Name your price

Price has to cover three things: the direct cost of delivery, a fair share of overhead, and profit. Start there, then test what the market will bear. Most small businesses underprice because they anchor on competitors instead of costs, and because they price their time at what they earned as an employee. Raising price is the fastest lever on profit. A 10% increase with no volume loss usually beats a 10% cost cut. A common mistake is setting price by copying a competitor's number without knowing your own costs first. Two businesses can look similar from the outside while having very different cost structures, so matching a competitor's price might leave you with barely any profit even though they are doing fine. Always calculate your own direct cost and required margin before glancing at what anyone else charges. To decide if a price is too low, add up direct costs, a fair share of overhead, and the profit you need, then compare that total to what you currently charge. If your current price barely covers costs with nothing left for profit, it does not matter how many customers you have, the business is working hard to stand still. Raise the number until it includes real profit, then test how customers respond. You will know a price change is working if a portion of customers push back a little but most still say yes. Zero pushback at all usually means you priced too low from the start. Heavy pushback and lost sales across the board means you moved too far too fast. If a price increase disappoints you by losing more customers than expected, consider a smaller increase or added value rather than reversing all the way back. A cleaning business owner had priced jobs based on what a competitor charged for years, barely covering supplies and gas. After calculating true costs, including her own time and equipment wear, she raised prices ten percent. She lost exactly one client who had been the least profitable anyway, while the remaining clients paid the new rate without complaint, and her monthly profit rose noticeably.

Key takeaways

• Most small businesses underprice because they anchor on competitors instead of costs, and because they price their time at what they earned as an employee.
• Raising price is the fastest lever on profit.
• Overhead and profit do not appear by themselves.

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