Know your real cost and your minimum margin

Start by working out what it truly costs to deliver one unit or one hour. Include materials, direct labour, packaging, freight, payment charges and the share of rent, tools and management time that the work uses. Owners often leave out their own time and the cost of rework and returns.

Then decide the margin you need to stay healthy after overheads, tax and the cash you want to reinvest. Your accountant can help you set this. Anything below the floor you agree is a price you should refuse, or a deal you should restructure.

  • Direct cost per unit or per hour of service
  • Share of overheads carried by each product or service
  • Cost of discounts, returns, credit and delays
  • The minimum margin you need to keep the business safe

Understand what the customer is actually buying

Customers rarely pay for your cost. They pay for a result, a saving, convenience, trust or speed. A repair shop that fixes a machine within a day may be selling uptime, not labour hours. A tuition centre may be selling confidence and exam results, not classroom time.

Talk to five of your best customers and ask what would happen if you did not exist, and what they were paying before. Their answers show how much value you create, which sets the upper end of your price range.

Use competitors as a reference, not a rulebook

Note what comparable businesses charge, but also what they include: delivery, warranty, speed, support, credit terms. A lower sticker price with extra charges is not necessarily cheaper. Ask whether you are better, equal or weaker on the things customers care about, and price accordingly.

If you are the same as everyone else, you will be pushed towards the lowest price. That is a signal to work on differentiation, not only on the rate card.

Structure offers so discounts do not eat your margin

Plain price cuts are expensive. A discount of a few points on price can require a large jump in volume just to earn the same profit. Instead of cutting the rate, consider packages, volume tiers with clear conditions, faster payment terms in exchange for a smaller concession, or a basic and premium version.

Set rules for who can give a discount, how much and for what reason. If every salesperson negotiates freely, your real price is whatever the toughest customer extracts.

Test, track and review on a schedule

Treat a new price as an experiment. Introduce it to new customers or one segment first, and track enquiries, win rate and average margin. Watch for signs you are too low, such as customers accepting instantly without questions, as well as signs you are too high.

Review prices at least once a year, and sooner when your costs move. Many businesses absorb supplier increases for months before realising their margin has gone.

Communicate changes with care. Give regular customers notice, explain what they are getting, and be ready for a few to push back. A short, confident conversation usually works better than an apologetic one, and you will learn which customers truly value what you do.

Good pricing starts inside your own business, with a clear margin floor, and then looks outward at value and the market. Do your cost work first, speak to a few customers, tighten your discount rules and review on a calendar. If you want a second opinion on your cost and margin structure, we can work through it with you alongside your accountant.