The Problem
When you start your own business, you’re no longer just a skilled worker—you’re a business owner. That transition brings a whole new set of challenges. As an employee, you had one hat to wear: your trade. Your focus was on doing the job, and someone else took care of the rest—billing, marketing, scheduling, and managing overheads. But as a business owner, you’re now wearing all the hats. You’re not just the plumber, carpenter, or electrician; you’re also the accountant, the marketer, the customer service rep, and the manager.
With so many demands on your time, it’s easy to set prices based on what feels fair in the moment, rather than finding the time to do it properly and get it right. This approach can leave you undercharging for your services, struggling to cover costs, and unsure why you’re working so hard for so little return. That’s why it’s crucial to talk to your accountant—or hire one if you haven’t already—to sanity-check your pricing and make sure your business is set up for success.
Common Mistakes
Here are some common pitfalls that lead to undercharging:
- Underestimating Costs: Many small business owners only think about their previous salary when setting prices. They forget about the costs of insurance, tools, taxes, and time spent on non-billable work like admin and marketing. An accountant can help you break down these costs to get a clearer picture of what you need to charge.
- Fear of Losing Clients: The fear of quoting higher prices often leads to undervaluing services. This creates a race to the bottom, where prices don’t reflect the real value provided.
- Lack of Confidence: New business owners may feel unsure about what their skills are worth, leading to lower prices that don’t match their expertise.
A Tale of Two Plumbers
Jo and Dave were colleagues at a successful plumbing company. They were both skilled, hardworking, and ready to take the next step in their careers. Confident in their abilities, they each decided to leave their steady jobs and start their own plumbing businesses.
Both began their journeys the same way: buying vans, getting tools, and branding their new businesses. They each turned to their local communities to find clients, and soon, jobs started rolling in. But this is where their paths began to diverge.
- Jo’s Journey: Jo knew running a business would be different from being an employee, so she took time to plan. She calculated her costs—tools, fuel, insurance, and the time spent on admin—and set her prices accordingly. Jo also spoke with her accountant to ensure she hadn’t overlooked any hidden expenses. While her rates were higher than some competitors, Jo focused on providing excellent service and building trust with her clients. Her business grew steadily, and within a few years, she was busy enough to hire an apprentice.
- Dave’s Journey: Dave, on the other hand, assumed he could charge less than his previous employer and still do well. He didn’t consult an accountant or consider all his costs, thinking his lower prices would attract more clients. While this initially worked, some potential customers hesitated to hire him because they questioned the quality of his work based on his low prices. Over time, Dave struggled with mounting expenses and eventually had to shut down his business and return to employment.
The Guide: Why Fair Pricing Matters
Fair pricing is more than just covering your costs. It’s about recognising the value of your work and ensuring that your business can thrive. Charging too little may keep you busy, but it won’t build a sustainable future.
Talking to an accountant is a great first step. They can help you evaluate your true costs, set profit margins, and identify areas where your pricing might be falling short. Having this clarity allows you to price with confidence, knowing you’re not leaving money on the table or overloading yourself with low-margin work.
Steps to Determine Pricing
Here are some simple steps to help you rethink your pricing:
- Calculate Costs: Write down all your expenses, including tools, transportation, insurance, and marketing. Don’t forget non-billable time spent on admin or preparation. Your accountant can help you identify costs you might overlook.
- Research Market Rates: Look at what others in your field are charging, but don’t just aim to match their prices. Consider your unique skills and value.
- Set Profit Margins: Ensure your pricing includes a reasonable profit margin so you can reinvest in your business and cover unexpected costs.
- Adjust as Needed: Regularly review and tweak your prices to reflect changes in costs and market conditions. An annual review with your accountant can help keep your business on track.
The Cost of Saying Yes to Undercharging
Every time you say yes to a client at a low rate, you’re saying no to better-paying opportunities. You’re also adding unnecessary stress, overloading your schedule, and reducing the quality of your work. Low prices can also send the wrong message to potential clients—people often associate price with quality. If your rates seem too good to be true, customers may assume your work is subpar or you’re inexperienced.
The Importance of Marketing Your Value
Your marketing should highlight why your services are worth the cost. When clients understand the unique value you provide, they’re more likely to see your pricing as an investment, not just an expense. Here are three ways to make this message stronger:
- Client Testimonials: Testimonials build trust and justify your pricing. Positive reviews from satisfied clients reinforce the value of your services and show that you deliver results worth paying for.
- Educational Content: Creating educational content like blogs or videos positions you as an expert in your field. This not only attracts clients but also helps them understand why quality services come at a fair price. Learn more about marketing strategies in our article on small business marketing in a tough economy.
- SEO and Online Presence: An optimised online presence helps you attract clients willing to pay for quality. When people search for your services online, appearing at the top of results reinforces your credibility. While SEO can seem complex, even small efforts—like updating your Google Business Profile or using keywords on your website—can make a big difference.
For more information on how to stand out in your industry, visit this guide to marketing strategies for small businesses.
Conclusion
Undercharging might seem like a way to win clients, but it often leads to burnout and financial stress. By recognising the value of your work, consulting with an accountant, setting fair prices, and investing in your brand, you can build a sustainable business that attracts clients who appreciate what you offer.
Take the first step today. Review your costs, rethink your rates, and make a plan to charge what you’re truly worth. Your business—and your peace of mind—will thank you.
