How to set prices in a small business: calculate, test and raise prices
Many small businesses set prices by looking at competitors and charging a little less. That feels safe but often leaves no margin for marketing, mistakes or growth. A good price starts from your costs, is checked against what customers get and is reviewed regularly. This guide shows a simple method that works for services, restaurants and shops.
Start with your floor price
Your floor price is the lowest price at which a sale still covers all costs. Add up the fixed costs for a year, divide them by the hours or units you can realistically sell and add the direct costs per order. Anything below this number loses money, however busy the order keeps you.
- Fixed costs per year, including your own salary.
- Billable hours or expected units, not theoretical capacity.
- Direct costs per order: materials, ingredients, payment fees, travel.
- A buffer for unpaid time such as quotes, admin and corrections.
Price by value, not only by effort
Customers do not pay for hours; they pay for a result: a working website, a fully booked evening, a repaired heating system. Ask what the result is worth to them and what it costs them to do nothing. Where your work saves time, money or risk, the price can sit well above the floor.
Value-based pricing needs a clear scope. Describe exactly what is included, so customers compare results rather than hourly rates.
Build packages instead of single prices
Three options make decisions easier: a basic version, a standard version most people choose and a premium version with extras. The premium package also shows what is possible and makes the standard one look reasonable. In a restaurant, set menus for groups work the same way; in services, fixed packages replace long quotes.
Raise prices without losing good customers
Review prices at least once a year and whenever costs rise. Announce changes early, explain briefly what has changed and, where sensible, give existing customers a transition period.
If nobody ever objects to your price, it is probably too low. Losing some price-sensitive customers is normal; watch whether the customers you want stay.
Example: pricing a restaurant's event menu
A restaurant offers a three-course menu for events. The kitchen calculates the ingredient cost per guest and adds staff hours for preparation and service, a share of rent for the reserved room and payment fees. That sum is the floor. The final price reflects the value of a private room, a fixed menu and less work for the host, and a drinks package is offered as an upgrade.
Frequently asked questions
- Should I show prices on my website?
- In most cases, yes, at least starting prices or packages. They filter enquiries and build trust. For consumers in Germany, prices must be shown as final prices including VAT.
- How do I calculate my hourly rate?
- Divide your yearly fixed costs plus your target income by your realistic billable hours, usually far fewer than all working hours, and add the direct costs per job.
- Is a discount a good way to win customers?
- Rarely as a default. Discounts teach customers to wait. Use them with a clear reason and an end date, or add value instead.
Unsure whether your prices cover your costs? Send us your offer and rough numbers. We will calculate your floor price and suggest a package structure.
Review your pricing