In Short
Pricing your product requires balancing profitability, market demand and legal compliance. Your pricing strategy must not mislead consumers or breach competition and consumer laws. Clear, transparent pricing helps reduce disputes and protects your business from regulatory risk.
Tips for Businesses
Assess your costs, target market and competitors before setting prices. Ensure any discounts, comparisons or promotional offers are accurate and not misleading. Avoid conduct that could amount to price fixing or anti-competitive behaviour. Clearly communicate total pricing, including any additional fees, to minimise complaints and compliance risks.
Summary
This article is a guide for Australian business owners on pricing products in compliance with competition and consumer laws. LegalVision’s business lawyers explain the legal considerations and risks; LegalVision, a commercial law firm, specialises in advising clients on consumer law and commercial compliance matters.
The price you charge for your product can make or break your business. Early-stage businesses have slim (and often negative) margins. A small percentage change in price can be the difference between reaching your next funding milestone and running out of cash.
The process to discover the best price for your product is long, but essential. First, you need to decide what pricing model is best suited to your product and customers. Secondly, you have to determine the amount you’re going to charge. Finally, you need to continue to test your pricing, as your product and market conditions evolve.
Choosing a Pricing Model
It’s important to match your pricing model to your product. In order to make repeat purchases, customers need to feel like they’re getting good value. The size and frequency of payments should be matched to the moments when the customer is receiving the most value from the product.
Your cost structure will also help determine your pricing model. Businesses with high fixed costs (machinery, R&D, etc.) need predictable revenue streams to help with investment decisions – so subscription pricing fits well. High-variable cost businesses, like accounting firms, need to charge a price that reflects the cost to deliver one unit of their product or service – so they use an hourly rate model.
The table below lists some common pricing models and examples of when to use them.
| Pricing model | When to use it | Example |
| Fixed fee per unit | Value to the customer is discrete, at a point in time | Restaurant |
| Percentage fee per unit | Value to the customer increases with the magnitude of use | Digital payments provider |
| Hourly rate |
High-variable cost businesses; Amount of work required to produce a valuable outcome is uncertain |
Accountant; Physiotherapist |
| Monthly subscription |
High-fixed cost business; Ongoing or uncertain usage patterns | Software; insurance |
Your pricing model needs to be reflected in your legal documents. This becomes particularly important when customers request refunds, exchanges or otherwise disagree with how much they owe you.
How Much Should I Charge?
Now that you’ve chosen a pricing model, you need to decide how many dollars to charge.
Your goal is to price your product in a way that maximises your revenue over time.
A higher price usually results in fewer units sold and vice versa. But it’s almost impossible to find the ‘optimal’ price that maximises your revenue. So, what should you do?
You need to consider the factors that will help you determine how to price your product. These include:
- Cost structure and profit margin: How much do you need to charge in order to make a profit?
- Target customer: Who are your customers and how much money do they have to spend on your product?
- Brand positioning: What does your pricing say about the quality of your product?
- Substitutes and competitors: What customer need does your product address? What is the price of alternative solutions?
Many businesses use customer surveys to help determine pricing. Surveys can be a useful tool but you need to understand their limitations. There’s a gap between what customers say they’ll pay and what they actually pay. It’s better to rely on actual purchase data and then use customer interviews to provide a subjective overlay to your data.
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Review Your Pricing Frequently
Pricing should be dynamic. As the factors that determine pricing change, so too should be the amount you charge for your product. Varying your pricing from time to time and measuring the change in sales volume will help you inch closer to your ‘optimal’ price. You can use promotional discounts to run pricing experiments.
While experiments can help you fine-tune your pricing strategy, you should avoid being overly reactive. The appearance of a new competitor with a more affordable product does not necessarily mean you need to reduce your prices. Rather, it should prompt you to zero in on your product’s unique characteristics and then decide if these justify a price premium.
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Key Takeaways
Pricing is as important to your business as it is challenging. Your pricing should reflect your product, your customers, your cost structure and your competitors. Reviewing your pricing from time to time – as well as running pricing experiments – can help you to find the best price for your product.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced commercial contracts lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
You should match your pricing model to how customers use and value your product, considering options like fixed fee, subscription or hourly rates for services. This choice influences repeat sales and revenue generation.
Pricing isn’t set-and-forget — you should review your prices regularly as costs, customer demand and competitor activity change, and test adjustments to find what works best.
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