How to Price What You Make (Without Quietly Underpricing Yourself)

Underpricing is the most common and most expensive mistake in a small business, and the reason it persists is that it does not feel like a mistake. It feels like being busy. Orders come in, the days fill up, and the bank balance never quite moves.

Here is how to work out what you should actually charge.

Start with true cost, not with what others charge

Competitor pricing is useful context and a terrible starting point — you have no idea whether they are profitable. Work out your own number first, then look at the market.

For one unit of whatever you sell, add up:

1. Materials and direct costs. Everything physically consumed.
2. Your time. Hours × an hourly rate you would accept from someone else. This is the line people leave blank, and leaving it blank is how you end up employed by your own business at below minimum wage.
3. Platform and payment fees. Listing fees, transaction fees, the payment processor's percentage.
4. Packaging and postage, if anything ships.
5. Software and tools, divided across the units you realistically sell in a month.
6. Marketing, the same way.
7. A returns and wastage allowance. Things go wrong. Price for it now rather than absorbing it later.

The total is your true cost. Not your price.

Then decide the margin

Your price has to cover the true cost and leave something over — for tax, for the quiet months, for equipment that eventually breaks, and for the business to be worth running at all.

If your price is barely above true cost, you do not have a business. You have a very demanding hobby that occasionally reimburses you.

The hours question people avoid

Take last month. Total revenue, divided by every hour you actually spent — including the admin, the messages, the packing, the photography, the reformatting, the fixing.

Most people find the number lower than they expected, sometimes dramatically. That figure is not a judgement on your worth. It is a measurement, and it is the single most useful number in a small business, because it tells you which work to do more of and which to stop.

Find out which offer is actually paying

Almost every small business has one product or service quietly funding the rest, and until you write it out you will not know which one — so you keep saying yes to the wrong work.

List every offer with four columns: price, cost, hours, and pound-per-hour. The results are often uncomfortable. The thing you are best known for is not always the thing that pays, and the fiddly custom work you accept out of politeness is usually the worst line on the page.

Raising prices is less dangerous than it feels

The fear is that a price rise empties the order book. In practice, a 15% increase means you can lose a meaningful share of customers and still be better off — while doing less work, with more time for each remaining customer.

Run the number before you decide you cannot afford to. And if some customers leave, look closely at which ones: it is very often the most demanding and least profitable who go first.

Protect capacity as carefully as price

Selling more than you can deliver is how good small businesses die. It looks like success right up until the delivery dates slip, the reviews turn, and you are working weekends to fix work you were underpaid for.

Work out honestly how many hours you have in a week — after the job, the family, the sleep — and how many hours one unit truly takes, including admin. That is your real capacity. If your sales target exceeds it, one of the two has to change, and it is usually kinder for it to be the price.

Set money aside as it arrives

The most common small-business disaster is spending money that was never yours. Tax is not a surprise; it is a delayed bill you have already incurred. Move a percentage into a separate account the day income lands, before it feels like yours.

The right percentage depends on where you are and how you are set up — that is a question for a qualified accountant, not a blog post. But the habit of moving it immediately is universal.

Keep your own list

One last thing that has nothing to do with pricing and everything to do with surviving. Platforms change their rules, close accounts and lose history. Keep your own record of who bought what and when. That list is the most valuable asset a small business owns, and it is the one nobody thinks to back up.

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If you want this worked out on paper rather than in your head, our Small Business Planner is 43 pages: a seven-line pricing worksheet, twelve monthly money spreads with tax set aside, a cash-flow forecast, offer-profitability comparison, capacity planning and a client log. Undated, US Letter and A4. It is a place to record your own figures — not accounting or tax advice.