Module 05 of 09
Pricing your products and services
Pricing is one of the highest-leverage decisions in your business — a 10% price increase often adds more to your bottom line than a 20% increase in customers. This module shows you how to set prices that cover your costs, match the market, and leave room to grow.
Why pricing is so hard to get right
Most small business owners underprice — especially at the start. Underpricing feels safer (more customers, less resistance), but it creates a business that's always busy and never profitable. The two most common pricing mistakes:
Not knowing your actual costs. Many business owners price based on what competitors charge or what feels reasonable without calculating what it actually costs to deliver the product or service. When costs include your own labor at a fair wage, overhead, and variable costs, the number is often higher than expected.
Confusing market positioning with discount competition. Competing on low price is a race to the bottom. Small businesses almost always lose a price war with larger competitors. Competing on quality, service, expertise, or specialization is a more defensible position.
THE UNDERPRICING TRAP
A new trades business owner prices below market rate to get customers. He's booked solid and has no time to raise prices without losing work. Two years in he's working 55-hour weeks with barely more than minimum wage to show for it — because the price he set when he started became a ceiling he couldn't escape.
In this Module
Why pricing is hard
Three pricing strategies
Margin calculator
Industry benchmarks
Raising prices
Related Modules
Job costing
Invoicing & getting paid
Cash flow
Three pricing strategies — choos your approach
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Calculate your total cost, then add a profit margin on top.
Best for: product businesses, trades, service businesses with predictable costs
Cost-plus starts with what it actually costs you to deliver one unit or one job — materials, direct labor, a share of overhead — then adds a markup to cover profit. It ensures every sale is profitable and gives you a defensible floor below which you should never go.
Formula: Price = Total cost per unit ÷ (1 − desired margin %)
Example: A candle costs $8 to make. You want a 60% margin. Price = $8 ÷ (1 − 0.60) = $20.
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Price based on the value delivered to the customer, not your cost.
Best for: specialized services, consulting, artisan products
Value-based pricing asks: what is the customer getting in return for this price? A bookkeeper who saves a client $3,000 in taxes can charge $800 for that service without being "expensive." A custom piece of furniture worth $2,000 to the buyer can be priced at $2,000 regardless of material cost.
Best when: you have a specialty, unique expertise, or product that customers can't easily find elsewhere. Requires understanding your customer well enough to articulate the value.
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Research what competitors charge and price relative to them.
Best for: new businesses, commoditized services, farmers market products
Market-rate pricing positions you relative to what comparable businesses charge in your area. It's a useful anchor especially when starting out, but it has a critical flaw: your competitors may be mispriced too. Use market rate as a reference, not a ceiling.
Get competitor prices by shopping them directly, checking their websites, or asking market customers what they normally pay. Price 0–15% below the market leader while building your reputation; move to market rate as you establish yourself.
Margin calculator
Enter your cost and target margin to find your selling price, or enter a price to see what margin you're actually earning.
Common margin benchmarks by business type
These are rough industry norms — your situation will vary based on local market, overhead, and positioning:
Retail products (resale): 40–60% gross margin is typical. Below 40% leaves little room after overhead. Artisan or handmade goods can often achieve 60–70%+.
Farmers market / food products: Aim for at least 3× your ingredient cost (66% margin). Factor in booth fees, time, packaging, and production overhead — these erode margin quickly.
Service businesses: Labor-based services should target 50–70% gross margin after direct labor and supplies. Your time is your primary cost.
Trades businesses: A common benchmark is to price labor at 2–3× your hourly cost (direct labor + labor burden) and mark up materials 15–25%. Overall gross margin of 40–55% is healthy for most trades.
THE 3X LABOR RULE FOR TRADES
If an employee costs you $20/hour all-in (wage + taxes + insurance), bill that labor at $45–60/hour. One-third covers the employee cost. One-third covers overhead. One-third is profit. This is a rough heuristic — job costing is more precise — but it's a useful gut check.
When and how to raise prices
Most small business owners wait too long to raise prices and underestimate how little resistance they'll face when they do. Practical guidance:
Raise prices when your costs increase, when you're booked out more than 6–8 weeks, when you haven't raised prices in more than a year, or when new customers don't push back on your price at all — no resistance is a sign you're underpriced.
For existing customers: give 30–60 days notice, explain briefly (cost increases, investment in quality), and don't over-apologize. Most customers who value your work will stay. The ones who leave for a cheaper option were your most price-sensitive customers — often the ones who were most difficult to work with anyway.