Setting the correct pricing is a cornerstone to every business.

This is one of the most important decisions. It impacts your profitability, how customers view your business and your long-term sustainability.

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Calculate Your Costs:

Start by knowing your numbers. Factor in direct costs like materials and labor, and don’t forget indirect costs such as rent, utilities, insurance, equipment, taxes and administrative time. This ensures your prices cover what it truly takes to operate your business.

Example:

If you sell a handcrafted product, your direct costs may include $15 in materials and $20 in labor.

Indirect costs (also known as overhead) like rent ($1,000), utilities ($300), insurance ($200), and administrative software ($500) total $2,000 per month.

If you plan to sell 100 products per month, your indirect cost per product would be $20 ($2,000 / 100).

Your total cost per product would then be $15 (materials) + $20 (labor) + $20 (indirect costs) = $55 per product.

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Your pricing MUST start above this cost to ensure you are covering your expenses and generating profit.

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Research Your Market:

Look at what competitors in your industry and region are charging for similar products or services. Consider the value your business provides and where you want to position yourself in the market, whether that’s premium, middle-range or budget-friendly.

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Evaluate Your Value:

Think about what sets your business apart, such as your expertise, speed of service or quality of work. Your pricing should reflect the value you bring to customers and the results you deliver.

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Avoid Common Pricing Mistakes:

Many new business owners underprice to attract customers, but this can hurt your ability to cover costs and grow sustainably. On the other hand, overpricing without demonstrating value can drive customers away. Be prepared to adjust your pricing if your costs change or as you gain more experience and demand grows.

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Test and Review:

Pricing isn’t a set-and-forget task. Review your prices regularly, test changes if needed and monitor how your pricing affects your cash flow and sales. Stay flexible and make adjustments as your business evolves.

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Final Thought:

Setting the right prices helps you cover your costs, stay competitive and build a profitable business that supports your goals. Take the time to review your pricing strategy to ensure it aligns with your value and business plan.