GUEST MENTOR, Fred­erick G. Crane, exec­u­tive pro­fessor of entre­pre­neur­ship and inno­va­tion at North­eastern Uni­ver­sity D’Amore-McKim School of Busi­ness: There are three basic ways to go about set­ting a price for your product or ser­vice: cost-​​based, competitive-​​based or customer-​​based. Many star­tups are tempted to start with a cost-​​based approach, which in my opinion is the worst pos­sible option. Why? Because basing your price on cost alone could make your product or ser­vice cost too high, if you have a high cost struc­ture. On the other hand, it could also set your price too low, which can send a signal to the cus­tomer of poor quality. This is par­tic­u­larly true for ser­vices where price is often a sur­ro­gate indi­cator of quality.

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