When it comes to pricing your services, there’s a key question every business owner should ask: How did you come up with the price you’re offering?
You might be thinking, “I just chose a price I felt was reasonable.” If that’s the case, it’s time to dive deeper into your pricing strategy. Without a clear, intentional strategy in place, you’re essentially leaving money on the table, and the opportunity for gross profit could be lost.
The Importance of a Pricing Strategy
Most small businesses start by setting prices based on gut feeling. But that’s not enough if you want to truly scale. To maximise your profitability, I encourage you to create a pricing matrix. Start by gathering input from peers—whether it’s friends, family, or colleagues within your industry. This can help you determine the optimal price for your services.
Pricing should never be random. Instead, it should be a well-thought-out decision based on what you want to achieve. The key is aligning your price with the value you’re delivering.
Competing on Value, Not Price
It’s tempting to compete on price, especially when you’re trying to attract more clients. But here’s the thing—competing on price rarely works for small businesses. The larger, more established players can afford to lower their prices because they do so at scale. They have the resources to provide high-quality services at lower rates.
For small businesses, pricing too low can put you at risk. Your margins will be razor thin, and even the smallest mistake could wipe out your profits. Plus, pricing too low may attract clients who are only looking for the cheapest deal, rather than those who truly value what you offer.
Think about it—do you want customers who are looking for the cheapest option? Or do you want clients who are willing to pay for quality and value? Typically, businesses that compete solely on price don’t last long because they don’t offer enough value to justify their existence.
Finding the Sweet Spot in Pricing
The goal is to find the middle ground—a price that reflects the value you offer without alienating potential customers because the price is too high. There is a balance between charging what’s fair for the value you provide, while also ensuring that your margins are large enough to cover your costs and support your growth.
It’s a process of testing and adjusting. As you gain more experience, you’ll figure out where that sweet spot lies.
The Importance of Value-Based Pricing
When I started my accounting firm, I made the classic mistake of setting prices too low. Like many new businesses, I took on every client I could to simply survive. But over time, I realised that pricing too low didn’t help me deliver the best service.
Once I raised my prices, I found that I could:
- Provide better service by giving clients more time and attention.
- Increase margins, giving myself more room to deliver higher quality work.
- Avoid burnout by not overworking to make ends meet.
Pricing is not just about surviving—it’s about delivering value to your clients while maintaining the margins needed to grow. When you price based on the value you provide, your gross profit will improve significantly, and your business will thrive.
The Bottom Line: Price for Profitability and Growth
In the beginning, it’s natural to undercharge as you try to establish your business. But as you grow, remember that pricing isn’t just about surviving—it’s about thriving. By pricing based on the value you deliver and ensuring you have enough margin to scale, your profitability will increase, and your business will be on a trajectory for long-term growth.
So, take a step back and evaluate your pricing strategy. Ask yourself: Is your price aligned with the value you provide? If not, it’s time to adjust.
Frequently Asked Questions
How do I know if my pricing is right for my business?
Pricing should never be based on guesswork. It’s important to align your price with the value you provide to your clients, not just the costs of delivering the service. To determine if your pricing is right, I recommend creating a pricing matrix and gathering feedback from peers or industry colleagues. You also want to ensure your price covers all costs—direct and indirect—while leaving room for a healthy profit margin. Over time, as you test and adjust, you’ll find the sweet spot where pricing reflects both value and profitability.
How can I avoid competing solely on price?
Competing on price is a dangerous game, especially for small businesses. Larger competitors can afford to lower their prices because they have the scale to do so profitably. For small businesses, pricing too low can erode your margins and attract clients who value cost over quality. Instead, compete on value. Focus on what makes your service unique and how it delivers superior outcomes for your clients. This will allow you to price based on the value you offer, not just what others charge.
What should I do if I realise I’ve been undercharging for my services?
First, recognise that you’re not alone—many business owners start off undercharging to build their customer base or stay competitive. But once you’ve established your business, it’s important to adjust your pricing to reflect the value you’re delivering. This may involve gradually increasing your prices and communicating the added value to your clients. When you raise your prices to match the value you provide, it will allow you to improve service quality, increase margins, and avoid burnout, all while positioning your business for sustainable growth.
Ready to Simplify Your E-commerce Finances?
Whether you’re looking to optimise your pricing strategy, improve client retention, or better understand your unit economics – we’re here to help. Book a free consultation with our expert team at New Wave Accounting & Business Advisory, dedicated to supporting businesses across Australia.
