Pricing a product or service correctly is genuinely one of the more consequential decisions a small business makes, and doing it properly means pricing based on genuine value delivered, not simply matching competitors or marking up cost by an arbitrary margin.
These are the factors that go into pricing properly.
Start from genuine costs, but don’t stop there
Understanding the full, genuine cost of producing a product or delivering a service, including overheads often overlooked in a simple cost calculation, is the necessary starting point, but cost alone doesn’t determine the right price.
A price that only covers cost with a thin margin leaves genuine value on the table if customers would pay more for what’s actually being delivered.
Price based on the value customers genuinely perceive
What a customer is willing to pay depends on the value they perceive, which isn’t always proportional to the cost of production; a service solving a genuinely painful problem can command a premium beyond its direct cost.
Being able to clearly explain and defend that value to a customer is what makes a higher, value-based price genuinely sustainable rather than simply optimistic.
Understand competitor pricing without simply copying it
Knowing what competitors charge provides useful context, but matching their price without understanding whether your own costs, positioning or value proposition genuinely support that price can leave a business unprofitable.
A business offering genuinely different value than its competitors doesn’t need to price identically to them.
Review and adjust pricing deliberately over time
Pricing shouldn’t be set once and left unchanged indefinitely; input costs, market conditions and the business’s own positioning change over time, and periodically reviewing whether pricing still reflects genuine value and cost is worth building into the business’s ongoing discipline.
Guidance on fair pricing practices and consumer protection is set out by the Department of Trade, Industry and Competition, worth understanding alongside any pricing strategy.
Frequently asked questions
Should pricing be based only on cost plus a margin?
No, that leaves genuine value on the table if customers would pay more for what’s actually being delivered.
What determines what a customer is willing to pay?
The value they genuinely perceive, which isn’t always proportional to the cost of production.
Should a business match competitor pricing directly?
Not necessarily; matching a price without understanding whether your own costs and value proposition support it can be unprofitable.
Should pricing be reviewed over time?
Yes, deliberately, since input costs, market conditions and positioning all change over time.
What is the necessary starting point for pricing?
Understanding the full, genuine cost of producing the product or delivering the service, including often-overlooked overheads.
Further reading
Originally published in 2024. Updated September 2026 into a clearer, principle-based pricing guide, without relying on a single named source’s quote.
