Foundation 14 of 20 · Decide
How to Price Your Product or Service: 3 Pricing Strategies
Underpricing Is Not Humility. It Is a Pay Cut.
"How do I know what to charge for something I made?" If you set your price by what you would be willing to pay, or knock a little off because you feel shy, you may be losing money on your best work. Here is how to price your product or service using three numbers.
Last Updated: 10/25/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
How Do You Price a Product or Service?
Textbook Definition
A pricing strategy is the method a business uses to set prices, commonly combining cost-based pricing, competitor or market-based pricing, and value-based pricing according to the customer's perceived benefit.
In Plain English
Check three numbers. First, your full cost, including your own time and a share of overhead. Second, what others charge for something similar. Third, what it is worth to the buyer. Then pick a price above your cost that fits the other two, and leave room.
Why It Matters
Why Do So Many Owners Charge Too Little?
Because they price by asking the wrong question: what is the least anyone would complain about? Handmade products and first services get priced this way constantly. The owner charges what they personally could afford, then takes a little off. Their own time never makes it into the number.
Underpricing feels safe. It is one of the fastest ways to go broke while staying busy. And customers read price as a signal. A price far below the market can make good work look doubtful. Pricing well is not greed. It is how you stay in business long enough to keep doing the work.
Signs you have this problem:
- You set prices by what you would pay, not what the work is worth.
- Your own time is not in your price.
- You lower your price when a customer hesitates, before they ask.
- You have never checked what competitors charge.
- Your biggest, best work makes the least money.
- A customer has ever told you your price was too low.
What It Looks Like
What It Looks Like When the Price Is an Apology
From the Fabled Forest · Chapter 14
Hazy Hazel is the best painter in the forest. When Mrs. Owl-Willow asked her to paint the Lone Oak for Doctor Owl's office, Hazel said five coins for a month of work, then offered four. Mrs. Owl-Willow said no. The price was too low. It would be like stealing it.
At the kitchen table, Doctor Owl walked Hazel through three numbers. Materials and ten days of her time at an apprentice's wage, plus a share of booth fees: forty coins of full cost. Her monthly pages showed she had lost money on every large painting this year. Other painters in the forest charged thirty-five to fifty.
The third number was what the painting meant to the buyer: their home of forty years, beside the doctorate he kept in a closet for twenty. Hazel chose forty-five. Mrs. Owl-Willow paid on the spot, and the framer sent Hazel two more commissions at the same price.
Hazel's story is Chapter 14 of Accounting and Finance for Small Businesses, Book 2 of Dr. Paul's Fabled Forest Business School Series.
The Fix
How to Price Your Product or Service in 5 Steps
The three numbers do not tell you the price. They tell you where the price can sit. Then you choose.
Work out your full cost for one unit.
Materials, plus your time valued at least at what you would pay someone else, plus a share of your monthly overhead. That is your floor. This is the start of cost-plus pricing.
Leave room above the cost.
Work almost always takes longer than planned. A price with room absorbs the extra day. A price at cost turns every surprise into free labor.
Find out what others charge.
Ask suppliers, look at competitors, search online, or ask customers what they have paid before. You want a range, not one number.
Ask what it is worth to the buyer.
What problem does it solve? What does it mean to them? What would they do without it? This is value pricing. It does not mean charging whatever you can get. It means not charging less than the work is worth.
Pick a price and hold it.
Choose a number above your full cost that makes sense against the market and the value. Then stop discounting it in your head before the customer says a word.
Dr. Paul's Insight
The usual slip is pricing by what you yourself would be willing to pay. You are not your customer, and you probably undervalue your own work more than anyone else does. A useful test: if you have never had a customer push back on price, you are almost certainly too low. A few objections mean you are near the right number.
Sample: The Three-Number Price Tag
Fill it in for one product or service. Then choose.
| Number | Amount |
|---|---|
| Materials | $80 |
| Your time (10 hours at $30) | $300 |
| Share of monthly overhead | $20 |
| Full cost | $400 |
| What others charge | $350 to $500 |
| What it is worth to this buyer | High: one-of-a-kind gift |
| Your price | $450 |
Sample for illustration. Use your own costs, your own market, and your own buyer.
Watch
Video: How to Price Your Work Without Guessing
How to Price Your Product or Service: 3 Pricing Strategies
Dr. Paul fills in the three-number price tag for a product and a service on screen.
From the Book
Is That All Right?
Chapter 14 · Pricing Strategy
Five Coins for a Month's Work: A Squirrel's Price Tag
"Five coins," she said. "Is that all right? It'll take about a month. I could do four."
Mrs. Owl-Willow did not answer right away. She put on her lavender spectacles.
"No," she said. "It is not all right."
Why would a customer refuse to pay so little, and what price did Hazel finally choose? Find out in Chapter 14. Book 2 of Dr. Paul's Fabled Forest Business School Series.
Get the Book on Amazon →FAQ
Pricing Strategy Questions
What are the three main pricing strategies?
What is cost-plus pricing?
What is value pricing?
How do I know if my prices are too low?
Keep Going
Related Foundations
Pricing connects four foundations. It starts with cost and ends with what each sale leaves. New to a term on this page? Every one is in the accounting and finance glossary.
Foundation 7 · Cost of Goods Sold
Your unit cost is the first of the three numbers.
Foundation 8 · Overhead and Profit Margin
Margins show whether the price leaves enough after overhead.
Foundation 15 · Discounting and Contribution Margin
Know your floor before you agree to any discount.
Foundation 19 · Break-Even Analysis
Use the price to work out how many sales cover a new cost.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and educator with an MBA focused in finance. Want a second set of eyes on your prices? See fractional CFO services.
This page is for general educational purposes only. It is not legal, financial, tax, accounting, or lending advice. Tax rules change by place and by year. Dollar figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.