The right price, real profit: seven steps to pricing products and services

Many owners set a price once, by glancing at a competitor or guessing what customers will pay, and never look at it again. Yet price is one of the few levers fully in your hands. Bank of America's pricing guide quotes pricing consultant Jonathan Stark: pricing is probably the main lever owners can use to improve their marketing, sales and, ultimately, profits.

The University of Maine Cooperative Extension's pricing bulletin rests on three simple principles: prices should cover your total costs and provide a reasonable profit, be competitive with similar products or services, and sit in a range most of your target customers are willing to pay. The seven steps below turn those principles into everyday practice, for a shop, a workshop, a restaurant, a guesthouse or a service firm.

1. Know all your costs, including your own time

Costs come in two kinds. Fixed costs are what you pay whether or not you sell anything, such as rent, insurance, licenses and monthly bills. Variable costs rise and fall with each sale, such as materials, packaging, delivery and fees. The Maine bulletin stresses that without good records you may sell items for less than they cost to make. Another common mistake, according to Bank of America's guide, is leaving out the owner's own labor; Stark suggests thinking of yourself as two people: the owner who earns profits and the main employee who needs to be paid.

2. Work out your break-even point

Break-even is where revenue exactly covers costs; profit starts after it. The U.S. Small Business Administration notes that finding this point helps you price smarter. Bank of America's method is simple: subtract the cost of making or delivering one unit from its selling price to get the gross profit per unit, then divide your monthly fixed costs by that number. The result tells you the minimum number of units to sell each month to avoid a loss. If that number is far from your real sales, either the price or the costs need to change.

3. Don't confuse markup with margin

They aren't the same, and mixing them up quietly eats your profit. Take the Maine bulletin's example: you buy an item for 100 and sell it for 150. The markup on cost is 50 percent, but the margin on the selling price is only about 33 percent. If you then cut that price by 40 percent at the end of the season, it drops to 90, below what you paid, without covering any of your running costs. Before any discount, know your profit as a share of the selling price.

4. Study the market and competitors, but not just to copy them

Bank of America suggests looking at what competitors sell, how they describe and package it, and what they charge. In small markets or tourist destinations with little public data, shopping at competitors and talking with other owners in a local trade group gives a better picture. If your price is far below everyone else's and you haven't found a cheaper way to produce, you've likely forgotten some costs. The Maine bulletin also warns that matching a competitor's price when your costs are higher can mean good sales volume and a loss.

5. Price on value, not only on cost

Cost-plus pricing, adding a fixed percentage to your costs, is simple and keeps you focused on margin, but Bank of America's guide notes it makes you look like everyone else and leaves you open to price wars. With value-based pricing, you ask what the product or service does for the customer: how much time it saves, what hassle it removes, what experience it gives. Rafi Mohammed, author of The Art of Pricing, says in the same guide that the key to better pricing is to think like a customer. Stark advises against being the lowest or second-lowest option and suggests focusing on customers who want what makes you different.

6. Build discounts into the price from day one

If you sell goods that can spoil, go out of style or be left over at season's end, the Maine bulletin suggests planning the markdown when you set the original price, so that if you discount later you still reach the profit you planned. It adds that early markdowns are usually the smallest and cost the least; sell while people still want to buy, not at the end of the season when buyers are few.

7. Experiment and keep the numbers

A price isn't permanent. Bank of America suggests experimenting with new pricing shapes, such as bundling complementary items, a monthly subscription for recurring services, or a monthly retainer instead of scattered sessions, and keeping data on each test so you know which ones are truly profitable. If few people buy at your current price, the problem may not be the price at all; you may be pitching the wrong customers, and a bit more research will tell you.

An exercise for this week

Pick your three best-selling products or services and write down, for each one: the full cost per unit, including a share of rent and your own time; the margin on the selling price; and how many sales you need to break even. That one hour usually shows which price needs a second look.

Sources

• Basic Pricing Strategies for Small Businesses, Bulletin #3000, University of Maine Cooperative Extension
• How to price a product or service, Bank of America, February 24, 2026
• Plan your business, U.S. Small Business Administration

A good price is one customers pay gladly and you sell with peace of mind. Have a productive Saturday.