One of the biggest mistakes local small business owners make is undercharging for their services. The price sort of being an apology for having to charge something, a fiscal acknowledgement you exist.
Hello, I’m Stuart and I’m a reformed undercharger. I have seen the light and thankfully I have been charging my value for almost 15 years now.
Phew, there, said it, feel like I have cleansed my soul. The awful truth is that at some level you KNOW you are undercharging, but seem unable to put the price you want. Probably due to a version of this conversation with yourself… (For this example I am going to use a product, but the same rationale goes for a service business.)
”OK, I’ve seen other businesses selling these for £X – so I will charge £X minus desperation tax.”
And the “desperation tax” part is the discount you make to the price to just get the ball-rolling, and “get some sales”. Because, if no one buys, well there goes your self-worth, your dignity, the world hates you and your RSD flares hotter than the Sun burping after a comet vindaloo.
Because price is not just what you charge, it’s how you get seen in the marketplace. It’s your self-worth. Price is as important as branding and what value you provide to your customers. Simply believing that:
“If what I make/do is good enough then it should sell”.
Right?
BZZZZZZZZZZZZZZ.
Wrong!!!
Take a look at something you own. Why did you buy it? Myriad reasons, wasn’t JUST price alone, right. Colour, size, cool-factor, you had one before, never had one before, you were lucky and it was just “there”.
Whatever your rationale, price is not the sole consideration in ANY transaction. You can get a Lidl instant noodle pot for £0.69p but if I fancy the same thing in a Motorway Service station, well… nothing says “I’m minted with money to burn” than buying a family meal at a Motorway Services in the UK. I once paid £3.50 for a pot of noodles. Granted it was a branded “Chonky Wide-Boy” size instant noodle, but still, a cup of coffee and a filthy pot of noodles shouldn’t cost you nearly a tenner!
Rant for another day… But the point is; £3.50 vs £0.69p – both the same experience (give or take) but wildly different pricing.
What you charge is not just the price tag but also understanding and having a rationale for your pricing policy and how you are arriving at that price is probably the problem. And there’s a large dollop of self-worth stirred in for good measure.
Rationale For Service Pricing
Let’s take a look at the rationale and pick it apart and rebuild it so you never have to worry about over or undercharging again.
The rationale for a service business is usually along the lines of:
Costs + (Time x Hourly Rate) + Taxes = KACHING
You then work on the costs bit, because you cannot do much about the taxes bit, and your “Hourly Rate” is what the market will stand, which you don’t determine.
Except!
You are missing the important bit, the “Hourly Rate” is not determined entirely by raw market forces alone, there’s also perceived value, and branding both help boost your bottom line as does supportive local word of mouth (You cannot sell a bad reputation). Also, what does your diary look like? If all the hours in your week are worth the same you may wish to reconsider that.
There’s nothing I like more than to hear the magic words “We have an emergency” or “We need this asap” to change the pricing conversation. I don’t charge people more because of the short deadline, I charge them more because the short deadline means additional time I will need to spend in the office. I’m effectively opening another till and creating more hours for them in my day, so their work can “jump the queue”.
Just like Disney and all the other “fun park*” operators do, you can pay to jump the queue or otherwise avoid the 2 hr wait to see your lunch again. The point is, not all hours are created equal, and as such your pricing policy needs to reflect that. I don’t work Fridays (or rather, I work exclusively on my own projects). You should think about using that red rope around your time to make sure you carve our business development time.
Also, seniority is a huge factor. If you’ve ever had your barnet, sorry, “hair” styled at a salon then you know junior stylists are cheaper than Miguel the “Salon Director” and if you choose a trainee, they will give you a haircut free!
Do not underestimate the years of experience you have, that counts for a lot and you should reflect that in your pricing as a differentiator. Highlight it, share your experience, prove the gap between you and the competitor with only a few years under their belts. Explain the dead-ends avoided, the speed of progress and other benefits of working with a highly experienced practitioner or provider.
Let’s talk about energy, you have finite energy, whether ND or not, there’s only so many hours in a working week. I know this because I found out the hard way, willing yourself to plough on despite pneumonia, 80 hour weeks and a young family is unsustainable and you will end up in hospital, at Christmas.
Some hard truths about billing for NDs
- There’s usually not enough time to get everything done for customers AND yourself AND have a life, so you always draw the short straw when it comes to time management and resting.
- Raging RSD flare ups where every suggestion, alteration and query feels like a stamped foot and a hard slap.
- Sending the invoice and feeling like Oliver Twist asking for MORE!
- The nagging feeling that you have undercharged, over committed and completely underestimated the time, materials and effort required.
- Feeling grateful that they chose you and embarrassed when you send the invoice.
- Once the invoice is sent there’s a lingering feeling that there will be an angry email asking you to justify every last second, so you hover anxiously outside your inbox…
Let me counter these unhelpful intrusive thoughts and feelings and offer you some tough love, which I learned the hard way…
Failing to charge what you are worth is unprofessional and devalues your entire sector, industry and skill set and does not serve your customers.
Because you, your customers, and the world needs you to be here next year and your profit allows you to do this.
(Pssst: If you have not lifted your rates in the past 12 months you are likely to be undercharging by 10-20% – So… maybe take a look at that?)
Now, thank you for waiting patiently manufacturers…
I totally understand the, “but Stu, we do not charge by the hour…” argument and let me share some industry experience and knowledge of retail sales and manufacturing products.
Many moons ago I designed and had manufactured novelty products with my production partners at Paladone (hi Paul, Lawrence, Dominic!) – I came up with the ideas, they turned them into stock on shelves of retailers across the globe.
Broadly speaking here’s how retail pricing works
- Manufacturer – Cost of making + 100%
Something costs $0.50c to make, sells for $1 - Wholesaler – Cost of purchase + 100%
That $1 item now sells for $2 - Retailer – Multiplies wholesaler cost by 2 – 2.5 times.
The $2 item is now circa $5 in the shops
That item that cost 50 cents, ends up on the shelf at 10X that cost. At each stage the margin added inflates the cost.
That’s why you can find end of line products in shops going for stupidly low, below cost prices, the retailer just wants it gone, it is taking up warehouse and shelf space and they need to liquidate their cash quickly. They are looking at the overall profit, and if they made a decent avg. margin letting a few end-of-line items go at cost (or below) just lifts the cashflow.
Different industries have different pricing structures, plus also bulk ordering changes things, as does longer lead times. So the above is just my experience, and that was a couple of decades back, but the principles still apply.
So if you are a small batch, or local producer then pay close attention to your costs, and time you put into the product. You need to ensure you have sufficient margin to withstand pressure of business, downturn in sales, uptick in costs. Keep an eye on cashflow – think about margin on the entire line, not just the single product. Making your pricing more elastic can help during slow or busy times.
REMEMBER!
You don’t do yourself, your business or your customers any favours by undervaluing your products or services. You just give yourself one more thing to stress about, and you got out of employment to reduce the stress, anxiety and general low mood, right?
Charging the right price is a little bit of alchemy, but undercharging is a crime against yourself, you are picking your own pocket.
Some facts…
You get 40 hours in a working week, except, you don’t, you have as many hours as you feel like or are capable of working. But, we all know when the brain says “no”, good luck getting it to do what you need to do. Your productive hours are fewer, plus adding in the admin and all the work just getting the work, you may be down to 3 or even 2 days of productive work, so; 24-16 hrs needs to make enough to cover your nut every month.
What does 16x Your £hourly rate = for you?
Dare you do the maths?
Remember, whatever your income is, you still need to divide it by ALL the hours your work, not just the billable hours, so you need to divide the total income for the week by ALL your hours worked and it starts to look less than ideal. I know that many self employed business owners earn less than minimum wage.
That just kills your business over time – the erosion of energy and lack of progress, of not generating sufficient income to have money to save towards retirement or whatever goal the business is helping fund. PLUS, you gotta take time out for yourself, and another tip I would suggest is to base your annual income on 10 months productivity. 10 months?
WHAT?
Yep – you have fewer weeks of work in a year than you might imagine… in the UK we usually have EIGHT bank Holidays per year – there’s eight Mondays off right there. You may decide to work, but your employees and suppliers probably won’t. Bank Holidays can be soul destroying, whilst everyone else is off and you’re grinding. Oof. (note: full transparency, I am editing this on a BH Monday…)
Whilst you might not think about “sick leave”, as an ND you know – 100% that you’re going to have days at a time where you are flattened, usually accompanied by a side-order of cold or other ailment. A cold and stress can see you on the sofa, doom scrolling Netflix and sob-eat all of your emotions for days.
That’s another week. According to AYE-EYE from The Googs…
UK Employee Holiday Pay
“The statutory minimum paid holiday for a full-time employee in the UK is 28 days a year (equivalent to 5.6 weeks). However, the actual average allowance typically ranges between 33 to 34 days (including bank holidays)“ – Goolge AI May 2026.
Any decent employer is going to give you circa 26 days on top of your Bank Hols, that’s business days remember. That’s another 5 weeks of time off.
Employees therefore probably get somewhere around 7 or 8 weeks of time off their job every year that’s circa 1 day off for every 6 days work. As a self-employed business owner, when was the last time you had a full, uninterrupted week off?
You HAVE to factor in time out of the business or at the very least, unproductive time to be kind to yourself and treat yourself like the valuable employee that you are.
That means basing your income on 10 months a year, which gives you some margin of error when it comes to the hours you can put into income generation.
Time to Do Some Sums
Let’s say you need 1k per week to survive as a family of four in modern UK, depending on where you live and your lifestyle that may just be enough to keep your head above the water or you may be thinking I would LOVE that level of income, but lets just do the sums based on this number.
That’s 52K pa. Now you have to earn that over ten months – that’s 5.2K per month, or £1300 per week-ish.
Divide by your 16 productive hours gives an hourly rate of around £81.25
Now your wages come out of profit, and I would argue that you also need to retain at least as much again in the business to ensure you can cover the various tax liabilities and unforeseen “financial shitstorms“. This pushes your hourly rate up even higher to circa £150+ an hour.
Soooo… Can I ask…
How does that look against what you are charging currently?
I accept there’s a local max for pricing, and you will need to adjust but it shows you how pricing impacts your ability to sustain a living wage. Many of the small business owners I see who fail do so because there’s simply not enough reward for the effort and risk, stress, anxiety etc. That’s demoralising and you cannot sustain your motivation in the face of starvation.
As ND business owners or self-employed there’s a price to pay for undervaluing your time and that drains you to just survive. You are worth more than scraps off the table. Just because your energy is variable doesn’t mean it is worth less and should be sold cheap. If anything it’s a rare commodity and people who get it are lucky to have your skill, focus and eye for detail.
Plus the world demands you extract maximum value from your time, and charging a premium is your way of marking yourself as offering a superior product or service. Of course you have to live up to that promise, and that’s a topic for another day! None of this is intended to shame you or make you feel bad, it’s just the stark reality of running a small business and remaining self-employed.
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*Fun Park – Obviously going to a “crowded, over stimulating, hell-hole where the rules of human behavior seem to no longer apply“, is fun for some and not others. You do you.