Are you undercharging? Price your products and services to turn a healthy profit

As a business owner, things get busy. The calendar's pretty full, or your products are moving steadily in your local market. Then one day, you have a few minutes to check the bank account, and suddenly, it's clear the math doesn't add up.

If that sounds familiar, working harder probably won't solve your problem. In fact, it could be that the prices you're charging are barely covering your costs.

The cost of underpricing your small business

Charging too little doesn't just mean less take-home pay. It means working more hours to hit your income goals, and it can lead to cash flow problems, stalled growth, and burnout.

Low prices also send the wrong signal to value-focused customers, making a product or service look lower quality than it is. And they tend to attract customers who push for more while paying less, then disappear the moment something cheaper shows up.

It also sets up a race to the bottom: competing purely on price against businesses that can undercut just as easily.

6 common pricing mistakes that eat your profits for lunch

Most business owners don't undercharge on purpose. It usually stems from one of these approaches:

• Pricing low to "get your foot in the door," or based on what a competitor charges, instead of what the product or service actually costs to deliver.
• Forgetting to account for taxes, marketing costs, processing fees, and owner's pay.
• Underestimating the true cost of running the business, because it's currently home-based and/or family members are providing free labor.
• Charging by the hour when the real value of the work isn't the time it takes. A skilled consultant who solves a client's problem in three hours brings the same value as one who takes eight.
• Overusing discounts to boost sales volume. Frequent discounts can train customers to wait for a lower price instead of paying full price.
• Setting a price once and never revisiting it. Costs go up, skills improve, and demand shifts, but the price often stays frozen from whenever the business started.

7 steps to build a small business pricing strategy that works

Step 1: Document your true costs

Before touching the price, identify production or delivery costs (materials, paid labor, and your time), regular monthly expenses, taxes, and fees. Then estimate how much time goes into non-billable work, like admin and marketing, and assign it a cost too. This is the foundation everything else builds on.

Step 2: Use competitors as one data point, not the answer

Research what others charge, but treat it as context rather than a target. Check the market so you're not pricing blind, but set the actual number from your costs and the value you provide.

Look at a range of competitors and note how your business compares in experience, quality, and brand presence, then position yourself deliberately. Pricing above the middle of the market signals that your work, materials, or service is genuinely better in a way customers value. Remember that customers rarely choose purely on price. Quality, turnaround time, trust, and convenience all factor in.

Step 3: Choose a pricing model that fits your business

Research your industry to see what pricing strategies are commonly used, and why. Most businesses use a combination of two or more, and each comes with trade-offs. A consultant charging hourly is guaranteed pay for their time, but isn't rewarded for getting faster or more skilled. A product business adding a set margin on top of inventory or production costs gets a simple system, but one that doesn't account for how customers perceive the product's value. Customers may be willing to pay more initially, and once you anchor them to a price, tend to resist a price increase even if your costs go up.

Step 4: Build profit in from the start, not as leftovers

Reframe profit margin as a line item to plan for, not whatever happens to be left after costs. This mindset shift, plus the math from step 1, helps ensure your hard work is reflected on your bottom line.

Step 5: Test before rolling out a change

Try a new price with new clients or a limited product run before repricing everything at once. Gather real reactions before committing.

Step 6: Put pricing on a recurring calendar check

Most businesses revisit pricing only when something goes wrong. Schedule a check-in twice a year, or tie it to a specific trigger like a cost increase or a slow quarter.

Step 7: Get a second set of eyes on the numbers

Have a pro bono expert reality-check your pricing model before it goes live, to catch gaps a business owner might miss on their own.

Pricing decisions get easier with someone who can help you assess your specific business and play out scenarios with real numbers. Start Small Think Big's no cost financial services connect small business owners with pro bono finance experts who can help build a pricing model based on your costs and goals, so you don't have to guess.