10 Common Pricing Models: A Complete Guide

• A pricing model is the structure you use to charge customers money for your product or service.
• Common pricing models include subscription, usage-based pricing, and tiered pricing. There are even more to choose from, depending on your business type.
• Choosing the right pricing model affects almost every part of your business, so it’s imperative to choose wisely.

With so many pricing models to choose from, finding the right one for your product or service can be challenging. Choose the right model, and you could potentially unlock more revenue, market share, and customer satisfaction. But price your items incorrectly, and you could damage your brand, ruin your profit margins, and create cash flow and operational issues.

In this article, we’ll give you pricing strategies, tips, and techniques to narrow down the pricing model possibilities and set up your business for success.

A pricing model is used to calculate the price for specific products or services. It helps you align an item’s price with your target market, the type of product or service, and your long-term business goals. Factors like production cost, customers’ perceived value of the product, and competitor pricing all play a significant part in determining the right price. Ultimately, the goal is to find the sweet spot between maximizing revenue and profits while offering a price that your customers are happy to pay.

A pricing strategy is the overall approach a business takes to set prices for its products and services. Think of the pricing model as the “what” and the pricing strategy as the “how” behind the pricing.

Here are some pricing strategy examples:

• Penetration pricing is used when a business launches a new product in a highly competitive market. This strategy sets lower prices to attract customers and help the company quickly scale, create buzz, and build market share.
• Price skimming sets a high initial price for a new product and then gradually lowers it over time. This signals to customers that a product is superior and creates demand among those willing to pay more for the perceived benefits.
• Competitive pricing is when a business sets its prices at or below the prices of its competitors. Using competitors’ pricing helps align prices with the market instead of focusing on production costs or consumer demand.

Selecting the right pricing model determines more than just your revenue: It affects almost every part of your business. Some pricing models scale easily, like per-user or usage-based, while others require more manual effort, like custom quotes for every deal. Even small pricing misalignments can have major consequences. Underpricing high-value products leaves money on the table, while overpricing can reduce demand and slow growth. Your pricing model should align with both customer value and internal cost structure.

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One reason your pricing strategy matters is that the right price can entice prospects and create a strong value proposition. Pricing models can range from simple to complex. It may depend on whether a business offers a single product or service for a fixed price or if there are multiple elements to pricing, such as usage of a service.

Here are 10 common types of pricing models:

Also known as markup pricing, cost-plus pricing is when a fixed percentage is added to the total production cost for one product unit, yielding its selling price. To set your selling price, add up your production costs. Then determine your desired profit margin (or markup) and add that to the production cost.

Here’s the formula: (Total Production Cost) × (1 + Desired Profit Percentage) = Selling Price.

Cost-plus pricing has the benefit of being very simple to calculate, and it will protect your business’s margins at all times. However, there’s a risk that the cost doesn’t correlate to customer value and you underprice (reducing revenue) or overprice (reducing the number of sales). It’s best used in small-scale, commoditized, or low-margin business environments such as trade supplies or professional services.

Example: A furniture manufacturer calculates the cost of materials and labor to build a chair, then adds a 20% markup to determine the final selling price.

Value-based pricing is based on the buyer’s perceived value of a product or service rather than just its features. This pricing model emphasizes the benefits and positive outcomes a buyer gains from using the product and highlights how it can meet their needs and resolve their pain points. Value-based pricing can be a good option if you’re in an industry where quality and exclusivity add perceived value, such as luxury products or upscale cars.

Value-based pricing allows you to maximize revenue based on customers' willingness to pay, but it can be more complex to calculate, as it requires a true understanding of the customer and market. It’s best used in high-margin businesses and/or highly differentiated markets such as software, technology, and luxury or custom goods.

Example: A software company prices its product based on the revenue growth it helps customers achieve, charging more for advanced features that deliver higher business impact.

Subscription-based pricing is a pricing model where customers pay a recurring fee on a monthly or annual basis to access products and services. Rather than a one-time purchase, payments are made over time, which lowers the cost of entry and creates recurring revenue. Subscription pricing models also create renewal dependency and churn sensitivity. Long-term profitability depends on customer retention, not just acquisition.

Example: A financial services firm offers its clients a subscription-based financial planning service where clients pay a monthly financial advisor fee.

Usage-based pricing is a pricing model where customers pay according to how much they use a product or service. This allows customers to only pay when they are using and gaining value from the product or service. Many businesses now use hybrid pricing models that blend subscription access with consumption-based pricing tied to API usage, AI agent actions, automation volume, or outcomes delivered.

Example: A pay-as-you-go telephone company charges for its services based on how many minutes, SMS messages, and gigabytes of data the customer uses.

Dynamic pricing, also known as surge or demand pricing, is a pricing model in which businesses set flexible prices for their products or services based on changing market demands. Prices can be adjusted in real time based on demand, supply, competition, or customer behavior. One potential downside: if dynamic pricing isn't communicated transparently, it can negatively impact customer trust and brand perception.

Example: A rideshare company raises its prices based on demand during busy times of the day, such as rush hour.

Price anchoring, also known as high-low pricing, establishes an initial high starting price or nominal value (the “anchor”) for a product or service before offering it at a discounted price. The pricing model is meant to influence customers’ perceptions of a product’s value and make it look like an affordable option.

Example: An electronics retailer initially prices a laptop at $300 and then marks it down to $200. An in-store sign shows the original and the discounted price.

In project-based pricing, customers pay a fixed fee for specific deliverables. Professional services, consulting, and implementation work benefit the most from this type of pricing model. It sets clear expectations for both parties and offers a predictable cost to customers.

Example: A design agency charges a brand client a certain amount based on delivering a fully functioning website within a certain time period.

Customers pay based on business results achieved. It sounds similar to project-based pricing, but outcome-based pricing is based on business outcomes, not specific deliverables. Consulting and performance-driven services are increasingly moving toward this model as clients become more price-conscious.

Example: An adtech company enters into a revenue-sharing agreement with its publisher clients, and they both get paid if a certain amount of money is earned from a deal. Or consider this enterprise sales example: an outsourced SDR charges the client based on qualified meetings, sales pipeline contribution, or measurable business outcomes.

Tiered pricing is where customers can choose from multiple packages or tiers with increasing features or limits. Tiered pricing captures a wider variety of customers, which expands your total addressable market (TAM). Salespeople also have more leeway to upsell.

Example: A software as a service (SaaS) company offers basic, pro, and enterprise plans for its product.

Freemium pricing involves offering a free version of your product with limited features, with paid upgrades available to access more features. This approach works very well for products that continually add strong features, and it presents a low barrier to entry for customers. Freemium pricing is often used in product-led growth (PLG) models, where low-friction adoption drives expansion revenue.

Example: A digital productivity tool starts out free to use, but to unlock its full benefits, users are encouraged to upgrade to the paid tier.

Determining the right pricing model is crucial to influencing prospects’ and customers’ purchasing decisions. According to the Salesforce Small and Medium Business Trends Report , one of the top factors for evaluating new tech is price. Price your product or service too high, and your customers may not be willing to pay for it. If the price is too low, it could make them question your quality. Additional warning signs to consider: unusually high discount approval volume, low expansion rates, heavy custom quoting, or customers consistently buying smaller packages than expected.

Here are the steps to choose a pricing model for your business:

Your goal here is to narrow your pricing model options and determine whether your customers would pay more for your product or service by identifying where you have pricing power and where you’re struggling.

• Begin by analyzing your company’s current pricing structure based on price performance and value creation to understand your baseline starting point. Consider your production, labor, and materials costs.
• Look at buying signals such as usage patterns, purchase frequency, and whether customers are heavily negotiating to lower a product’s price.
• Review your main competitors’ pricing and how it relates to your own pricing.
• Look at the market landscape and industry trends. Use an AI-powered customer relationship management (CRM) platform to automate your research and surface insights from real-time data.

Create a few scenarios for potential pricing models and analyze the pros and cons of each. Use the results to narrow it down to three potential pricing models.

Make sure your company can execute each of your three potential pricing models. Do this early in the process so you don’t get to the implementation stage and find out that you can’t execute the model. Consider these business capabilities:

• Timelines to ensure pricing models roll out in the right amount of time
• Infrastructure, such as buildings and office space, if a pricing model means expanding into new market locations or increasing the amount of space for employees
• Technology abilities, such as software and hardware, to track and monitor pricing
• Production and manufacturing, such as machines and supply chains, if pricing may affect product demand and inventory
• Staffing and resources, if you need to recruit or train current employees

If you are not able to implement your pricing model options, you’ll either need to find the time and budget to grow your capabilities or swap in another pricing model option.

Gather research data from your customers to see how they perceive the value and price of your product or service based on your three potential models. Conduct market research in two areas to understand your customer base:

• Customer interviews: Start with small groups or one-on-one interviews with people from your existing customer base. Questions should be open-ended and not inadvertently influence a customer’s response. Listen attentively and ask follow-up questions for clarity.
• Customer surveys: Next, conduct quantitative research with surveys given to a large group of customers. Use the responses from the customer interviews as the basis for the survey questions. The survey questions should be closed-ended, like multiple choice, ranking, or rating on a scale. For example, provide five of the product benefits mentioned during the interviews and ask the survey respondents about their willingness to pay for each.

Analyze all of the information, including your customer research and insights, competitors’ pricing, and the market landscape, and examine how that might impact your three potential pricing model options. Consider these elements to guide your final decision:

• Zero in on the data about what customers will pay for and where they see value in your product or service.
• Explore how each pricing model aligns with your short- and long-term business goals and plans. Map out the likely profits from each pricing model based on customer input and market behavior.
• Consider the benefits and drawbacks of each pricing model on your revenue, profitability, and competition.

Implementing your chosen pricing model is not a one-and-done exercise. You must continually monitor it and adapt your pricing as needed based on market changes. These are some pricing model areas to check on regularly:

• Internal sales metrics and conversion rates, such as dips in profit or revenue, monitored with your CRM’s reports and dashboards
• Changes in competitors’ pricing, products, or services
• Changes in your customer base, such as by region or income
• Economic shifts, such as inflation or supply chain issues

Look for warning signs that suggest your current model isn't working and is worth reevaluating as you grow.

Your salespeople are constantly customizing or discounting proposals. If pricing is regularly being adjusted before a deal closes, it's a signal that your stated price doesn't match perceived market value.

Your sales cycles are longer than they should be, and pricing is a recurring friction point. When cost conversations consistently derail or delay deals, the issue is often structural — not just a negotiation problem.

Choosing the right pricing model depends on your industry, target market, and product or service. Here are some best practices to follow to ensure yours will resonate with your customers:

• Establish a pricing model point person: Pricing models should be an ongoing process, not a project that is given attention every few years. Create cross-functional ownership across Sales, Finance, RevOps, and Product to maintain pricing discipline and margin consistency.
• Don’t overcomplicate pricing: Keep your pricing model simple. Your sales team should easily understand your pricing model and be able to clearly communicate it to their prospects and customers. Otherwise, you risk confusing customers, which impacts their decision to buy your product.
• Explore hybrid pricing models: Consider combining pricing models if you have multiple products or services targeting different customers or industries. For example, some cloud computing businesses create a hybrid pricing model that combines subscription-based pricing, for access to the core product, and usage-based pricing, where a customer only pays for the products or services they use.
• Test your pricing model options: If you’ve narrowed down your pricing models to two top options, conduct A/B testing to evaluate the best one for your business. A/B testing is where you present two or more versions of your pricing model to determine which performs the best with customers. You can also try pilot testing or offer customers a trial.
• Clearly communicate pricing changes to your customers: When market conditions — like tariffs, supply chain shifts, or rising operational costs — force a price adjustment, how you handle that conversation matters as much as the adjustment itself. Transparent, proactive communication preserves trust – surprise price changes don't.

Implementing the right pricing model is one of the most important elements in a business’s growth because it directly impacts revenue and profitability. By following the steps we’ve outlined and conducting thorough analysis and research, you can narrow your options and identify your ideal pricing model. Continually monitoring and adapting to market changes will set up your business’s pricing model for long-term success.