Pricing without guessing

Many small businesses set a price by looking at what others charge, adding a little, and hoping. Sometimes it works. More often it leaves money on the table or quietly drives away the customers you wanted. A better way is to work from three sides: your costs, your customer's value and your alternatives.

Start with your floor

Your floor is the lowest price at which a sale still helps you. Add up what it costs you to deliver one unit or one job: materials, time, delivery, payment fees and a share of the fixed costs. Many owners forget their own time. If a price does not pay for it, you are working for free.

Find the value on the other side

Now ask what the customer gains. A faster delivery, one less worry or a better result is worth something to them, and often more than it costs you to provide. Talk to five customers and ask what they would have done without you, and what that would have cost them in time or money. Their answers give you a ceiling, the price beyond which the offer stops making sense.

What problem were you trying to solve?
What did you try before?
What did that cost you?
What would you pay to have it done well?

Look at the alternatives

Your price sits between the floor and the ceiling, and your customer compares it with their alternatives, including doing nothing. If your offer is clearly better in a way they care about, you can price above the rest. If it is the same, price is the only thing left to compare.

Test, do not argue

Do not debate the right price in a meeting. Offer two versions to different groups of customers for two weeks and see what happens. Change one thing at a time: the price, the package or the way you present it. Write down what you expected before you look at the results.

Write the price down with its reasons: your floor, the value your customers named and the alternatives you compared. When someone asks why it costs this much, you can answer with facts.

Review the price whenever your costs or your offer change. Put a date in your calendar every few months.

Keep the price honest

Discounts teach customers to wait for discounts. If you must lower a price, change what is included or the length of the agreement rather than the number itself. And raise prices gently and on schedule, explaining why, before your costs force you to do it in a hurry.

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