Running Your Business 2 min read
How to Price Your Products and Services
Understand your real costs, choose a pricing method and raise prices with confidence when it is time.
Know Your Real Costs
Many small businesses underprice because they forget hidden costs. List everything: materials, your time, rent, insurance, software, card fees, vehicle costs and the time spent on quotes and admin that you cannot bill.
Three Common Pricing Methods
- Cost plus: add a markup to what it costs you. Simple and safe, but ignores what customers will pay.
- Market based: price near local competitors, then adjust for quality and service.
- Value based: price on the result you deliver. Works best when you solve an expensive or urgent problem.
Margin Versus Markup
These are easy to mix up. A $60 item that costs you $40 has a $20 profit. That is a 50% markup on cost, but only a 33% margin on price. Use the profit margin calculator to check both and to find the price that hits your target margin.
Pricing Services by the Hour
Start with what you want to earn in a year, add your business expenses, and divide by the hours you can realistically bill. Most owners can bill only 50 to 70 percent of the hours they work. The hourly rate calculator does the math for you.
Raising Prices Without Losing Customers
- Raise a little and regularly, rather than a lot at once.
- Give regulars a heads up with a friendly note and a clear date.
- Explain what has gone up or what they get, without over-apologizing.
- Add a premium option so customers can choose more.