Is my pricing right?
You set your prices based on what felt right, what competitors charge, or what customers would accept. But do your prices actually cover your costs and leave a healthy margin? Here's how to find out.
The short answer
Is your pricing right? Your pricing is right when your average job revenue minus your fully loaded cost per job leaves enough margin to cover growth, savings, and risk. If your net margin is below 10%, your prices probably need to go up unless your volume is exceptionally high.
Most small businesses underprice by 15 to 25 percent
You priced your services three years ago. Since then, insurance went up 12%. Fuel costs doubled. You added two software tools. Your payroll taxes increased. But your prices stayed the same because no customer complained and you were afraid raising them would push people away.
The result: your costs crept up by 20% but your revenue per job stayed flat. Your margin quietly shrank from 22% to 8%, and you did not notice because you were still busy. Busy is not the same as profitable.
Pricing should be a data-driven decision, not an emotional one. You need to know your fully loaded cost, your current margin, and whether that margin is trending up or down. Then you can make a rational decision about whether to raise prices, cut costs, or both.
Four data points that tell you if pricing is working
- Gross margin. Revenue minus direct costs, divided by revenue. This tells you if your price covers the cost of delivery.
- Net margin. Revenue minus all costs, divided by revenue. This tells you what you actually keep.
- Margin trend. Is your margin improving, stable, or declining over the last 6 months?
- Close rate. Are you winning most of the deals you bid on? If your close rate is above 80%, you may be priced too low. If it is below 30%, you may be priced too high.
How to evaluate your pricing using your existing data
- 1Calculate your gross and net margins
In QuickBooks, run Profit and Loss for the current month. Gross Profit divided by Total Income is your gross margin. Net Income divided by Total Income is your net margin. In Xero, the same numbers appear on the P&L report.
- 2Check the 6-month margin trend
Run the P&L for the last 6 months, grouped by month. Calculate the margin for each month. Are margins steady, improving, or declining? A declining trend means costs are rising faster than your prices.
- 3Check your close rate in your CRM
In HubSpot, go to Reports → Sales Analytics → Deal close rate. In Salesforce, run a report on Opportunities showing won vs. lost. A very high close rate (80%+) suggests you are leaving money on the table.
- 4Compare your price to your fully loaded cost
If your average job costs $7,583 fully loaded and you charge $8,500, your real margin is 10.8%. That leaves almost no room for error, seasonality, or growth investment.
Total time: about 30 minutes. You need your P&L, CRM deal data, and your fully loaded cost calculation.
Review pricing signals quarterly at minimum
Costs change constantly. Material prices, insurance premiums, software subscriptions, and labor rates all shift. If you only review pricing once a year, you could be underpriced for 11 months. A quarterly review takes 30 minutes and can protect thousands of dollars in margin.
Or get pricing intelligence in your monthly report
Bottomline connects to your accounting software and CRM. Every month it calculates your margins, tracks the trend, and shows your close rate alongside your pricing. When margins are thinning and close rates are high, it signals that a price increase is overdue.
Instead of guessing whether your prices are right, you get clear signals from your own data every month. When the numbers say it is time to raise prices, you will know.