Pricing can feel like a guessing game for small business owners, especially when you’re not even sure how to factor in your operating costs. And in some cases? You're actually losing money on every sale.

A shocking number of business owners use what we lovingly call vibes-based pricing: picking a price that just feels right. Cute? Maybe. But, vibes don’t pay the bills.

TRUTH: A sustainable, calculated pricing model can literally make or break your business.

So, let’s ditch the willy-nilly pricing, put an end to negotiating prices on the spot, and giving discounts just because. Instead we’ll lean into profitable pricing strategies that keep you afloat.

Learn how to price your products and services to cover expenses and operating costs, turn a profit, and build a stable, money-making business that can scale over time.

Psychology of pricing

As much as we want to think prices are just numbers, they’re not. Pricing is part of a larger strategy tied into your brand positioning. So as you build your small business brand, consider your price point.

Prices set the tone for how people see you, and acts as an immediate qualifying tool that helps leads determine if they can even buy what you’re selling.

Start by answering this question:

How do you want the market to perceive your brand?

🤓 The go-to expert

🤑 The affordable option

😍 The “damn, I want that!” pick

And then these small biz branding questions:

Is your brand a premium, luxury brand?
Is it a budget option?
Is your product or service worth the price you’re asking?
Is it a risky choice for customers?

Your numbers do more talking than you think, so wherever you land on branding, your pricing needs to back that up.

People don’t buy on logic alone. They buy on ego, emotion, and perceived value.

Here’s how smart pricing models tap into that psychology:

🟢 A higher price can make you look more legit while a lower one can make people second-guess the quality.

🟢 A high price point and a low quality product is a recipe for doom (because bad news travels fast!) while a low price point and high quality product can help you build your audience (and you can always raise prices later) but may not be sustainable.

So yeah, price matters. And the why behind the price matters even more.

Here are a few other subtle pricing psychology ideas to drive home the point and help you make strategic pricing choices for your small business:

Anchoring: Show the fancy expensive option first. Suddenly, the regular one feels like a steal.
Charm Pricing: $49 > $50. Don’t know why it works, but it does!
Value Signals: People assume high price means high quality. But only if the branding backs it up.
The Middle Pick: People love a middle-of-the-road option. It feels safe. Not too much, not too little. We use three tiers in our business proposals so customers have options but not overwhelm. If there are too many choices your prospect may get stuck and choose nothing.

Types of pricing models

Let’s talk about small business pricing strategies. There’s no one-size-fits-all when it comes to pricing, but there are a few common models you’ll want to consider.

Want help figuring out which pricing model fits your business best? 👀

We break down all kinds of small business strategies in our free monthly newsletter, plus we share quick tips to help you market smarter (not harder).

Cost-based pricing

This one’s straightforward: price = cost + markup.

It covers your expenses and makes you a profit, but that’s it. If you’ve been struggling to cover your costs, this is a good place to start.

Calculate your operating costs, add a profit margin in (and maybe even an extra buffer!) and go from there. At the very least with a cost based price model, you’d go from operating at a deficit, to being able to cover your costs, then later you can make money.

This model is typically good for grocery stores, big box retailers, and businesses that are selling goods and nothing more (aka the sale, experience and transaction end at the cash register.)

Straightforward? Sure.

Strategic? Not really.

It ignores the actual value you're delivering. And that’s where kick-@$$ marketing services come in clutch, since good marketing is about showing the value: you're selling the vacation, not the flight. 😉

Value-based pricing

This model shifts the focus from what it costs you to what it’s worth to them.

You're not just selling a product or service, instead you’re selling the outcome, the transformation, or the experience.

This is common in high-end coaching, gourmet goods, and custom services. Sure, the customer could get something similar elsewhere for less, but they’re not just buying the “thing” they’re buying your version of it, complete with expertise, ease, and an elevated experience.

It’s not just the flight from point A to B, it’s the champagne, the legroom, the stress-free start to a much-needed vacation.

Value-based pricing lets you charge based on impact, not inputs.

Tiered pricing & packages

We use a tiered pricing structure here at Big Bad Marketing because we like to offer options. Humans love options.

Think: Good / Better / Best.

Each tier meets a different level of need and budget. It’s also a great way to boost perceived value, appear flexible, and shift the thinking from ‘yes or no,’ to ‘which one?’, helping you secure a sale.

“ Shift the thinking from ‘yes or no,’ to ‘which one?’, helping you secure a sale.”

This is common for digital services (like a streaming platform,) bundled products, and add-ons.

PRO TIP: Bundled products and services perform better on the perceived value test. In a customer’s mind, they’re getting way more without spending way more.

Subscription models & retainers

When it comes to pricing models, one stands out as the holy grail: recurring revenue.
It’s not quite “passive income,” but it’s close.

If you don’t have at least one offer that brings in revenue on a recurring basis, it’s time to build one. Why? Because with recurring revenue, you only have to convert a customer once, and then the income keeps coming.

That means less time selling, more time delivering (or automating), and a far more predictable bottom line. Your customer acquisition cost (CAC) goes down as your customer lifetime value (CLTV) goes up.

For products: Think subscription boxes, memberships, loyalty perks.
For services: Retainers, care plans, ongoing monthly support.

Keep it simple:

Offer 1–3 clear options (Bonus: Try offering tiered subscription offers)
Spell out exactly what’s included
Allow trial periods or easy cancellations (build trust, boost retention)

Small business owners beware: avoid these 3 retainer model mistakes

Before you jump on the recurring revenue bandwagon, check for these pitfalls:

1.Underpricing your products

Factor in your actual workload and the long-term value you deliver. Onboarding may take a little longer than the BAU stuff, but it’s easy to short yourself long term just to get the sale. Do your business math first so you understand revenue, profit, margins, and know exactly how much to charge.

2. Get it in writing

Set clear contract terms from the get go. Scope creep happens when you don’t cover your bases early on. Just like IRL, set boundaries and stick to them. And a signed contract means you’ve got a paper trail of exactly what you’ve agreed to.

3. Don’t overpromise

In fact, we strive or the opposite: Underpromise, then overdeliver. Don’t go around writing checks you can’t cash. Better to delight your peeps than underwhelm them.

Competitive pricing for small businesses

Once you’re clear on your brand positioning, pricing becomes a little easier.

👉 If you’re aiming to be budget-friendly or fall in line with ‘the going rate” you’ll want to find the sweet spot between affordable and profitable.

REMEMBER: Profitability should always come first so that your business can survive.

👉 If you’re going for premium positioning, you have more flexibility when pricing, since you’re not competing on cost, you’re competing on value, experience, and perception. As evidenced by tons of luxury brands (and even regular brands who have just built themselves up well and offer value-based pricing in all the right ways), there’s not really an upper limit when it comes to pricing your stuff.

Question: What makes a luxury-branded T-shirt worth $300+?

Answer: The brand. The value comes from how it's positioned, and how we, as consumers, perceive it. The shirt itself? It's often the same one you could get elsewhere for $75, $17, or even $7.

If you’re unsure where to your small business pricing sweet spot is, start A/B testing price points to see what works. Typically, you know you’re at the right price when you start seeing a small amount of pushback or attrition.

5 Things to consider when pricing (for a profitable small business)

1. Vibes

Just kidding. 😉

Pricing is not a ‘feel’ thing, it’s math.

Okay, let’s try this list again.

1. Cost of Goods Sold (COGS) or Cost of Services (COS)

COGS and COS are expressions of the costs involved in producing and acquiring goods. If you sell services, it’s the cost of the effort involved.

There are four key parts of the formula to calculate COGS:

📦Materials
🧑‍🏭Labor

🏗️Manufacturing and Overhead
📝Inventory

By calculating your COGS, you uncover the minimum amount you need to charge to cover the costs to produce your goods (or services) and operate your business. This is your break even number. If you’re breaking even, you’re not making money exactly, but you’re also not losing money.

Most business owners want to earn money, though, that’s why they’re in business! If you’re one of them, you’ll need to add a markup to your breakeven number, which becomes your profit margin. So, anything you make beyond the break even number is money in your pocket. You can experiment with different markups and profit margins that align with your financial requirements and goals.

For example, for products a profit margin of 2.5 times the COGS is the general rule of thumb for sustainable retail pricing.

Knowing your COGS helps you make informed decisions when it comes time to develop your small business pricing strategy, file your annual taxes, submit financial reports, analyze your business’ profitability (in case you want to sell it!) and understand gross profits and actual revenue.

2. Market demand

Before you price anything, ask: Does anyone actually want this?

You could have the prettiest, smartest, most life-changing offer on the planet but if no one’s looking for it, your price won’t matter.

PRO TIP: Don’t be worried if your stuff is obscure, there could still be a market for it. If someone can sell books about hats made of cucumber, you can sell your thing, too. But, you do need to find that market.

Start by checking:

Is there real interest? Are people actively searching for, asking about, or buying what you're offering?
How crowded is the space? If 12 other businesses are offering the same thing, you'll need to price competitively or differentiate yourself with a kick-@$$ competitive edge.
What’s the going rate? Look at your competitors' pricing. You don’t need to copy it, but it’s a good way to get a baseline and understand what pricepoint it moves at in the existing market. Are you entering a $20 market or a $2,000 one?

👉 Bottom line: Your offer needs to be so hot, or at least warm enough that people are already looking for it.

3. Wholesale price strategies

If you’re selling in bulk to retailers your pricing game changes.

Retailers will need to mark up your product to make a profit (send them this article, so they can learn how to choose an effective pricing model, too! 😂) This means you’ll have to leave room in your price for them to do that (AKA offering them a lower per-unit price than you’d charge a direct customer.)

A quick breakdown:

Wholesale means selling products at a lower profit margin, but you make up for it by selling a higher volume
Direct-to-consumer (DTC) offers a higher profit margin per unit, but it’s your job to find the consumers to buy it which means you absorb costs like overhead, operations, marketing, etc.

If you are the retailer and you buy wholesale: your margin depends on what you pay and what your market will pay for the goods (see above: Market demand.) So, you can’t just go with keystone pricing (doubling wholesale cost) and call it a day. You’ll need to check the going rates, and your expenses and margins to make sure it’s profitable.

4. Discounts and freebies

Discounts seem like a quick win, but too many (or random ones) can quietly tank your perceived value and make your brand look cheaper than it is.

We said it before, we’ll say it again:

🚫 DON’T set your prices based on vibes.

and while we’re at it:

🚫 DON’T give random discounts (just because or to snag the sail)

🚫 DON’T negotiate on the spot

If a customer throws out a price they’re willing to pay, don’t just say yes; reshape the offer to match it. Adjust the scope, trim some perks, or bundle it differently. That way, they get the price they want without you undercutting your value. Otherwise, you're training them to expect discounts and markdowns and slowly, chipping away at your brand value and profit margins.

As for freebies, be strategic. Instead of slashing prices, try adding value. Throw in a bonus, share something exclusive, or create a limited-time bundle. Think of it like a holiday perfume set: the price doesn’t drop, they just sweeten the deal with a pouch and a travel-size bottle. Same price. More perceived value.

5. Promotional pricing

When it’s time to offer promotions (like for new product releases, to get rid of old inventory, or just stir up some momentum) you want to come across as intentional not desperate.

⏱️Urgency can play to your advantage through limited time offers, but if you offer surprise deals too often your customers will wait you out knowing that a special offer is around the corner. So, offering promotions sparingly, and strategically.

You can also use promos to reward customer loyalty. This is your chance to show repeat customers that you value them and want them to keep buying from you. Offer special bonus items or added value for every 10th purchase or when customers spend over a certain amount. You can also try a welcome back offer that includes a bundle for folks who fell off for a while.

Pricing mistakes small business owners should avoid at all costs

(Yes, the pun was intended because bad pricing can cost you, big time!)

Even after you’ve nailed your brand positioning, crunched the numbers, and maybe even tested a few price points, you’re not quite done. Before you hit “print” on those price tags or update your small business website, make sure you’re not falling into these common pricing mistakes that can quietly eat away at your profit and your brand.

Underpricing / overpricing

Lowball prices come across as cheap and don’t do you any favors when it comes to showcasing brand positioning and value. Even if you’re using low prices as a starting point to generate traffic and build momentum, extra low prices (especially if not backed by COGS and calculated profit margins) limit your earning potential, reduce your ability to cover costs, and cause your average transaction value (ATV) to plummet.

Overpricing (aka going high without delivering any value or having the brand recognition to back it up) leads to high bounce rates for customers. They’ll peep the price and hit the road, since your prices aren’t competitive and don’t offer added perks that make it worthwhile.

PRO TIP: Balance price with perceived value, they work together to help you make a profit.

Undervaluing

If you sell something super niche, special, and downright amazing, price accordingly.

If it’s in high demand, can’t be reproduced easily, or competitors can’t match your quality, you have a good reason to raise your prices. Items like hand crafted goods (cucumber hats, anyone?), or special custom services that can’t just be replicated by some off-brand or freelancer have intrinsic value, so a higher price can be sustainable.

A low price will make your super special items look boxed or cheap, making it even harder to sell. Don’t race to the bottom, know your value and price for it.

Overcomplicating

Avoid creating analysis paralysis for your customers by keeping your price structure simple. If your pricing menu reads like a Cheesecake Factory novel, it’s time to revisit it.

Too many packages, confusing tiers, and endless add-ons create decision fatigue, not conversions. Keep it simple. Simple sells.

Create compelling offers that make people buy, with an easy “YES!!!”

One core offer with a couple of smart, strategic options or add ons is all you need.

Not niching

If your prices keep ending up on the bargain end of the spectrum, it might be a brand positioning problem not a pricing one.

If you’re trying to talk to everyone it usually means you’re talking to no one. It comes across as generic instead of valuable, so people won’t want to invest.
Carve out a specific niche, identify your user personas, and be clear in your messaging. Then, when your ideal buyer sees the offer, they’ll jump on it!

Not considering the competition

SPOILER ALERT: Your audience is comparing your products, pricing, reviews and your digital reputation to the other available options. But guess what? You can do a competitive analysis for your small business marketing to find out who is out there and what they’ve got.

If your offer is priced way above others in your space, that’s not necessarily bad, but you’ll have to back it up. Premium prices need premium positioning.

Clearly articulate your value and make it compelling. Tell prospects about the tangible results of your offer. Wow them with an excellent offer that blows your competitors out of the water, and then overdeliver!

Pricing your products to sell (and profit!)

Whatever you do, don’t price based on viiiBbbesSs, price based on strategy and data.

Know your costs, know your value, and build from there.

Yes, pricing is just one piece of the puzzle, but it’s a big one. Book a 15-minute call to chat about how we can help you build a business that’s sustainable, scalable, profitable, and ready to dominate.

How to Price Your Products and Services: A Guide For Small Business Owners