Two kinds of law govern pricing. The arithmetic of margin, churn, and acquisition cost doesn’t care about your copy or your intentions: violate it and the business dies no matter how well you execute. The psychology of how humans decide to pay is irrational but predictably irrational: ignore it and you leave most of the money on the table, or burn trust collecting it.

Every sleazy pattern in software is someone using psychology to fight the arithmetic — extracting payment before value exists. Every premium, generous business you admire does the opposite: real value first, psychology used only to remove friction from a payment the customer already wants to make.

Understand the two forces first, then apply them:

1 — The arithmetic: the identities that constrain every pricing choice (LTV, payback, NRR, elasticity, virality) and the curves they trace — the ceilings, troughs, and thresholds where linear intuition gets blindsided.

2 — The psychology: the eight effects that construct willingness to pay while the buyer decides — anchoring, endowment, fairness, the pain of paying. The shortest part, and the one doing the most work per word.

3 — The playbook: eight decisions run in order for every new product (position, who pays, value metric, measuring WTP, the model, gates, tiers, price increases), each constraining the next.

4 — The benchmarks: which metrics to watch, how many customers and visitors a revenue target actually requires, conversion rates by model, and what sets your valuation.

When it’s time to price something real, run the runbook: the nine steps and every threshold, as a checklist. And when you’re stuck on one specific call — trial vs freemium, seats vs usage, raising on existing customers — the dilemmas go straight from the question to its resolution.

Written for the default case: one founder, bootstrapped. Where funding or a team flips an answer, a “Not solo?” callout says how.

#The bookshelf

Where the load-bearing ideas came from, one line each:

• Monetizing Innovation (Ramanujam & Tacke) — price before you build; leaders/fillers/killers; the 10–30%-of-value ceiling; attribution as the unlock for outcome pricing. The spine of the playbook.
• Confessions of the Pricing Man (Hermann Simon) — price as the strongest profit lever; discount discipline; how price wars start and why nobody wins them. The practitioner companion to the arithmetic.
• The Strategy and Tactics of Pricing (Nagle) — the textbook: value-based pricing and segmentation fences. Read when a specific tiering problem outgrows this playbook.
• Information Rules (Shapiro & Varian) — versioning and bundling for goods that cost nothing to copy. From 1998 and still the best economics-of-software book.
• How to Measure Anything (Hubbard) — uncertainty reduction and the value of information; why ten interviews are worth days and not weeks.
• The Mom Test (Fitzpatrick) — interviews that survive the observer effect: past specifics, never future hypotheticals.
• Obviously Awesome (April Dunford) — the working method for choosing your reference alternative on purpose, which part 3 argues is most of pricing.
• Thinking, Fast and Slow (Kahneman) and Predictably Irrational (Ariely) — the psychology foundation: anchors, endowment, fairness, the zero-price effect.
• Influence (Cialdini) — reciprocity and commitment; the mechanics underneath the generous-premium posture.
• 7 Powers (Helmer) — pricing power is downstream of a moat; you can only price toward value you can defend.
• The Innovator’s Dilemma (Christensen) — why funded incumbents structurally abandon the low end; the opening the competition section tells you to occupy.