How to Set Prices for Your Small Business in 6 Easy Steps

Introduction:

Starting a small business is exciting, challenging, and sometimes overwhelming—especially when it comes to pricing your products or services. Setting the right price is crucial for profitability and long-term success. If you're unsure where to start, follow these six simple steps to develop a pricing strategy that works.

Step 1: Define Your Pricing Objective

Before you set prices, ask yourself: Why are you selling this product or service? Your pricing should align with your business goals.

For most small business owners, the primary objective is profitability. Remember, customers don’t pay the bills—cash flow does. While there are other pricing goals (like market penetration or brand positioning), if you're just starting out, focus on setting prices that generate profit.

(Source: Indeed: Pricing Strategies)

If you need more detail on this, click here for the ExcelEDGE guide to Pricing Objectives.

Step 2: Estimate Market Demand

Understanding demand helps determine how much you can charge. Conduct market research to gauge interest in your product or service. While you may not get a perfect estimate, a general idea of demand allows you to price strategically.

Once you have a sense of demand, analyze how much market share you need to achieve your revenue goals. This step ensures your pricing is both competitive and sustainable.

(Source: Harvard Business Review)

If you need more information on How marketing demand affects you, click here.

Step 3: Calculate Costs and Break-Even Point

While pricing shouldn’t be based solely on costs, you must ensure your price covers expenses. Use a break-even analysis:

Break-even Point (in units) = Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit)

This calculation tells you how many sales you need to cover your expenses before making a profit. Pricing above this threshold ensures you maintain a healthy margin and move your business toward profitability.

(Source: Small Business Association)

Break-even is a measurement that we need for our finances, but no one went into business to not make money. If you are interested in discovering your Break even plus profit, click here!

Step 4: Analyze Market Conditions and Competitors

External factors—like industry trends, customer expectations, and competitor pricing—impact your pricing decisions. While you shouldn't base your price solely on competitors, knowing their pricing structure helps position your business effectively.

Ask yourself:

• What gap in the market does my product fill?

• How does my value compare to competitors?

• Why should customers choose me?

Your price should reflect the unique value you provide.

(Source: Hubspot)

For more information, click here for our blog on Market Conditions.

Step 5: Choose a Pricing Strategy

Now that you have market data, it’s time to decide on a pricing strategy. Some common strategies include:

• Cost-plus pricing: Adding a markup to costs

• Competitive pricing: Matching or undercutting competitors

• Value-based pricing: Charging based on perceived value

For new businesses, a premium pricing model often works best. Competing on low prices can make profitability difficult, whereas positioning as a high-value option allows you to charge more while delivering superior quality.

(Source: Forbes)

For more information on the right Pricing model to fit you, click here.

Step 6: Implement Pricing Tactics

With a strategy in place, you need tactics to attract customers and drive sales. One crucial rule: Never rely on discounts.

Discounting eats into profits without reducing costs. Instead, focus on value-added incentives such as:

• Bonus items or extended services

• Exclusive content or VIP access

• Free trials or money-back guarantees

These strategies maintain pricing integrity while increasing perceived value.

The most important part of this whole model is the implementation. For more tips on how to do so, click here.

Final Thoughts: Pricing Isn’t Permanent

Once you've set a price, you're officially in business! But pricing isn’t set in stone—you can adjust based on customer feedback, market shifts, and business growth. The key is to remain adaptable while ensuring profitability.

Ready to launch your business with confidence? Follow these six steps, and you’ll be on the path to success!