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Pricing can make or break a business. Yet for many small business owners, setting the right price is more guesswork than strategy. Whether you’re undercharging, reacting to competitors, or failing to review prices regularly, common pricing mistakes can quietly erode your profits and stall your growth.

Underpricing to win customers

It’s tempting to keep prices low to attract new customers, but this approach often backfires. Underpricing not only squeezes your margins but can also send the wrong message about the quality of your offering.

Actions:

• Review your costs and ensure your pricing includes a healthy margin.
• Compare your prices to competitors, but don’t base pricing solely on them.
• Identify what makes your product or service valuable, don’t sell yourself short.
• Communicate your value clearly in marketing and sales conversations.
• Test price increases on a small group of customers to gauge reaction.

Choose one of your core products or services. Calculate the margin you’re currently making. Then model what happens if you raise the price by 5–10%, calculate how many fewer sales would you need to still come out ahead.

Adjust for rising costs

Inflation, supplier increases, and rising wages are ongoing pressures that can quietly erode your margins if left unchecked. Regularly reviewing and adjusting your pricing ensures your business keeps pace with cost changes and protects profitability over time.

Actions:

• Set a regular schedule (e.g., every 6 or 12 months) to review your pricing.
• Monitor supplier and operational costs monthly.
• Introduce price changes gradually and with clear communication to customers.
• Bundle price increases with added value or service enhancements.
• Benchmark against your industry to stay competitive and sustainable.

Look at your top 5 cost categories from a year ago compared to today. If they’ve increased but your pricing hasn’t, it’s time to review your pricing structure before your profits disappear.

Understanding profitability by product or service

Each product or service you offer contributes differently to your bottom line. Without clear visibility into individual margins, you risk focusing on low-profit items while missing opportunities to double down on high performers. Knowing what drives profitability helps you make smarter pricing, marketing, and investment decisions.

Actions:

• Break down your offerings by gross margin.
• Identify high-volume but low-margin products or services.
• Use product mix reports to spot which items bring in the most profit.
• Discontinue or reprice items that consistently underperform.
• Promote high-margin offerings through marketing or bundles.

Run a report showing revenue and gross profit by product or service for the past 3 months. Highlight which items are driving margin and which are draining it. This clarity will help shape smarter pricing decisions.

Overcomplicating your pricing model

Confusing or overly detailed pricing can deter customers and reduce conversions. If people can’t quickly understand what they’ll pay (and why it’s worth it), they’ll often walk away.

Actions:

• Simplify your pricing structure and make it clear and easy to understand.
• Avoid hidden fees or ambiguous terms.
• Test tiered pricing or packages to help customers self-select based on value.
• Ask for feedback on your pricing page or quotes, figure out what’s unclear to customers.
• Use consistent pricing across channels to avoid confusion.

Ask a friend or colleague who isn’t familiar with your pricing to look at your website or a recent quote. If they can’t quickly understand the cost and value, it’s a sign your messaging may need to be clearer. Simplifying how you present your pricing can improve trust and conversion.

Raising prices

Fear of losing customers can keep business owners from adjusting prices, even when costs increase or value improves. But avoiding price increases can mean sacrificing long-term sustainability.

Actions:

• Communicate the reason behind a price change, such as rising costs or improved service.
• Frame price increases as a sign of value and growth, not just cost.
• Use data to show how you’ve added more value over time.
• Test increases on smaller customer segments first.
• Keep track of churn and customer feedback post-increase.

Choose one product or service and test a small price increase with a select group of customers or for new customers only. Monitor reactions and measure the impact on margin.

Final thoughts

Every dollar lost to poor pricing is a dollar you have to work twice as hard to earn back. By reviewing your pricing strategy regularly, aligning it with your value, and staying aware of your costs, you can protect your margins and grow with confidence. Pricing shouldn’t be a set-and-forget exercise, it should evolve as your business does.