The truth? Pricing is about more than math—it’s about positioning, perceived value, and keeping your business healthy for the long haul. The good news is there are straightforward steps you can take to figure out pricing that works for your customers and your bottom line.

Let’s break it down into simple, doable actions.

Why Pricing Matters More Than You Think

When people think of pricing, they often think “cover my costs and add a little extra.” While that’s a start, it’s not enough. Your pricing tells customers something about you:

• Low prices might say budget-friendly but can also signal lower quality.
• Higher prices can signal premium quality but require a clear explanation of the value.
• Fair, consistent pricing builds trust, loyalty, and confidence in your brand.

Done well, pricing is a powerful business tool—not just a number on a tag.

Start with Your Numbers

Before looking at what competitors are charging, you need to understand what it takes for your business to run smoothly and profitably. That means knowing:

• Direct costs: Materials, ingredients, packaging, and the labor hours it takes to make or deliver what you sell.
• Indirect costs: Rent, utilities, insurance, marketing, software, and other overhead expenses.

Once you’ve got that down, calculate your break-even price:

Total Costs ÷ Number of Units Sold = Break-even Price

Then add your desired profit margin so you’re not just getting by, but building a healthy cushion for growth, investments, or slow months.

Know the Main Pricing Models

You don’t have to stick with just one model forever—many successful businesses mix and match—but knowing your options makes it easier to choose the right fit for what you’re selling now.

💡 Example: If it costs you $8 to make a luxury candle, cost-based pricing might put it at $15. But if your customers see it as a high-end gift, value-based pricing could justify $25 or more—and still sell out.

The Five Steps to Confident Pricing

Here’s a simple process you can use to set (or reset) your prices.

Step 1: Know Your Numbers

This is your non-negotiable foundation. Without knowing your total costs, you’re guessing—and guessing often leads to underpricing.

Action tip: Create a simple spreadsheet listing your direct and indirect costs for each product or service. Include everything, even small recurring expenses like website hosting or branded coffee cups.

Step 2: Choose Your Primary Model

Different types of businesses often lean toward certain models:

• Services: Value-based or tiered pricing lets you charge for expertise and flexibility.
• Products: Cost-based is a good starting point, then adjust for perceived value.
• Memberships: Tiered or subscription models give customers choice and build predictable revenue.

Action tip: Start with one main model, then add elements of another if it makes sense (for example, cost-based + value-based).

Step 3: Compare with the Market

Research 5–10 local competitors. Take note of:

• Their prices
• What’s included in that price
• How they position themselves (budget, mid-range, premium)

Action tip: Decide whether to match the average, price higher to position as premium, or price lower to attract first-time buyers. The key is making this choice intentionally, not by default.

Step 4: Use Pricing Psychology

Small tweaks in how you present prices can make a big difference:

• Just-below pricing: $49 instead of $50 can feel more affordable.
• Anchoring: Place your highest-priced option first to make others look like a better deal.
• Bundling: Group products or services together so the focus is on value, not just the individual cost.

Action tip: Try offering three options—basic, standard, and premium. Many customers naturally choose the middle option, which is often your most profitable.

Step 5: Test, Review, and Adjust

Pricing is not a “set it and forget it” decision. It’s normal for prices to change as your costs, market, and customer demand shift.

Action tip:

• Test new prices with a small group or during a short promotional period.
• Review your prices at least once a year—or sooner if costs jump or you see competitors adjusting.

Communicating Price Changes

One of the biggest fears for business owners is losing customers when raising prices. The key is how you explain it:

• Be transparent about why the change is happening—ingredient costs, better-quality materials, expanded services.
• Frame it in terms of benefits to the customer: “This will allow us to continue offering the quality and service you expect.”
• Give advance notice when possible.

Common Pricing Mistakes to Avoid

1. Guessing without doing the math.
2. Underpricing because you’re afraid of losing customers.
3. Never raising prices even when your costs increase.
4. Overcomplicating your pricing so customers can’t make a quick decision.

Real-World Example: How Tiered Pricing Works

Imagine you own a local photography studio. Here’s how a good–better–best package might look:

• Basic ($150): 30-minute session, 5 edited photos
• Standard ($250): 1-hour session, 15 edited photos, print release
• Premium ($400): 2-hour session, 30 edited photos, album, print release

Most clients will choose the middle package—but the premium option sets a higher value anchor and makes the standard look like a great deal.

Tools and Support for Richmond Business Owners

Join a Workshop: Sign up for Mastering the Building Blocks of Financial Success to learn simple ways to build and follow a budget.

Get a Mentor: Work one-on-one with an mentor who specializes in accounting and finance to review your plan and keep you on track.

Use the Toolkit: Download Farrell Financial’s Finance Tracking & Forecasting Toolkit to make clear projections for your business.