Steve Blank, a Silicon Valley veteran and educator, has plenty of expertise when it comes to growing a business. After all, he was involved in or founded eight of them over the course of 21 years in America's famous tech hub. 

He also knows what not to do. In a recent Inc. video, Blank outlines a common mistake companies can make when it comes to pricing their products: Founders will often set a price based on the cost of building the product plus an estimated markup, when there's an alternative model that's actually better for business. 

"What you really want to think about is not just your internal economics, but the customer insight that you actually have," Blank says. So while pricing according to cost may be a good starting point, you could actually be losing out on a lot of money if you don't factor in your customers' views toward the product. 

Instead, he explains, when planning a business, you should set prices according to value: "Smart marketeers and smart startup executives can convince customers that instead of paying on cost, they really ought to be thinking about [the fact] that your company is unique."

Think of it this way: You're likely saving your customers time and energy, and providing them with something that's beneficial or even "delightful." In short, your pricing strategy should reflect how your product affects people's lives. 

For more on the pitfalls of pricing according to cost, watch the video below.

Published on: Mar 10, 2015