How to set prices for your services and products

Knowing how to set prices for your services and products is one of the most important decisions an entrepreneur makes. A price that is too low will eat up your profit; one that is too high will scare customers away. The aim is to find a figure that is fair to both you and the client and at the same time allows you to grow your business soundly. Let us look at how to approach pricing in a considered way.

Know your costs

Costs are the foundation of every price. Add up not only your direct expenses on materials or time, but also indirect costs such as rent, software, taxes, social and health insurance contributions and your own wage. If the price does not cover all your costs and leave you a margin, the business will not be sustainable.

Three approaches to pricing

Setting a price usually combines three perspectives:

• cost-based – the price is based on costs plus a margin,
• competition-based – you compare yourself with similar offers on the market,
• value-based – the price reflects the benefit the customer gains.

The value-based approach tends to be the strongest: if your product saves the customer a lot of time or money, you can charge more than just costs plus a mark-up.

Do not be afraid of value

New entrepreneurs often undervalue their work and set prices too low for fear that otherwise they will not sell anything. A low price, however, can signal low quality and attract demanding clients with small budgets. A confident price, on the other hand, builds a perception of quality and attracts customers who value what you offer. Remember that the aim is not to sell as much as possible at any cost, but to sell at a price that allows you to grow your business over the long term.

Communicate your price with confidence

Just as important as the figure itself is the way you present the price. If you believe in the value of your work yourself, the customer will sense it and the price will seem justified to them. Instead of apologising for the amount, explain what the client gets for it and what problem you will solve for them. Communicating the price clearly and calmly reduces needless haggling over discounts.

How to go about setting a price

1. Add up all your costs, including your own time.
2. Map out competitors’ prices in a similar segment.
3. Estimate the value you bring to the customer.
4. Set the price and test the market’s response.
5. Review and adjust it on an ongoing basis.

Discounts and price tiers

Handle discounts with care – unnecessary discounting reduces both your profit and the perceived value. Offering several price tiers works better, so that customers can choose according to their needs and budget. When doing your calculations, do not forget taxes and social and health insurance contributions; always check their current figures. If you want to reward loyal customers, do so with added value rather than across-the-board price cuts. That way you keep your margin while building loyalty, which pays off for the business far more in the long run than a one-off discount.

A price is not fixed for good

Prices are not carved in stone. As your experience, demand and costs grow, you can and should adjust them. Recalculate regularly whether your offer still makes sense for you. Announce price increases to customers in advance and clearly, so that they accept the change with understanding. Once you learn to set prices for your services and products in a considered way, you will gain a healthy margin as well as satisfied customers who will be glad to keep coming back to you.

Related articles: E-shop: obligations and accounting for online sales, Invoicing for beginners: what an invoice must contain, Running a business while receiving unemployment benefit.

Frequently asked questions

How should I set my price when I am starting out and have no experience?

Start from your real costs, including your own time, compare yourself with the competition and take into account the value for the customer. Avoid undervaluing your work – a price that is too low reduces both your margin and the perceived quality.

Is it better to have low prices to attract customers?

Low prices may attract price-sensitive customers, but they also reduce your profit and can signal lower quality. It is better to set a fair price that reflects the value and, if appropriate, to offer several price tiers.