the value they receive.

Too many business owners treat pricing like a math problem with one right answer. They agonize over a single number, trying to find a “sweet spot” that won’t scare away customers but will still keep the lights on. Price setting feels like a case of “pick your poison.” You either select a high price and lose volume, or you pick a low price and kill your profit margins.

I want you to understand that this pricing dilemma isn’t a dilemma at all. It’s a false choice. Until you realize this, your ability to reap the value you’re creating in the marketplace will be severely hampered. You’ll be like the farmer who grows a great crop and leaves half of it in the field at harvest time.

Recognize the Hidden Costs of Uniform Pricing

The value of any product or service is subjective and contextual. It depends on who you ask, and when and where you ask them. This means that no single price can reflect what every buyer is actually willing to pay because different buyers have different perceived needs and budgets. Settling on a single price means inevitably under-pricing your offer for some buyers while over-pricing it for others.

Some buyers may be willing to pay significantly more than your asking price but do not have to because your offer is capped at a single point. This uncaptured revenue is profit that is effectively “escaping” from your bottom line and staying in the buyer’s pocket.

Other buyers may be willing to pay more than your unit cost but less than your asking price. For example, suppose you buy sprockets for $25 and resell them for $50. Any buyer who’d pay more than $25, but less than $50, represents more money lost on your bottom line. Suppose for example, a particular buyer would pay $40. Making that sale would add $15 directly to your bottom line.

Granted, my example is simple. But the principle is powerful: To stop these profits from escaping, you need a way to meet these different buyers where they are.

Use High Prices to Anchor and Capture Value

High prices are not something to fear; they are a tool to sell more to both high-end and mid-range buyers.

Some buyers believe that “you get what you pay for” and are willing to pay more to ensure they get the best possible results or experience. They are motivated to purchase more by what they get than by what they must pay. To them, a high price is a signal of the quality and expertise they require. They may view buying the cheapest option as a risky gamble, especially in a high-stakes situation. For these buyers, the cost of failure is far higher than the price of the premium option. It’s better to spend more and reduce the risk of a mediocre outcome. To put it bluntly, when you’re laying on the operating table, you don’t want the cheapest brain surgeon in the city.

Because high prices send such a strong signal, you can use them as a tool to frame how every other price is perceived. Adding a high-priced option shifts the buyer’s internal reference point so that the mid-price offer appears like a bargain in comparison. Next to a $2,500 handbag, a $500 option is no longer “expensive,” it’s a “sensible” deal. This anchoring effect means the top tier’s primary mission is often to stimulate sales of your mid-price offer rather than sell in high volumes itself. Even if the anchor is rarely purchased, it helps shift the customer’s focus from a price-comparison against cheaper rivals to a value-comparison between your own tiers.

Construct a Tiered Price Menu to Increase Revenue and Reach

The solution to the single price dilemma is to move from a fixed offering to a range of options at different price points. This approach replaces the restrictive question “Should I charge more or less?” with “How can I charge both more and less?”.

A tiered price menu lets you charge different prices to different segments of buyers. By offering a range of prices, you can simultaneously capture the “quality-foremost” buyers who want the best and the “price-foremost” buyers who just need a functional solution. This strategy increases your sales and profits because you are no longer leaving the high-end and the low-end of the market untouched. In short, you are increasing your profits from the top while simultaneously expanding your volume at the bottom.

Furthermore, a tiered approach establishes a “value ladder,” allowing you to land new customers at a low price point and then grow your sales with them over time. The buyer who picks the budget option now may upgrade to a higher-value, higher-priced option in the future. (Caveat, this depends on the product or service of course. Hopefully, you never need more than one brain operation. “This time, Doc, I think I’ll go with the anesthesia.”)

At this point, you may be asking, “What’s to keep every buyer from selecting the lowest-priced option on my tiered price menu?” The answer is you ensure they have to give up something they want, or accept something they don’t want, to get a lower price. Think about the airline industry. Paying a lower fare often means sitting in a less comfortable seat and/or a layover on your flight. For many travelers, the price savings isn’t worth the comfort and travel time they sacrifice.

Your New Pricing Mindset

Once you accept that different buyers can be motivated to pay different prices, the single-price dilemma disappears. So stop asking “What is the best price?” and start asking “What is the best range of prices?” Create a tiered price menu to capture more value from those at the top while increasing your sales and profits from the bottom. Don’t leave your hard-earned profits in the field.

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I know you’re busy and it’s easy to overlook a valuable idea in Substack Notes. That’s why I’ve gathered all of my pricing insights from the past month here in their original order. You can catch up in case you missed a tip that could help your business. If you have a moment, let me know your favorite pricing pointer this month!

No sale without cutting your price?

Try this approach.

When a buyer asks for a lower price, offer them a less expensive version of your product or service instead.

When you discount your price, you train your customers to expect a discount every time they do business with you.

Other customers may demand a similar discount when they find out you’ve given someone else a break on price.

By offering different versions at different price points, you’re forcing your customers to trade off price and value.

Is price cutting your only strategy?

Think again.

Many businesses default to discounts when facing competition. However, you have smarter, more profitable options.

There are two major drawbacks to cutting your price. First, it’s hard to raise it later. Second, it cheapens the image of your product.

Remember, price is only one aspect of your offer. You don’t have to cut your price to improve it. Give them more for their money instead.

Increase the quantity, improve the quality, or add a complementary product. Explore faster delivery or more flexible payment plans.

Here are ways to keep your nonprofit’s services accessible while ensuring sustainable revenue.

[1] Pay-What-You-Can

Offer flexibility through pay-what-you-can pricing with a suggested fee. The suggested fee provides an anchor point that typically increases overall revenue.

[2] Sliding Scale Fee

Design your fee structure based on documented ability to pay. This ensures services remain accessible while capturing more revenue from those with greater means.

[3] Tiered Fee Menu

Create a list of options at different fee levels that any user can choose. This allows users to self-select based on their specific needs and financial capacity.

Too many price discounts are just a pay cut for your business.

When you offer a price discount, you are going to lose some revenue from existing customers who now qualify for it.

That’s just a fact of business.

Some of your customers who were happy to pay full price now get to pay a cheaper price.

The key is to gain enough new customers at the lower price to more than offset that lost revenue.

Otherwise, you’re cannibalizing your profits even as you increase your sales volume.

And here’s the part that really hurts: You’re now working harder for less money!

Your costs set the floor, but your customers set the ceiling.

Small business owners often make the mistake of setting prices based solely on a markup of their costs. Strategic pricing requires balancing the “3 C’s”:

Customers: Customer value defines the maximum price a buyer will pay. That value stems from their pains, fears, and desires.

Competitors: What is your product worth compared to the buyer’s best alternative? You can charge a premium only to the degree you deliver more value.

Costs: Your direct, avoidable costs represent the absolute floor below which selling becomes a losing game. As the old joke goes: “We lose money on every sale, but we make it up on volume.”

The Catch: Your value and your competition are defined by your customers, not you.

This makes cost-plus pricing feel safe because it seems like an objective calculation. But if you focus only on costs and ignore the buyer’s value perceptions, you are anchoring your price on the wrong indicator. You’re looking at the one thing your customers don’t care about—your costs.

The key is to find a sweet spot between your cost floor and the value ceiling that makes doing business with you mutually advantageous.

Maybe this will help: You’ve spent plenty of time calculating your costs to deliver. Now, flip the script. Ask yourself, “What is the cost to my customer if they don’t buy from me?”

Lowering your price without lowering your profit

It’s better to take a smaller profit on each sale (maybe) than to sell nothing at all.

However, the trick is to take a smaller profit in only two scenarios: (1) from new customers who wouldn’t have bought at the full price, or (2) on additional items that your existing customers add to their purchase (or purchase history).

If you reduce it for every buyer, the losses from your current buyers may outweigh the gains from those new or additional sales.

The real obstacle is targeting.

You must find a way to offer these price cuts strictly to “incremental” sales without giving a discount to the people already willing to pay full price.

Three blindspots killing your competition-based pricing strategy

It seems easy enough. Study what your competitors charge and charge a little bit less. What could possibly go wrong?

But in practice, matching the market is rarely straightforward. If you’re going to use this approach, don’t overlook these three realities:

[1] Your customers decide who your competitors are, not you. If you’re going to study anyone, you need to study who they were buying from before they found you.

[2] Services are “invisible.” This makes it difficult to compare the scope and quality of a competitor’s services against yours.

[3] Sometimes, the competition is your customer. You aren’t just competing with other businesses; you’re competing with your customer’s ability to do the job themselves when they have the time, skills, and resources.

The Takeaway

If you set your price based solely on what others charge, you’re ignoring the intangible things that win a customer.

P.S. There’s also a giant hidden assumption behind this practice: that your competitors know what the hell they’re doing!

Don’t be afraid of high prices. Be afraid of having only one price.

A single price is an imperfect compromise.

It prices out potentially profitable customers while leaving money on the table.

Specifically, I mean from the customers who prioritize performance and results over paying a lower price.

The key word here is options. If one buyer pays more than another, it’s because they choose to.

And some will choose to if you deliver enough extra value to justify (in their minds) paying more.

Stop fearing a high price tag. Start fearing the opportunities you lose by having only one.

A single, uniform price for every customer is a recipe for stagnant growth.

If you are charging everyone the same price, you are failing to capture a huge portion of the value you’re delivering to the marketplace.

To maximize profit, you must move toward price segmentation and charge closer to what different buyers are actually willing to pay.

A price segmentation strategy is superior to a uniform price strategy, but it requires a “defensive” mindset.

You can’t just set the price for a particular segment and forget it.

You have to build “fences” that protect it.

Which buyers get which price? There are 3 ways to answer this question. I bet you know only 2. Too bad.

[1] The Uniform Approach: You offer every buyer the same exact price, regardless of who they are or how much they purchase.

[2] The Targeted Approach: You select which buyers are offered which price based on differences you perceive in their willingness to pay.

This often takes the form of haggling with buyers or offering discounts based on observable characteristics like age or location.

[3] The Self-Selection Approach: Buyers select which price they’re willing to pay from a menu of options you offer to everyone. If one buyer pays more than another, it’s because they chose a different option. Choice removes the sting of price differences.

Why focus on #3?

This is the approach I write about: why, when, and how to use it.

While many businesses default to the others, I’ve found that approach [3] often falls off the radar. That’s unfortunate because it’s:

• More precise than demographic-driven discounts: Instead of using “proxies” like age or location to guess what someone can afford, you let the buyers tell you exactly what they value. It replaces the guesswork of categorization with the clarity of customer choice.

• More practical than haggling: This can be an expensive form of selling that’s hard to justify in many selling situations. And it can leave customers feeling like they were taken advantage of if they discover later they paid more than someone else for the same thing.

Frankly speaking, negotiating over price isn’t going to go away. In many purchasing situations it’s sensible, even expected. But lots of stuff has already been written about this topic. Writing about the self-selection approach is where I can add value.

It offers serious advantages to small businesses and nonprofits looking for a strategy that is both scalable and fair.

There are two key buyer questions you must answer.

Every seller has to be prepared to answer these two questions:

1. Why should I buy X?

2. Why should I buy X from you?

Knowing a little bit about price strategy can help you successfully navigate these and close more sales. Here is how you answer them:

Question 1: Why should I purchase X?

The Answer: Value > Price. The buyer needs to see that the value they will receive is greater than the price they have to pay. Value gained must be greater than value given up to ensure the trade is profitable to them. (Yes, that’s right. Customers must “make a profit” too. They just don’t record it in their accounts.)

Question 2: Why should I purchase X from you?

The Answer: Value difference > Price difference. This is about your “differentiation value.” You must show the additional value they get from your specific offering over and above their best alternative.

Even if you are the lower-priced alternative, the same logic applies: you must prove that the money they save by buying from you is greater than the value they might lose by “downgrading” to your version.

Master these two formulas, and you master the sale.

Most small businesses leave money on the table because they don’t understand how their products “talk” to each other.

There are 3 product relationships, but only 2 can boost your sales and profits.

The first category is complements.

• Complements are products or services that are purchased and/or used together. If an increase in the sales of product A leads to an increase in the sales of product B, then A and B are complements.

• For the buyer, the question is “Do I want both A and B?” Knowing that two products or services are complements tells you that there are cross-selling opportunities. (“Would you like to add a printer to your laptop purchase?”)

The second category is substitutes.

• Substitutes are products or services that are used in place of one another. If an increase in the sales of product A leads to a decrease in the sales of product B, then A and B are substitutes.

• For the buyer, the question is “Do I want either A or B?” Knowing that two products are substitutes tells you there are potentialup-selling opportunities. (“Would you like to upgrade your laptop purchase to a bigger screen?”) I say “potential” because the substitute must be perceived as being a better option, not just different.

The third category?

• Independent products. These are items that have zero effect on each other’s sales.

• Since they don’t drive strategic growth, I’m ignoring them today. (“Would you like to add a snowblower to your laptop purchase?” Or, “Wouldn’t you rather purchase a sailboat instead of the laptop? We have the newest models on display.”)

Logic will often tell you how two products are related. But ultimately, buyers determine which products are complements and substitutes by their behavior.

In short: if you want to unlock more revenue, identify complements you can cross-sell alongside your core product or service, or substitutes you can up-sell in its place.

Is the budget option on your price menu too good?

By making your lowest-priced option too good, you are effectively cannibalizing sales of your premium tier.

Your most profitable customers look at your menu of options and realize they can get 90% of the results for 50% of the price.

The jump in price to your premium tier must come with an even bigger jump in value to the buyer (as they perceive it).

When was the last time you audited the “value gap” between your pricing tiers?

Is your pricing model accidentally driving customers away?

Many businesses lose sales by being too rigid in their pricing. They fall into the trap of thinking they must sell everything separately or as a single, “take-it-or-leave-it” package.

They don’t realize there’s a middle ground called mixed bundling. It allows buyers to purchase products individually or as a package, giving them the flexibility to choose based on their specific budget and needs.

Because customers don’t feel backed into a corner, they are often more open to the higher-value option. This encourages more spending without forcing a purchase. The price difference between the individual items and the package (the bundle discount) is the incentive to upgrade their purchase to the bundle.

Read my article for tips on how to calculate your own bundle discount.

Your customers don’t care about your costs

Your customers don’t care about your rent, your payroll, or your overhead. They only care about one thing: the impact you have on their business or life.

Many businesses fall into the “cost-plus” trap. They calculate their expenses and add a mark-up to arrive at their price.

While this seems like a logical approach, it’s completely disconnected from why people actually buy.

When you “overpaid” for that beverage you bought when you were on vacation, you didn’t calculate the seller’s cost. You thought about your thirst and the convenience of having a cold drink delivered right to your beach chair. You bought the result, not the overhead.

Pricing based on your costs caps your success. It ignores the actual value you create in the market.

To grow profits, you must shift your thinking. Stop focusing on what it costs you to provide the service and start focusing on what it is worth to the person receiving it.

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To guide your customers toward the best outcome, leverage the psychology of a tiered price menu to help them choose the level of impact they want to buy.

Over the last two weeks, I’ve covered why a single price is a profit trap and how to unbundle your current offer into modular parts. The goal is to shift your customer’s focus from “Should I buy from you?“ to “Which one should I buy from you?“

Whether you are sending a project proposal or handing a price list to someone who walked into your shop, providing options changes the dynamic. You stop being a vendor to be haggled with and start being a partner in their success. This shift starts with how you categorize your value.

Organize your tiers around clear outcomes

A successful tiered menu usually follows a “Good/Better/Best” structure. Each tier should represent a clear step up in impact: “Good” core solution for the budget-conscious; “Better” balances price and value; and “Best” provides the highest level of results.

When you present these tiers, don’t list features. Speak to the outcome. A customer shouldn’t be choosing between “5 hours” and “10 hours” of your time. They should be choosing between “patching the leak today” and “waterproofing the entire home for a decade.” They should be choosing between “wash the gunk off” and “make my car look like it just left the showroom.”

Use anchoring to provide perspective

We have a hard time judging value in a vacuum. This is why your “Best” option is so powerful, even if it isn’t your best seller. It serves as a price anchor. When a customer sees a premium option at the top of the menu, it makes the “Better” option look like a value by comparison.

Without that high-end anchor, your middle price can feel expensive. Beyond pricing, the “Best” option acts as a capability beacon. It signals that you are capable of delivering the highest quality available. This builds trust.

Make buyers feel it’s safe to purchase

The “Best” tier helps you sell more of the “Better” tier. However, there’s one potential pitfall you need to avoid. It’s the temptation to throw together everything you can think of in order to justify the high price tag. The result is your premium tier is too complex for buyers to decipher. So they default to the fear that they’re paying for “extra” features they don’t actually need, and they retreat to the “safe” middle choice.

You can remove this friction by following the “everything and more rule.” Each tier consists of everything the tier below it has, plus a distinct enhancement. This “more” could be a larger quantity, a higher quality level, or a supplementary product or service.

This logic (A, A+B, A+B+C) transforms your premium tier into an easy to understand, high-value upgrade. The “everything and more rule” makes the added value an objective fact, leaving the buyer to decide only if the extra impact is worth the extra cost.

Transitioning from seller to guide

This approach turns a sales transaction into a partnership. Whether you are presenting a custom estimate or a fixed price menu, stop asking “Do you want this?” and start asking: “Which level of impact are you looking to achieve today?”

You’ll find that customers are often willing to pay more than you would have dared to ask. This isn’t because you tricked them, but because you finally gave them the option to buy the high-impact results they truly wanted.

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In the last issue of Pricing Pointers, we looked at why a “single best price” is a myth that leaves money on the table. But once you accept that you need a range of prices, a new challenge arises: How do you actually create that range of price points? Charging different prices for the same thing feels unfair, if not ethically murky.

The secret lies in changing your offer, not just the price. You need to stop thinking about your product or service and start thinking in terms of your offer instead. By deconstructing and reconfiguring your offer, you can build a tiered price menu that appeals to different types of buyers.

Identify your current offer

Basically, your offer is your answer to the customer who asks “What do I get for my money?” It’s everything you will give to the buyer (tangible products) and/or do for the buyer (intangible services), and how much money (your price) you want in exchange.

An offer can consist of both products and services. I bought a set of new car tires, a physical product, but the tire seller’s offer included installing the tires (a service), disposing of my old tires (another service), a warranty (another service) as well as periodically rotating my new tires for as long as I owned my car (another service.)

You’re offering to mow my grass for $? Well, what does that include? (What doesn’t it include?) What do I get for my money?

Deconstruct your current offer

Most businesses sell “the works.” They want to make their product or service as good as they possibly can. They bundle all the “bells and whistles” they can come up with into one package. While this seems generous, it actually limits your market. Some customers feel they are paying for things they don’t need, while other customers are priced out because they can’t afford the whole bundle.

Start by deconstructing your offer into its constituent elements. Look at everything you provide and/or do for someone who accepts your offer. Identify the “core” value: the essential elements that every customer wants and expects to solve their problem. These are the things that, if you don’t include them in your offer, are a deal killer. (Not going to dispose of my old tires? That’s a deal killer. Not going to rotate my tires every 6,000 miles? I can live without that.)

Then, look at the extras: the things that enhance your core elements, giving the customer a better experience or result. I like to think “more, better, different.” This might be more of a core element (e.g., greater service frequency), a better version of a core element (e.g., priority service), or another element (a supplementary service or product). These are your value-adding elements.

Build new offers by stacking elements

Once you have unbundled your offer into its different elements, you can begin “offer stacking.” This is the process of adding your value-enhancing element to your base (core) offer to create different variations of your offer. For example, your base offer might include just your core solution. Your mid-tier offer might add more frequent service. Your premium offer might add priority service.

This stacking creates a logical progression of value. It allows the customer to look at your price menu and decide which level of impact they need. The price doesn’t feel arbitrary because it is tied to the amount of value they are buying. This structure helps customers finds an option that best meets their needs and budget.

As you build these tiers, you want to vary the attributes enough that high-value customers are discouraged from trading down to a cheaper option. By leaving the “premium” bells and whistles out of your basic package, you make sure it doesn’t quite do enough for the people who really care about the results.

To visualize this, imagine a simple lawn-mowing service: your base tier mows the lawn, but it doesn’t include edging the lawn to make those crisp, defined lines along the sidewalk and driveway. For the neighbor who wants a perfect look, that base tier isn’t good enough for their needs. This encourages those who require a better outcome to move up the menu. This creates a natural self-selection that protects your higher-end margins while still allowing you to serve the budget-conscious.

Reimagine your current offer

Your goal this week is to prototype a tiered price menu that lets your customers tell you exactly how much value they want to buy. Once you have defined the two extremes, your “standard” middle tier will often reveal itself.

Take a look at your current offer today and ask yourself:

• “What is the smallest, most limited variant of this I could sell?”

• “What is the most expensive, high-touch variant I can imagine?”

By moving from a single offer to a range of offers, you stop leaving money on the table and start capturing more of the value you provide.

P.S. This week’s Pricing Pointers was a lot of fun for me to write. I hope you enjoyed reading it.

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Too many business owners spend weeks agonizing over a single question: “What should I charge for my product?” They look at their costs, check their competitors, and try to land on that one perfect number that will maximize their sales. But the inescapable fact is that “perfect number” does not exist. By picking just one price, you are likely leaving half of your potential profit on the table.

The error in pricing logic you must avoid is the objective value fallacy. This is the profit-killing assumption that every customer values your product exactly the same way. But the value of any product or service is subjective. It depends on who you ask, as well as when and where you ask them. (Think about that time you willingly paid more for a soft drink because “I’m on vacation” than you ever would have paid at home, going about your daily affairs.)

To maximize your growth, you must stop searching for the perfect price and start offering a range of prices that reflect the different levels of value your customers perceive.

Stop treating all customers the same

When you set one “take-it-or-leave-it” price, you create two different types of lost profits. Above this particular price point, you have the high-value customers (what I call The Underserved and Underpriced). These are the people who would have willingly paid you more because your solution solves a massive problem for them. By charging them your selected price, you are leaving money on the table.

Below this price point, you have the low-value customers (what I call The Priced Out). These people like what you’re offering, and you could serve some of them profitably. But your price point is just a bit too high for their budget. You lose their business entirely. A single price is a “one-size-fits-none” strategy. It is too low for some and too high for others.

Focus on value instead of costs

Many businesses fall into the trap of cost-plus pricing. They calculate what it costs to deliver a service, add a mark-up, and call it a day. While this feels safe, it is completely disconnected from why people actually buy. Customers don’t care about your overhead and other costs. They care about the impact your product will have on their business or life.

When you “overpaid” for that vacation soft drink, you didn’t calculate the vendor’s cost. You thought about how thirsty you were and how convenient it’d be to have it delivered right to your beach chair. You ordered it then and there even though you could have gotten the same item cheaper at another time or place.

Different customers experience different levels of impact from the same product or service. A print shop takes two hours to produce a large, high-quality banner. For a resident hosting a neighborhood BBQ, the banner is a fun decoration that adds to the atmosphere. For a professional keynote speaker appearing at a national conference the next morning, that same two-hour print job is a critical brand asset. It determines whether they look like an authority or an amateur in front of their peers. If you charge both of them the same price based on your “cost,” you are failing to capture the additional value you’re providing to the professional client. You should be pricing the customer, not the product.

Segment your market to capture more value

To capture this hidden profit, you must transition from a single price point to a tiered price menu. This means creating different “versions” of your offer, at different price points, so that buyers can choose the one that fits their specific needs and budget.

Think of a concert hall. Some fans just want to be in the building; they’ll happily take an obstructed view in the “nose-bleed” seats just to hear the music. Others aren’t just there for the music: they’re there for the experience. They will pay a significant premium for a front-row center seat.

By offering options, you allow your customers to sort themselves by how much price matters to them. You give the budget-conscious buyer a way to get started, and you give the quality-conscious buyers a way to get the premium experience and results they desire.

This isn’t about being “expensive” or “cheap.” It is about being flexible enough to capture the full range of value you create in the marketplace.

A new way to look at your pricing

Stop looking for the “right” price. Instead, start looking for the “right” menu of prices. Your next move shouldn’t be to nudge your single price higher or lower. Instead, extend that price higher and lower. Create a range of offers that reflect the diverse needs and budgets of the people you serve. You will capture more of the value you’re creating in the marketplace.

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A price segmentation strategy is fundamentally superior to a non-segmentation strategy. By charging each customer a price closer to their willingness to pay, you can achieve significantly greater sales and profit than a uniform pricing strategy can.

But this move creates two major risks to your bottom line: diversion and arbitrage. Effective price segmentation requires protecting your profit margins from both internal demand shifts and external reselling.

Watch out for these two types of profit leakage

Profit “leaks” when you fail to capture the full value of your price segmentation strategy. This can happen in two distinct ways.

First, diversion occurs when your own product lineup encourages a customer to switch from a high-priced offer to a cheaper one. It happens when a customer who was willing to pay full price trades down because they decide the cheaper option simply offers “more bang for the buck.”

Second, arbitrage occurs when a discounted customer buys your product specifically to resell it to a full-price customer. In this scenario, one of your buyers effectively steals a high-margin sale by stepping in as an unauthorized middleman. By “buying low” from you and “selling high” to other buyers, they pocket the profit that should have been yours.

In a nutshell, diversion is a problem when a customer shifts their demand between your own offers. Arbitrage is a problem when a buyer steps between you and another customer by reselling your product and pocketing the profit. In other words, the former is a shift in interest and the latter is a shift in ownership.

If you don’t plug these leaks, you’re doing more than just losing a few points of margin. With arbitrage, you’re losing the power to charge what your product is actually worth. With diversion, you lose the ability to justify your premium tiers. This eventually forces you to devalue your entire product line just to keep your best customers.

When is your business at risk?

While both diversion and arbitrage eat into your profits, they’re rarely a threat at the same time. The risk to your business depends on how you structure your offers and what you’re actually selling.

Arbitrage is a danger when you offer exclusive discounts to specific groups. It isn’t a risk with a tiered price menu because those lower prices are open to everyone. There is no profit in reselling a product to a customer who can already buy it from you at the same discounted rate.

The one exception to this is quantity discounts. If your price menu offers deep discounts for high-volume orders, a buyer could purchase at the discounted price and resell individual units to smaller customers for a profit. In this case, your own volume purchase incentive creates a competitor.

Diversion, however, is a risk whenever you let customers choose their own price. It happens because you’ve given them a menu of options, and your premium buyers decide they’d rather save money by taking a cheaper, lower-margin offer.

Your vulnerability to arbitrage usually comes down to how easy your product is to store and move. Physical goods that don’t spoil and are easy to transport, present the greatest risk.

Services are safe from arbitrage when they are purchased and used at the same time. You can’t buy a discounted haircut and then stand out on the sidewalk to resell it to the next person for a profit. Even if I’ve already paid for the slot, my own barber wouldn’t let me “hand off” the appointment to a stranger. She’s contracted to cut my hair, not whoever offers me the most for my spot in line.

However, ticket scalpers show us that services become vulnerable to arbitrage when there is a gap between when they are bought and when they are used. Because a ticket to a concert or game can be stored and transferred right up until the event starts, it acts more like a physical product. If your price is lower than what the market is willing to pay, someone will inevitably buy that “spot” just to resell for a profit.

Diversion becomes a threat when your lower priced options are just too good. If the jump in price to your premium tier doesn’t come with an even bigger jump in value, your highest-paying customers will simply trade down. They will conclude the extra benefits aren’t worth the extra cost, giving your most profitable customers a reason to spend less with you.

Build your price fences

You protect your profit margins by building price fences. These are the rules or conditions that customers must meet to qualify for a lower price. Think of them as barriers that separate your high-value buyers from your price-sensitive ones.

You need “hard” fences to stop arbitrage

To stop third parties from reselling your product, you need to create technical or physical barriers. These tactics fall into two buckets: making it harder to transfer the product, or making it less profitable to do so.

Make reselling harder to do: Tying the product or service to the original buyer ensures the discount stays with the intended customer and cannot be easily handed off to someone else.

Example: Airlines require passengers to present identification matching the name on their ticket. While framed as a security measure, it also functions as a hard price fence. By making tickets non-transferable, airlines prevent budget travelers from reselling their discounted seats to last-minute business travelers for a profit.

Make reselling less profitable to do: If the cost of reselling (e.g., time, logistics, etc.) eats up the price gap you’ve created, the incentive for a buyer to become your competitor disappears.

Example: A garden store offers a deep discount on bags of mulch, but only for “in-person, bulk carry-out.” A customer could buy the mulch at the discount to try and undercut the store’s standard retail price, but the physical labor and transportation costs required to find and deliver to another buyer would eat up the potential profit, making the arbitrage attempt economically worthless.

While these “hard” fences block third-party reselling, you still need “soft” fences to manage the choices of your own intended customers.

You need “soft” fences to stop diversion

To stop your best customers from trading down, you need to make the lower price come with a compromise that the premium segment is unwilling to accept. These tactics often double as “hard” defenses against arbitrage by making the discounted version a non-starter for the premium segment.

Make trading down impossible: Intentionally degrade the performance or functionality of the lower-priced version so it cannot fulfill the strict requirements of the high-price segment.

Example: A defense contractor building a high-altitude missile physically cannot use a commercial-grade microchip, because it will fail in extreme cold. The cheaper version is a non-starter; the trade-down is impossible, and a reseller has no market for commercial chips within the defense industry.

Make trading down painful: Ensure that taking the cheaper option requires giving up something that your premium buyers care about deeply, even if the product could technically work. This makes the trade-down unappealing even when it’s possible.

Example: A professional chef could use a $30 home blender to make soup, but the motor would probably burn out after a few hours of continuous use. While the trade-down isn’t forbidden by the laws of physics, the “pain” of frequent equipment failure and lost productivity makes the premium, industrial-grade blender the only logical choice for the chef.

The best soft fences don’t just punish trading down; they reward trading up. By delivering additional value that only the high-price segment cares about, you make the higher price feel like a fair trade for superior results.

Closing the Leaks

Moving away from a single “take-it-or-leave-it” price is the only way to capture the full value of your market, but it requires constant vigilance. To keep your profit from leaking, you must remain the only viable source for your product at every price point.

Plug the leaks by making reselling unprofitable or difficult for your low-price customers, and by making trading down impossible or painful for your high-price ones. Remember, building and maintaining your price fences is just as important as setting the price.

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