How to Price Your Product or Service (Without Losing Customers)
Most small business owners set their prices once — usually when they started — and haven't touched them since. Then they wonder why their margins are thin and growth is slow.
A 10% price increase on a product with 40% margins increases your profit by 25%. No other change has that kind of immediate impact.
The Three Pricing Mistakes
Mistake 1: Pricing based only on costs. Cost-plus pricing guarantees you'll never charge what you're worth. Your costs are a floor, not a ceiling.
Mistake 2: Pricing based only on competitors. Matching competitor prices assumes their pricing is correct and your offering is identical. Neither is usually true.
Mistake 3: Never raising prices. Costs increase every year. If your prices stay the same, your real margins shrink annually.
A Framework That Works
Step 1: Know your floor. Calculate all costs of delivering your product. Never price anywhere near this number.
Step 2: Research the range. Look at competitors and alternatives. This gives you the market range.
Step 3: Price based on value. If your service saves a business $5,000/month, charging $500/month is a bargain regardless of your costs.
Step 4: Test higher than you think. Set your price 10-20% higher than comfortable. You can always discount down.
How to Raise Prices Without Losing Customers
Grandfather existing customers temporarily. Give 30-90 days notice.
Add value alongside the increase. Bundle in something extra so the increase feels justified.
Raise prices on new customers first. Test with people who have no reference point for your old prices.
Communicate the why. A simple explanation goes a long way.
Studies show a 10% price increase typically results in losing only 2-5% of customers. You net more revenue with slightly fewer — and better — customers.
Pricing impacts two pillars of your Revenue Health Score — Revenue and Profitability. If you've never audited your pricing against actual profitability, your score shows exactly where you stand.