← Pricing Strategy

Module 2: Know Your Numbers

Most pricing problems are actually math problems wearing a confidence costume. This module gives you the three numbers every price has to survive: your true cost, your floor, and what a customer is worth over their whole lifetime. Price from these, and fear stops making your decisions.

$39.50

the true cost of a $40 product once your time is counted — fifty cents of profit

80%

minimum margin target for digital products

$480

lifetime value of a $60 customer who buys 4x a year for 2 years

Your true cost

Ask ten founders what one sale costs them and nine will give you a number that's wrong in the most dangerous direction: too low. They count materials and forget the cut the payment processor takes, the mailer and the tape, the return they absorbed last month, and the biggest cost of all — their own time, priced at zero. Your price is built on your true cost, the full cost of delivering one unit, and if that number is a fantasy, every sale digs the hole deeper.

Take a $40 handmade product. Materials: $12. Payment processing on a $40 sale runs about $1.45 plus a fixed fee, so call it $3 once refunds are averaged in. Packaging: $2. Now the part people skip: 45 minutes of labor. At a real hourly rate — $30 an hour, what you'd pay a competent person to do the work — that's $22.50. Total true cost: $39.50. The price is $40. The profit is fifty cents. That is not a business; that is an expensive hobby with a checkout button.

Build it on a spreadsheet: one row per cost — materials, processing fees, packaging, shipping, your time at a real rate, and a line for returns and refunds spread across all sales. Nothing optional. If you wouldn't take a job at that rate, the rate is wrong; raise it. Every hour you spend making it is an hour you can't spend growing it.

The usual result stings: most people discover their "profitable" price barely breaks even once time is in the spreadsheet. That sting is the point. You can't price your way out of costs you haven't counted.

Side by side

Cost-plus vs value-based pricing

	Cost-plus	Value-based
Starting question	What did it cost me?	What is it worth to the buyer?
Price built from	True cost + markup	Buyer value, framed by an anchor
Biggest risk	Fifty-cent profit on a $40 sale	Value claims you cannot prove
Best when	Commodities with thin margins	Differentiated offers with real outcomes

Teaching comparison — the lesson's rule stands either way: price from your true cost, never from a guess.

Where the $40 actually goes when your time counts

Materials$12

Fees + packaging$5

Your time (45 min at $30/hr)$22.50

Profit left at a $40 price$0.50

Build brief

Open a spreadsheet and list every cost to deliver ONE unit of your main offer — materials, payment processing fees, packaging, shipping, your time at a real hourly rate, returns. What's your true cost number?

Margins and your floor price

Your floor price is the lowest price you can charge without losing money: true cost plus the minimum margin you'll accept. It is a line in concrete. You never go below it — not for friends, not for exposure, not for a first customer you're hoping will refer people. Every price you ever set starts at the floor and goes up. It never starts at the floor and negotiates down.

What counts as a healthy margin depends on what you sell. Digital products — courses, templates, downloads — should hold 80% or more, because there's almost no cost per sale; anything less means you're underpricing or overspending on delivery. Services should hold 50% or more after your time and tools are counted. Physical products live tighter: 30 to 50% is the target range, which is exactly why uncounted labor destroys physical-product sellers first. Margin percentage is simple: (price minus true cost) divided by price.

This is where "exposure" deals go to die. A discount that crosses your floor isn't marketing — it's you paying the customer to buy from you. A feature in someone's newsletter doesn't cover your materials, and a famous customer who got it free refers people who also expect it free.

The most common floor-crosser is the well-meaning friend discount. If they're truly a friend, they'd rather pay your real price than watch you lose money on them. Give yourself a fixed friends-and-family policy — a set number of uses per year — and never let a single one live below the floor.

Build brief

Take your true cost from the last answer and add your minimum margin target (80% digital, 50%+ services, 30–50% physical). What's your floor price — and is your current price above it?

Lifetime value changes everything

A customer who buys once is a transaction. A customer who buys for years is an asset, and the two get priced completely differently. Lifetime value is what one customer is worth over the whole relationship: average order value times how often they buy in a year times how many years they stick around. It's the number your pricing should actually be built on.

Run it: a $60 average order, 4 purchases a year, customers who stay 2 years — $60 × 4 × 2 = $480 lifetime value. Now price from $480 instead of the first $60. A $480 customer means a generous first-purchase discount that would be insane on a one-timer, a bigger budget to acquire each customer, and real money to spend on the unboxing, the follow-up, the loyalty perk — because you know what the relationship pays.

Two sellers can move the same $60 product and live in different universes. One keeps 10% of customers into year two; the other keeps 60%. The second isn't twice as good at pricing — they're pricing off a completely different number. Stop pricing for the first sale. Price for the whole relationship.

So the fastest way to grow your pricing power is to grow the inputs: more repeat purchases, subscriptions, a reason to come back. Every point of retention you add raises what every customer is worth — and what you can afford to spend getting and keeping them.

Build brief

What's your average order value, how often does a customer buy in a year, and for how many years? Multiply the three: what's your lifetime value — and what does that number let you afford that a single sale doesn't?

Devon sells handmade leather wallets at $40. He counts $14 in leather and $3 in fees and calls his cost $17. Each wallet takes him 50 minutes, and he values his time at $30 an hour. For a holiday sale he wants to drop the price to $32. What should he do?

Your turn: open a spreadsheet and write the full true-cost breakdown for your main product or service — materials, fees, packaging, shipping, your time at a real hourly rate, returns. Then compute your floor price and your real margin percentage at your current price. Write the three numbers here.

Your next 24 hours

Fill in the true-cost spreadsheet for your single best-selling item before tomorrow. One item, every cost line, your time at a real rate.

Steal this template

My true-cost worksheet:

Item: ___
Materials: $___
Payment processing + fees: $___
Packaging: $___
Shipping: $___
My time: ___ hours × $___/hr = $___
Returns/refunds (monthly total ÷ units sold): $___
TRUE COST = $___
Floor price (true cost + ___% margin) = $___
Current price: $___ → real margin: ___%

Module 2 cheat sheet

True cost = materials + fees + packaging + shipping + your time at a real rate + returns.
Your time is never $0 — price it at what you'd pay someone competent to do it.
Floor price = true cost + your minimum margin. Never sell below it, for anyone, for any reason.
Margin targets: digital 80%+, services 50%+, physical 30–50%.
Margin % = (price − true cost) ÷ price.
LTV = average order × purchases per year × years as a customer. Price for the relationship, not the first sale.