Pricing Your Product or Service: Getting Past "What Feels Right"

Pricing is one of the few business decisions a small business owner makes almost entirely alone, with no external form or regulator setting the number — which is exactly why it so often gets set badly. "What feels right" and "what the competitor down the road charges" are both common starting points, and both routinely lead to prices that either quietly erode the business's margins or leave real money on the table.

Start with your actual full cost, not just the obvious one

The most common pricing mistake is calculating cost too narrowly — counting only the direct material or product cost, and missing everything else that has to be covered before a sale is genuinely profitable:

Direct costs — materials, stock, or the direct labour that goes into producing what you sell. This is usually the part business owners get right.
Overhead, allocated properly — rent, utilities, software subscriptions, insurance, admin support — costs that exist regardless of any single sale, but that every sale needs to contribute toward covering. Divide your total monthly overhead by your expected sales volume to get a genuine per-unit or per-hour overhead cost, rather than treating overhead as something that comes out of "profit" after the fact.
Your own time, priced honestly — a founder who doesn't pay themselves a real market rate for their labour is often unknowingly subsidising the business's prices with their own uncompensated work, which looks like profitability on paper but isn't sustainable once the owner's time becomes genuinely scarce or valuable elsewhere.
Payment processing and platform fees, if applicable — card machine fees, marketplace commissions, delivery platform cuts — these are real costs of the sale, not something to discover only when reconciling the bank account.

Only once the true full cost is known does a margin on top of it mean anything — a 20% margin calculated on an understated cost base is not actually a 20% margin.

Cost-plus vs value-based pricing: know which one you're actually using

Cost-plus pricing starts from your cost and adds a margin — simple, defensible, and a sensible floor for almost any pricing decision, since it guarantees you're not selling at a loss once true costs are properly counted.

Value-based pricing starts instead from what the customer actually gains — time saved, money saved, a problem genuinely solved, status or quality delivered — and prices toward that value rather than toward your own cost structure. This is where real pricing power lives: a service that saves a client R50,000 a year is not obligated to price itself off what it cost you to deliver, if the client would genuinely pay considerably more for that outcome.

In practice, the strongest pricing decisions use cost-plus as a floor (never price below what genuinely covers your costs and a minimum acceptable margin) and value-based thinking to decide how much above that floor the market and the value delivered can actually support.

What competitors' prices actually tell you, and what they don't

Checking competitor pricing is useful for understanding the market's general range, but copying it directly assumes their cost structure, their positioning, and their margin targets all match yours — which is rarely true. A competitor with a lower cost base, more volume, or a strategic reason to run thin margins is not a safe benchmark for a smaller, newer business with different costs and different needs from its own pricing. Use competitor pricing as one data point about what the market broadly tolerates, not as the actual basis for your own number.

The VAT question, if you're registered

A VAT-registered business needs to be explicit, to itself and to customers, about whether a quoted price is VAT-inclusive or exclusive — and needs to actually build the 15% VAT into pricing decisions rather than discovering after the fact that a price that looked profitable was calculated before VAT was properly accounted for. This connects directly to the VAT registration threshold decision covered elsewhere in this series: a business right at the voluntary registration line should factor the pricing implications of becoming VAT-registered (charging 15% more to customers who can't claim it back, or absorbing that 15% into a tighter margin) into the registration decision itself, not treat pricing and VAT registration as unrelated choices.

Common pricing mistakes worth naming directly

Pricing to win every customer. A price low enough that nobody ever says no is usually a price too low to sustain the business — some "no"s from price-sensitive customers are a healthy sign the pricing is calibrated toward the customers actually worth serving.
Never revisiting prices once set. Costs rise, the market shifts, and a price set eighteen months ago on a different cost base quietly erodes margin every month it goes unreviewed. A periodic pricing review — even just annually — is worth treating as a genuine business task, not an afterthought.
Discounting reflexively to close a hesitant sale, without tracking how often this happens or what it actually does to overall margin — an occasional, deliberate discount is a legitimate tool; a habitual, undisciplined one is a slow leak in the business's actual profitability.
Confusing "busy" with "priced right". A business that is fully booked or constantly out of stock at its current price is often signalling that the price is too low relative to demand, not that everything is working perfectly.

Testing and adjusting, rather than setting a price once and never touching it

Pricing is rarely a one-time decision to get perfectly right from day one — it's a number worth revisiting as costs, demand, and the business's own positioning evolve. A small, deliberate price increase, tested and monitored for its actual effect on volume and overall revenue, tells you considerably more about what the market will bear than guessing ever will, and is a lower-risk way to find the right number than either guessing too high and losing sales you didn't need to, or guessing too low and leaving margin on the table indefinitely.

This is general business guidance, not financial or tax advice specific to your business — a business genuinely unsure of its true cost structure, or navigating a complex pricing decision (bundled products, tiered services, business-to-business contract pricing), should work through the numbers with an accountant rather than pricing by feel alone.

A worked example

A freelance graphic designer charges R400 an hour, a figure originally chosen because "it felt about right" compared to a couple of designers they follow online. Working through the actual numbers properly: after accounting for non-billable time (admin, quoting, client calls that don't convert), software subscriptions, and a genuinely competitive personal salary target, their true break-even rate — the point below which they are effectively paying to work — turns out to be R380 an hour, leaving almost no real margin at R400. Once they properly account for the value delivered (a rebrand that measurably helped a client's own sales) rather than pricing purely off their own time, they move toward a mix of hourly work for smaller tasks and fixed-fee, value-based pricing for larger projects — the same skill, priced considerably more defensibly once the underlying numbers were actually worked through rather than estimated by feel.

Frequently asked

How often should I review my prices? At least annually for most small businesses, and sooner if a specific cost (rent, a key input, a platform fee) changes materially — treating pricing as a periodic, deliberate review rather than a one-time decision is what keeps margins from quietly eroding over time.

Should I price differently for different customer segments? Often, yes — a large corporate client and a small individual customer frequently have genuinely different price sensitivity and different value they derive from the same product or service, and tiered or segment-specific pricing (where practical and legally straightforward) can capture more of the value delivered than a single flat price to everyone.

Is it ever right to price below cost? Occasionally, deliberately — a genuine loss-leader to attract a customer toward a more profitable follow-on purchase, or a strategic entry price to build initial traction — but this should be a conscious, time-limited decision with a clear reason, not an accidental outcome of underestimating your own costs.

How do I raise prices on existing customers without losing them? Clear, advance communication of the change and, where possible, a genuine explanation (rising costs, added value) generally lands better than a silent price increase discovered on the next invoice — most reasonable customers accept a well-communicated, occasional increase far more readily than businesses fear.

Does undercutting competitors on price actually win more business long-term? Not reliably — competing purely on being the cheapest option is a difficult, margin-thin position to sustain against competitors with more scale or a lower cost base, and it often attracts exactly the most price-sensitive, least loyal customer segment rather than building a durable customer base.