Set Your Pricing Strategy

Pricing is the most consequential decision most small business owners make — and the one they spend the least time thinking about. Underpricing is the single most common mistake in new businesses. It reduces profit, attracts the wrong customers, and makes it nearly impossible to deliver quality.

The Three Pricing Methods

Cost-plus pricing. Calculate your total cost to deliver the product or service, then add your desired margin. Simple and ensures profitability, but ignores what the market will actually pay.

Competitive pricing. Price based on what competitors charge. Useful as a reference point but dangerous as a primary strategy.

Value-based pricing. Price based on the value the customer receives. The most profitable approach when you can demonstrate that value clearly.

The Underpricing Trap

New owners underprice from fear and lack of confidence. Low prices attract price-sensitive customers who are the hardest to satisfy. Raise your prices. You will lose some prospects. The customers you keep will be better.