How to price your services (and stop undercharging)
A practical method for setting service prices that cover your costs, reflect your value, and don't scare off the right customers.
Direct answer
Most service businesses undercharge because they price based on what they think customers will accept, not on what the work actually costs. Set your price based on three things: your real hourly cost, the value of the outcome to the customer, and what comparable providers charge. Then add a margin — never sell at break-even.
Simple explanation
Underpricing feels safer because it makes the 'yes' easier — but it traps you. Low prices mean more customers to pay your bills, less time per customer, lower quality, more burnout, and no margin to invest in growth. Owners who raise prices once usually wish they'd done it 12 months earlier.
How to set a price that actually works
- 1
Calculate your real hourly cost (not your wage)
Add up everything: target salary, taxes, software, insurance, equipment, time off, admin time. Divide by your actual billable hours per year (usually 1,000–1,200, not 2,000). That's your true minimum hourly cost.
- 2
Estimate the customer's outcome value
What does this work save or earn the customer? A bookkeeper who saves a business owner 6 hours a month at $100/hr is worth more than $50/hr. Value-based pricing starts here.
- 3
Check what comparable providers charge
Look at 5 similar providers in your market. Don't undercut them — match or exceed if you have a reason to. Being the cheapest signals lower quality, not better value.
- 4
Pick a price and write the offer at that price
Combine cost, value, and market rate. Round up — $1,200 lands better than $1,150. Write the offer and use it for the next 5 conversations. Don't negotiate against yourself.
- 5
Raise prices on new customers every 6–12 months
Existing customers can stay on their current price for a cycle. New customers should always pay the current rate — which should grow as your skills, results, and demand grow.
Summary
- •Underpricing is the most common (and most fixable) small business mistake.
- •Start with your true hourly cost, then layer in value and market.
- •Don't be the cheapest — it signals lower quality.
- •Raise prices for new customers regularly. Existing ones can lag a cycle.