Building a successful business requires more than just a good idea—it demands a solid foundation that ensures long-term growth. In our 5-part series on the fundamental requirements for business success, we’ve already covered why mustering as many resources as possible is critical.
Now, we’re diving into the second essential element: Having a high-quality, profitable product.
At first glance, this might seem obvious. Of course, a business needs to sell a profitable product—right? But you’d be surprised how many entrepreneurs fall into the pricing trap that slowly drains their profits, making it impossible to scale.
Let’s break it down.
The Danger of the “Time and Materials” Pricing Trap
Many new entrepreneurs approach pricing in the simplest way possible:
Cost of materials + cost of time + small markup = selling price.
On the surface, this seems logical. You’re covering your costs and making a little extra—so what’s the problem?
The trap is this: Pricing solely based on cost ignores hidden expenses and undervalues the product’s true market potential.
Entrepreneurs who rely on this method often lose money without realizing it because they fail to account for:
- Overhead costs (rent, utilities, software, employees)
- Inventory storage and spoilage
- Discount negotiations and distributor margins
- Equipment maintenance and replacements
- Shipping and handling fees
- Time spent on customer service and admin work
This pricing strategy leads to razor-thin margins—and in competitive markets, it can force businesses into a race to the bottom, sacrificing quality and sustainability just to keep up.
Quality First: A Great Product Beats a Great Sales Team
A high-quality product is the foundation of a sustainable business. No matter how strong your marketing or sales strategy is, if the product itself isn’t exceptional, customers won’t stay.
Consider these questions when evaluating your product:
- Does it outperform the competition? Your product should stand out in a crowded market. If it’s not superior in quality, functionality, or experience, why would customers choose it over others?
- Is it priced based on value, not just cost? A product’s worth isn’t just about what it costs to make—it’s about what the market is willing to pay for it.
- Does it support long-term profitability? A great product isn’t just one that sells—it’s one that maintains demand and doesn’t force constant price cuts just to compete.
Even the best sales team in the world can’t fix a poorly made, undervalued product. Make quality the priority.
How to Set Profitable Pricing (That Supports Growth)
Now that we understand the pitfalls of cost-based pricing, let’s talk about how to price your product for success.
Step 1: Know Your Costs (Fixed + Variable)
A profitable product starts with a clear understanding of ALL costs.
- Fixed costs: Expenses that don’t change (rent, salaries, insurance).
- Variable costs: Expenses that increase with sales (raw materials, packaging, shipping).
Pro Tip: Most businesses underestimate their costs the first time. Double-check your numbers before finalizing your pricing strategy.
Step 2: Price Based on What the Market Will Bear
Instead of only looking at your costs, research what customers are willing to pay.
- Study competitors—but don’t blindly copy their pricing.
- Test different price points to see where demand remains strong.
- Consider perceived value—products with premium branding and strong customer experience often command higher prices.
Remember: Competing on price alone is a losing game. Instead, position your product based on its unique value.
Step 3: Build a Sustainable Profit Margin
One of the biggest mistakes entrepreneurs make? Not charging enough.
Example: If it costs $5 to make your product, selling it for $10 seems reasonable—but after expenses, you might barely break even.
A better approach:
- Price your product at 4-5x its cost (depending on your industry).
- Factor in distributor margins, discounts, and hidden fees.
- Review and adjust regularly—what worked last year may not work today.
Industry Example:
- Retail margins are often low (5-10%) due to high volume.
- Custom manufacturing has higher margins (30-50%) because of specialized production.
Know your industry’s margins—and price accordingly.
Avoid the Race to the Bottom
Many businesses make the mistake of lowering their prices to compete.
This leads to a dangerous cycle:
- Cut prices to match competitors.
- Lower margins force cost-cutting measures.
- Product quality starts to decline.
- Customers notice and leave for better options.
Instead of competing on price, compete on value. Charge more, but offer better quality, service, or experience that makes your product worth it.
Final Thoughts: Profitability is a Strategy, Not an Afterthought
To build a thriving business, your product must be:
- High-quality—better than the competition.
- Properly priced—not just based on cost, but on market value.
- Sustainable—supports long-term profitability without sacrificing quality.
Quick Recap:
- Â Avoid the “time and materials” pricing trap.
- Know your costs (fixed + variable) before setting prices.
- Price based on value—NOT just what competitors charge.
- Make sure your margins support long-term success.
- Never compete in a race to the bottom.
By mastering quality and pricing, you set your business up for real success—not just short-term survival.
Next Up: In Part 3, we’ll cover the importance of repeatability and how to ensure your business can scale without you working 24/7.
Want more business growth strategies? Like, comment, and follow for the next part of this series!
Final Words:
Pricing your product correctly is one of the most critical decisions in your business. Get it wrong, and you’ll always be playing catch-up. Get it right, and your business can grow, scale, and thrive.