Ask a room full of small business owners whether they charge enough and most will quietly admit they do not. Underpricing is one of the most common reasons small businesses feel busy but never seem to get ahead.
The answer is not to pluck a bigger number out of the air. It is to understand what your prices need to cover, then build confidence in what you offer.
Start with what you need to earn
Before looking at competitors, work out your own numbers.
- Your income: what do you need to pay yourself each year to live comfortably?
- Your business costs: insurance, software, vehicle, equipment, rent, phone, accountancy, marketing and everything else.
- Tax and a buffer: allow for tax and for quiet months.
Add these together and you have the amount your business needs to bring in each year.
Be honest about billable hours
This is where most people go wrong. You might work 45 hours a week, but how many of those can you actually charge for? Quoting, travel, admin, invoicing, marketing and learning all take time. Holidays and sick days matter too.
For many service businesses, only around half of working hours are billable. If you divide your annual target by the number of genuinely billable hours, you get your minimum hourly rate. For many people, this number is a real eye-opener.
Look at the market, but do not chase the bottom
Once you know your minimum, look at what others charge. You are not trying to be the cheapest. Competing on price alone is exhausting and attracts customers who will leave as soon as someone cheaper appears.
Instead, ask where you want to sit. If your experience, reliability or service is better than average, your prices can and should reflect that.
Price the result, not just the time
Customers rarely care how long something takes. They care about the outcome. A sign writer who takes two hours to create a van livery that brings in work for years is not selling two hours. A consultant who fixes a problem in an afternoon may have saved the client thousands.
Where you can, quote a fixed price for a clearly defined result. It is easier for the customer to say yes to, and you benefit from getting faster and better over time.
Offer options
Giving customers a choice of two or three packages often increases what they spend. A basic, standard and premium option lets people choose the level that suits them, and many will choose the middle one. It also changes the question in their mind from “should I buy?” to “which one should I buy?”.
Say your price with confidence
How you present your price matters as much as the number. State it clearly, then stop talking. Avoid apologising or offering a discount before anyone has asked for one.
If a customer says it is more than they expected, ask what they were comparing it with and explain the value they will get. Sometimes the right answer is to adjust what is included rather than reduce the price.
Raise your prices regularly
Costs rise every year, so your prices should too. Many businesses review prices annually and give existing customers a month or two of notice. Most customers understand, and those who leave over a modest increase were often the least profitable anyway.
If you are nervous, start by charging new customers your new rate and see how the market responds.
Signs you are charging too little
- You are fully booked months ahead.
- Customers rarely question your price.
- You are working long hours but have little left after costs.
- You feel resentful about certain jobs.
If several of these sound familiar, it is probably time for a price review. Charging properly is not greedy. It is what allows you to do good work, look after your customers and still be in business in five years’ time.
