The Art and Science of Pricing

At some point every new entrepreneur has to address the question of how much to charge for their product or service. For many entrepreneurs this is one of the most agonizing decisions they have to make during their start-up. For most, they fear charging too much and scaring customers away. Many go so far as to almost seem to be apologizing to the market for having the gall to actually try to compete. They end up charging significantly below what the market may be willing to pay.
There is a good article at NFIB on pricing strategies for new businesses. It offers a simple approach that helps take some of the guess work out of pricing. Do your homework of what the market is charging. Make sure that what you charge covers all of your costs, including overhead. An operating margin of 50% to cover overhead is a good rule of thumb. And finally, build profit into your pricing strategy. Making money is your goal, and you can only create profit if you charge enough.
My only additional advice is to keep your business strategy in mind. If you truly have a safe niche that no other business is competing within, you can charge a little more. However, make sure you really have a niche, as many who think they do are really just offering a variation on a theme. This strategy involves trying to differentiate your product or service to gain existing market share from others, which requires meeting or slightly beating existing market prices.
Remember, pricing your product or service is part science and part art. Gather data about the market, but also follow your intuition about what your customers will pay based on your business strategy.