Pricing is one of the most common sources of stress for small business owners — and one of the most common areas where they get it wrong. The mistake almost always goes in the same direction: charging too little.
Undercharging feels safe. It feels like it will win you more work and keep clients happy. In practice, it attracts difficult clients, makes your business unsustainable, and undermines the perception of your quality. Here is how to get your pricing right.
Start With Your Costs
Before you can price profitably, you need to know what it actually costs you to deliver your service. Include:
- Direct costs — materials, subcontractors, tools
- Your own time — at a realistic hourly rate
- Overheads — insurance, vehicle, phone, software, accounting, marketing
- GST and income tax obligations
Many sole traders forget to include their own time at a real rate, or forget to account for all their overheads. Run the numbers properly before you set a single price.
Know Your Market Rate
Research what competitors in your area and industry are charging. You don't have to match the cheapest — in fact, being in the middle or upper range of the market is often better for business. Clients who choose on price alone are often the most difficult to work with and the most likely to dispute invoices.
Price for Value, Not Just Time
If you charge purely by the hour, you penalise yourself for getting faster and better at your job. Consider fixed-price packages where you can — clients often prefer the certainty of knowing what they'll pay upfront, and you get rewarded for efficiency.
Build In a Margin
Your prices need to cover not just your costs but a profit margin that allows you to invest in your business, handle slow periods, and build financial resilience. A business running at zero margin has no buffer for anything that goes wrong — and something always goes wrong eventually.
A minimum net profit margin of 20% is a reasonable target for most service businesses. Many successful businesses operate at 30–40%.
Stop Competing on Price
The race to the bottom is a race nobody wins. Instead of competing on price, compete on quality, reliability, communication, and the overall client experience. Customers pay more for businesses they trust and enjoy working with.
Collect and display testimonials. Respond quickly. Do what you say you will do. Turn up on time. These things matter far more to most clients than being the cheapest option available.
Review Your Prices Regularly
Costs increase every year. If your prices have not changed in two or three years, you are almost certainly making less money in real terms than you were when you set them. Build a pricing review into your annual business planning — and don't be afraid to raise prices for new clients when the time is right.
Most clients understand and accept reasonable price increases from suppliers they value. Those who don't are often the ones you can afford to lose.