7 Pricing Mistakes Small Businesses Make and How to Fix Them
Are You Losing Money Due to Pricing Mistakes?
Pricing is one of the most critical factors in business success. Set prices too high, and customers may walk away. Set them too low, and you could struggle to stay profitable.
If you’re a small business owner, avoiding pricing mistakes can help you increase profit margins, improve cash flow, and build a sustainable business.
Here are 7 common pricing mistakes that small businesses make—and how to fix them.
1. Setting Prices Without Calculating Costs
Many entrepreneurs guess their prices or copy competitors without considering their own costs. If you don’t know your total expenses, you could be selling at a loss without realizing it.
🔹 How to Fix It:
- Calculate all costs, including materials, labor, rent, utilities, and marketing.
- Use a simple pricing formula: Total Cost per Unit + Profit Margin = Selling Price
- Always ensure your selling price covers all expenses and leaves room for profit.
2. Under-pricing to Attract Customers
Many businesses believe that the cheapest price wins. However, competing on price alone can hurt your brand and make it harder to grow.
🔹 How to Fix It:
- Instead of being the “cheapest,” focus on offering better value.
- Highlight what makes your product or service different (quality, convenience, service, etc.).
- Use value-based pricing, where customers pay based on the benefits they receive.
3. Ignoring Profit Margins
High sales don’t always mean high profits. If you set prices too low, your profit margins may be too small to sustain the business.
🔹 How to Fix It:
- Aim for a healthy profit margin (at least 30% or higher, depending on your industry).
- Review your costs and profit margins regularly to ensure you’re making enough.
💡 Example:
If you sell a product for R100, but your costs are R80, your profit margin is only 20%. If costs increase to R90 and you don’t adjust your price, you’re left with just R10 profit per sale.
4. Not Adjusting Prices Over Time
If you haven’t changed your prices in years, you might be losing money due to inflation, supplier price increases, or higher overhead costs.
🔹 How to Fix It:
- Review pricing every 6–12 months and adjust if necessary.
- Inform customers about price changes beforehand and explain why they are necessary.
- Offer added value (e.g., better service, packaging, or bonuses) to justify price increases.
5. Ignoring the Psychology of Pricing
Customers perceive prices emotionally, not just logically. A small change, like pricing an item at R99 instead of R100, can increase sales significantly.
🔹 How to Fix It:
- Use charm pricing (R99 instead of R100) to make prices feel lower.
- Offer bundle pricing (e.g., “Buy 2, Get 1 Free”) to increase perceived value.
- Display comparison prices (“Was R500, Now R399!”) to create urgency.
6. Not Differentiating Between Product Profit & Business Profit
Just because a product is profitable doesn’t mean the business is profitable. Many businesses fail because they don’t account for all expenses beyond product costs.
🔹 How to Fix It:
- Track both product profit (profit per item sold) and business profit (total revenue minus all expenses).
- Ensure overall revenue covers rent, salaries, marketing, and unexpected expenses.
- Use cash flow projections to avoid running out of money.
7. Ignoring Competitor Pricing Without Understanding the Market
Some businesses copy competitor prices blindly, assuming it’s the best strategy. But competitors may have lower costs, better supplier deals, or different target customers.
🔹 How to Fix It:
- Research competitor pricing, but don’t rely on it without understanding your costs and value.
- Position yourself based on quality, service, or unique benefits, not just price.
💡 Example:
Luxury brands charge premium prices because they focus on quality, brand perception, and exclusivity rather than competing on price.
Final Thoughts: Price Smarter, Grow Faster
Avoiding these pricing mistakes can help your business become more profitable and sustainable. Instead of guessing prices, take the time to calculate costs, use effective pricing strategies, and adjust when necessary.
📢 Want to master pricing and costing for your business?
📖 Get our ebook: “Costing Products & Services for Small Businesses” and learn how to set prices that maximize profits.
