Are You Charging Too Little? A Step-By-Step Guide to Putting a Price on Your Services

If your are a professional going into business for yourself, you will likely face the dilemma of deciding what to charge for your services.

Should you chose incorrectly when setting a price, it can cost you a tremendous amount of money and potential clients. These five steps will help you to avoid such a loss.

The “What Should I Charge?” Learning Curve

It is common among aspiring entrepreneurs and new small business owners to take a hit or miss approach when determining the price they should charge for their services. Most come up with some kind of rough estimate and then err on the side of caution. As a result, many of these same small business owners eventually reach the conclusion that they have been charging too little.

There are many ways for solo professionals and independent contractors to charge for their services. Most common among them include: an hourly rate, a fixed fee, or a results-based compensation, such as sales commission. But the process whereby one reaches an appropriate price is basically the same for all instances. Below are five steps you can take to quickly and efficiently determine the best price for your services.

Step 1: Determine your break even point. The first thing you need to do to reach your optimal price point is to determine how much money you will need to be earning in order to cover your expenses. If you are just starting out then this number will be a bit of an estimate. Common expenses to include are:

  • Overhead expenses- Utilities, internet access, website hosting, rent (even when working from a home office), supplies, insurance premiums, payroll (including your own base pay), benefits (retirement plans and health insurance) and business-related travel expenses.
  • Equipment leasing, purchases, and depreciation
  • Professional service fees (Such as for a lawyer or an accountant)
  • Taxes


You then need to add up all of these expenses and determine the minimum you will need to charge per hour or per job to cover them. This will be your pricing floor- i.e. the lowest amount per hour or job that you can charge. How much higher your price will be in the end will depend on the remaining steps below.

Step 2: Define your services. The next step is to sit down and make a list of all the services you are offering as well as any features that will enhance them, such as your level of training and experience, your reputation, and the overall quality of service as compared to others in your field. In other words, your first step is to subjectively determine what value you are bringing to customers without assigning an actual number.

Step 3: Look at what the competition is charging. The third step is to go about researching what the competitors in your market are charging for their services. Depending on the industry and the size of your market, you should aim for a significant pool of sample price lists (i.e. at least ten). The are a number of ways to get this information. You could go to the websites of your competitors to see if there is a price list posted, and even call or email your competitors directly as if you are a potential customer. Your goal in this process is to not only come up with a list of prices, but to also determine what level of features and value is being offered in exchange for a given price. Based on this information, you can determine where your services fall in the spectrum and come up with a rough price estimate. Keep in mind though that customers will expect to pay less for a solo professional then for the services of a company.

Step 4: Define your target market and image. Who are you marketing to and what perception are you trying to give over to your customers? Are you targeting customers looking to get the best value for their money or are you after those who want the best service providers in the field? The answer to these questions will directly affect the price you will charge your clients. This is due to the fact that consumers will automatically attribute a service’s level of quality with the price being charged for it- whether or not it is in fact accurate. So, if you want to market to people willing to pay more for better service then add a premium to your fees.

Step 5: Operate for three months and re-evaluate. Pricing strategy in general is a fluid process, and the amount you charge your customers may change to some extent in response to changing market conditions. The first three months to a year, however, is a particularly sensitive time for fine-tuning. If, for example, you are receiving too many jobs from customers than you can handle, then it may mean that you are priced too low, and your customers know that. On the other hand, if few people are becoming paying customers then it could mean you are either priced too high or you are not emphasizing your value properly.

Bottom line: There are many factors that go into choosing the appropriate price for your services. The more aware you are of these factors and how they will affect what you can charge, the closer you will be to settling on the right price and avoiding costly mistakes down the road.