Ask a small business owner how they set their prices and the honest answer is usually that they looked at two competitors, picked something in the middle, and have not revisited it since.
That is not a strategy. It is also, in most cases, too cheap.
Start with the number you cannot go below
Before anything else, work out your floor.
Add up your annual fixed costs: rent, insurance, software, accountant, equipment, and what you need to pay yourself. Then estimate your genuinely billable hours. Not the hours you work. The hours you can charge for, which after admin, sales, holidays and sick days is typically 50% to 60% of your working time for a service business.
Fixed costs divided by billable hours gives you the hourly rate at which you break even. Anything below it is a loss, however busy you are.
Most people are surprised by this number, and by how many of their current jobs sit below it.
Four ways to price above the floor
Cost-plus. Your costs plus a margin. Simple, defensible, and it caps your income at the value of your time. Fine for commodity work.
Market rate. What comparable providers charge. Useful as a sanity check, dangerous as a method, because you inherit other people's mistakes, and the ones publishing prices are often competing on being cheapest.
Value-based. Price against what the outcome is worth to the client. A process improvement saving a client €40,000 a year is not worth €2,000 because it took you a week. This is the highest-margin approach and it requires understanding the client's economics, which means asking about them during the sale.
Tiered. Three options at different scopes. This works because it changes the client's question from whether to buy to which to buy, and because a meaningful share of clients choose the middle or top option when they would otherwise have negotiated on the bottom one.
Most small businesses should use cost-plus as a floor, market rate as a reality check, and value-based wherever the client's outcome is measurable.
Signals that you are too cheap
Nobody ever pushes back on price. If every quote is accepted immediately, the price is too low. A healthy rejection rate for a service business is somewhere in the region of 20% to 30%. Zero means you are leaving money on the table on every job.
You are fully booked months out. Demand exceeding capacity at your current price is the clearest possible signal. Raising prices is the correct response, not working longer.
You attract difficult clients. Price is a filter. The cheapest option attracts the most price-sensitive buyers, who are frequently the most demanding and the slowest to pay.
Your margins do not fund improvement. If there is nothing left after costs for equipment, training or hiring, the business cannot grow, only continue.
Raising prices without losing everyone
The fear is that clients will leave. Some will. The arithmetic usually still works in your favour.
If you raise prices 15% and lose 10% of clients, you are ahead on revenue and doing less work. The clients you lose are typically the ones consuming the most time relative to what they pay.
Practical approach:
Raise for new clients first. No conversation required, and it tells you within a month whether the new price is viable.
Give existing clients notice. Sixty days is respectful. Explain briefly, without apologising or over-justifying. A long explanation reads as uncertainty.
Do not raise everyone at once. Stagger it across a quarter so if there is a reaction, it does not all arrive in one week.
Add something visible where you can. Faster response, a clearer report, better documentation. Makes the increase easier to accept and is usually cheaper than the increase is worth.
Hold the line for the first month. Some clients will test whether it is negotiable. If it is, word travels.
Review it on a schedule
Prices set in 2023 and never touched are prices being eroded by inflation every month. Put a date in the calendar once a year to review them deliberately, rather than waiting until the business feels tight.
Know your actual numbers
All of this depends on knowing your real costs and your real margins per job, which most small businesses do not, because the data sits across a bank account, an invoicing tool and a spreadsheet.
Getting those in one place is what makes pricing a decision instead of a guess. Mirage Cloud connects to Qonto and Pennylane among other French tools and includes a finance agent scoped to margins, costs and budgets, which is the analysis most owners intend to do and never quite get to.
The tool is optional. Knowing your break-even hourly rate is not. Most businesses that struggle on price are struggling because they have never calculated it.
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