The most common pricing mistake new business owners make is undercharging, usually because they didn't factor in their time, their overhead, or both. This guide fixes that.
Your time is the most valuable thing in your business. If you price without accounting for it, you're working for less than you think, or possibly for free. The goal here is a price that covers every cost, pays you properly, and still leaves room for profit.
know the language
Pricing Terms You Need to Know
Hourly RateWhat you earn per hour of work. To find yours: estimate how many hours you'll work in a year, divide your target annual income by that number. That's your floor.
MaterialsEverything you spend to produce or deliver your product or service. Examples: cleaning supplies, baking ingredients, packaging, shipping supplies, equipment wear.
OverheadBusiness costs that aren't tied to a specific job but exist regardless. Examples: software subscriptions, insurance, website, phone, fuel, marketing costs.
RevenueTotal money coming into your business before any expenses are taken out. Also called gross income.
ProfitWhat's left after all expenses, fees, and taxes are paid. Also called net income. This is what you actually keep, and it should be a real number, not zero.
Retail PriceThe final price paid by the end customer. For service providers, this is your quoted rate. For product sellers, this is your listed price.
WholesaleA discounted price offered to retailers or bulk buyers who resell your product. Typically 40–50% of retail. Only relevant if you sell through third-party stores.
before the math
The Two Pricing Rules That Matter Most
rule one
"Never compete on price. The race to the bottom has no winner. Someone will always undercut you, and when they do, you both lose."
Trying to have the lowest price in your market feels like a strategy but it's actually a trap. It attracts clients who will leave you the moment someone charges less, it kills your margins, and it devalues the entire market. Your job is to compete on value, quality work, excellent communication, and a client experience that makes people refer you without being asked.
rule two
"Never work for free. If your time doesn't show up in your pricing, you don't have a business, you have an expensive hobby."
There's a sweet spot between too low (always sold out, can't keep up, burning out) and too high (items sit, phone doesn't ring). Finding that spot requires knowing your actual costs first, then looking at where competitors sit, and positioning yourself based on the value you bring.
the components
What Goes Into Every Price
Every price you charge, whether it's for a cleaning job, a cake order, or a training session — needs to cover three things:
🧾
Expenses
Business costs that run regardless of how many clients you have.
Software
Insurance
Website
Listing fees
Phone
Fuel
🛒
Materials
What you spend specifically to deliver this service or product.
Supplies
Ingredients
Packaging
Equipment
Shipping
⏱️
Labor
Your time, all of it. Not just delivery, but prep, admin, travel, and follow-up.
Service time
Travel
Prep
Invoicing
Follow-up
Most people remember materials. Some remember expenses. Almost everyone forgets to price their full labor, including the 20 minutes writing the quote, the drive to the location, and the follow-up email after.
for product sellers
Pricing Physical & Handmade Products
Work in batches where possible: photograph in batches, list in batches, ship in batches. It's more cost-effective than doing one item at a time, and it brings your per-item labor cost down significantly.
| Product Type |
Recommended Multiplier |
Why |
| Handmade / labor-intensive |
×3 minimum |
High labor content means your floor is high — don't compress your margin below 3× |
| Purchased & resold / wholesale |
×2 to ×2.5 |
Lower labor but still need margin for overhead, shipping, and fees |
| Digital products |
Value-based pricing |
No per-unit cost after creation — price based on transformation, not time spent |
Example: Handmade Candle
Materials
Wax, wick, fragrance, jar, label, box = $4.50 per candle
Overhead
Monthly costs ÷ units produced = $1.20 per candle
Labor
30 min to make + 10 min to pack/ship @ $20/hr = $13.33 per candle
Listing Fee
Etsy + payment fees = $0.95
Minimum Cost
$19.98 per candle
Retail @ ×3
$59.94 → round to $60
If that number feels impossibly high for your market, the issue isn't your pricing, it's the feasibility of the product. Either reduce your costs, increase your batch size to bring down per-unit labor, or reconsider whether that product belongs in your lineup.
for service providers
Pricing Your Services
Service pricing follows the same logic, you still need to cover labor, materials, and overhead — but the structure is slightly different because you're pricing your time directly.
1
Set your target hourly rate
Decide how much you want to earn per year. Divide by the number of hours you realistically plan to work (not including unpaid admin). That's your base hourly rate. Don't go below it.
2
Calculate all time — not just delivery time
A 2-hour cleaning job might actually be 3.5 hours total: drive there (30 min), clean (2 hrs), drive back (30 min), send invoice (15 min), respond to follow-up (15 min). Price all of it.
3
Add your material costs
Cleaning supplies, fuel, packaging, ingredients, anything you physically spend to deliver this job. Track it per job, not just as a vague monthly total.
4
Add your overhead allocation
Take your total monthly overhead costs and divide by how many jobs you do per month. That's the overhead cost per job, add it to every quote.
5
Add a profit margin
Labor + materials + overhead gets you to break-even. Add 20–30% on top as your actual profit margin, this is what lets you grow, handle slow periods, and pay yourself consistently.
6
Check against your market
Look at what competitors charge. You don't have to be the cheapest, you shouldn't be. Position your price based on the quality and experience you offer. If your math lands above market rate, look at your costs before you look at your price.
"Your pricing calculator inside this box does this math for you automatically. Use it,your gut is almost always going to undercharge."
the bottom line
Pricing Rules to Live By
- Never discount to close a deal. If someone can't afford you, they're not your client right now. Offer a smaller scope, not a lower rate.
- Review your prices at least twice a year. Your costs go up. Your rates should too.
- Batch everything possible. The more you produce in a single session, the lower your per-unit labor cost.
- Track every expense. You can't price accurately if you don't know what things actually cost you. Use the tracker in your box.
- Price based on value, not time alone. A 30-minute job that solves a client's biggest problem is worth more than a 3-hour job that feels routine to you.
- Don't apologize for your prices. Present them confidently. Hesitation signals that you don't believe in your own value, and clients pick that up immediately.
remember this
"Pricing your services properly isn't greedy, it's what keeps your business alive long enough to actually help people."