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• Strategy
October 23, 2025
by Chris Rosbrook
I recently heard a local founder pitching her business, and something she said about cost and price struck me—not because it was unusual, but because it’s a sentiment that we hear frequently from founders.
She said she was intent on reducing her costs so she could sell her product at a lower price and make it more accessible to a wider range of customers. It’s a common belief: If cost goes down, price should too.
This founder wasn’t wrong to think that cost and price are connected—they absolutely are. But they are not the same, and founders shouldn’t conflate the two.
Here’s a way to think about it: Cost dictates your floor, price defines your potential. In one direction, you must ensure that your price covers your costs; otherwise, the business isn’t sustainable. But the reverse isn’t true—you shouldn’t use cost to determine price.
As Elon Musk mentioned in the quote above, price is determined by the market, independent of cost. It’s about identifying your ideal customer, the value you deliver, the alternatives they have, their willingness to pay, and market dynamics around supply and demand. That’s why Musk’s framing works so well: Know your cost, and let demand guide your price.
Founders often underestimate how many factors shape what customers are willing to pay.
For example, competition matters. If there are viable look-alike products (i.e., substitutes) in the market, prices will tend to drift downward toward the cost of production. This is the world of commodities. But very few founders set out to deliver a low-cost commodity. To the contrary, every startup we know is setting out to build something new and different—if not world-changing—which means they have the right to command a price premium.
The customer’s size and resources also help determine what they are willing to pay. Large organizations may pay more for reliability, integrations, or service, while smaller customers, especially those at the lower end of the market, tend to be more price-sensitive, often thinking more like individuals than businesses.
Most importantly, price should reflect the value you are providing. If you’re solving a problem that saves a customer millions of dollars or enables them to grow faster, price can likely stretch far beyond cost. The linkage between price and value is inescapable, and you should not expect to be able to garner a price that exceeds the value you deliver.
None of this is to dismiss cost discipline. Driving down costs over time gives you margin expansion, operating flexibility, and defensibility. It’s just that lowering costs doesn’t obligate you to lower your price. Sometimes the smartest move is to hold price steady, increase margin, and use those resources to reinvest in the product or in growth.
Sometimes the smartest move is to hold price steady, increase margin, and use those resources to reinvest in the product or in growth.
For the founder above looking to make her product accessible to as many consumers as possible, perhaps she can create more “good” by generating higher profits and investing in marketing to increase awareness. Or perhaps she will need to sell at a lower price, but it is important that she gets there by researching and understanding the various market forces affecting her product.
The takeaway for founders is not that cost and price are unrelated—it’s that cost sets the floor while price reflects the market. Keep both in view, but don’t let cost dictate how you price. As Musk said, the price is (or should be) a function of demand.