Ask most small business owners how they arrived at their price, and the honest answer is usually some combination of "what felt right," "what a competitor charges," and "what I thought people would pay." None of these are wrong exactly, but none of them are a real pricing strategy either — and it shows up later as thin margins, awkward discounting, or a nagging sense that prices should probably be higher.
Three Ways to Think About Pricing
Cost-Plus Pricing
Calculate your true cost — including time, materials, and overhead — and add a margin on top. Simple and safe, but it ignores what the market is actually willing to pay, and can leave real money on the table if your value is genuinely higher than your cost suggests.
Competitor-Based Pricing
Price relative to what similar businesses charge. Useful as a sanity check, dangerous as your only method — it assumes your competitors priced correctly, and it locks you into a race where the only differentiator is being cheaper.
Value-Based Pricing
Price according to the actual value or outcome you deliver to the customer, not your cost or a competitor's rate card. Harder to calculate, but it's the only method that lets you charge what you're genuinely worth rather than what's easiest to justify.
A Practical Way to Combine All Three
- Calculate your true cost-plus floor — the absolute minimum you can charge and still run a healthy business, including your own time properly valued
- Map the competitive range — what do the three or four closest alternatives actually charge, and where do you sit relative to them in quality or service
- Identify your genuine differentiator — the specific outcome or experience customers get from you that they can't get elsewhere, and estimate what that's actually worth to them
- Price above your floor, informed by the range, anchored to your differentiator — not the cheapest option in the market, and not blindly matching the most expensive one either
Pricing too low to "win the customer" and planning to raise prices later almost never works the way it's imagined — a customer who signs up at a low price anchors hard to that number, and any later increase feels like a broken promise rather than a fair adjustment. It's genuinely easier to start at a defensible price than to raise one that was set too low out of nervousness.
When to Actually Reconsider Your Pricing
- You're regularly discounting more than 10-15% just to close deals — a sign the sticker price may not match perceived value
- You haven't changed pricing in over a year, despite rising costs or added capability
- You win almost every deal you quote — this often means you're pricing too low, not that you're simply excellent at selling
Pricing decisions connect directly to the bigger growth picture — read our guide on why business growth stalls for how pricing fits into that broader diagnosis.
Not Sure If Your Pricing Is Right?
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