If you’ve ever asked yourself, “Am I charging enough?”—you’re not alone. This is one of the most searched questions among small business owners.
Underpricing rarely comes from laziness or lack of effort. It usually comes from uncertainty. Many owners base pricing on competitors, gut instinct, or what they think customers will tolerate. Others raise prices reactively when cash feels tight, without fully understanding the numbers behind the decision.
The problem is that pricing affects everything—profitability, stress levels, growth potential, hiring decisions, and how customers perceive your value. When pricing isn’t grounded in data, your business may survive, but it rarely thrives.
A common mistake is assuming that pricing only needs to cover direct costs plus “a little extra.” While covering costs is essential, pricing must also support:
For business owners selling physical products, pricing requires careful consideration of every cost your business incurs, not just the cost of materials or the product itself. That includes:
If you only price based on the cost of the product itself, you risk undercharging and eroding profitability. Your price must cover all of these costs while leaving a margin that allows you to reinvest, grow, and handle unexpected expenses.
Tip for Retail Business Owners: Think of pricing as a way to recover every expense and generate sustainable profit, not just as a markup on the product. Every dollar counts toward keeping your business healthy and competitive.
Before adjusting prices, you need clarity in three areas:
This includes more than materials and labor. It also includes rent, insurance, equipment payments, software, admin time, marketing, fuel, repairs, and owner involvement. Every cost, including those that seem indirect, needs to be accounted for in pricing.
Capacity is what your business could produce. Utilization reflects what actually happens day to day for services. For service-based businesses, utilization typically applies to:
Non-utilized capacity includes anything that consumes time or resources without directly generating revenue—travel gaps, scheduling inefficiencies, waiting on materials, weather delays, administrative work, or idle equipment.
Pricing should reflect outcomes, not just effort. Customers don’t pay for time—they pay for results, reliability, and peace of mind. For retail products, this also reflects quality, brand perception, and convenience.
For products, this also means understanding unit economics—the profit per item after all costs, from product sourcing to marketing and operations. For example, if your product cost is $40, but marketing, packaging, shipping, and overhead add another $9,000 per month, your minimum selling price should exceed that cost to break even. Pricing lower than this may increase sales volume but will drain cash flow and threaten sustainability.
Retail owners must balance volume, margin, and market positioning. Sometimes selling fewer high-margin items is more profitable than selling many low-margin items, even if total revenue appears higher.
Utilization measures how much of your available capacity is actually producing revenue. Capacity is what your business could deliver if everything ran perfectly. Utilization reflects what actually happens day to day.
For service-based businesses, utilization typically applies to:
Non-utilized capacity includes anything that consumes time or resources without directly generating revenue—travel gaps, scheduling inefficiencies, waiting on materials, weather delays, administrative work, or idle equipment.
Utilization isn’t about pushing people or assets to their limits. It’s about understanding how efficiently your business converts capacity into revenue.
Utilization (%) = (Revenue-Generating Time ÷ Total Available Time) × 100
Good Target: 75–85% utilization balances strong margins with flexibility.
Indicators that pricing may be too low include:
For retail, signs of underpricing include frequent stockouts without profit gains, consistently low margins, or the need to sell high volume just to cover fixed costs. Correct pricing balances volume and margin to support sustainable growth.
Let’s break this down with a simple example for a T-shirt business:
Assumptions (per month):
Break-Even at Full Price: How Many T-Shirts Do You Need to Sell
Break-even quantity = (Indirect Costs ÷ (Selling Price – Direct Cost))
= $9,000 ÷ ($95 – $40)
= $9,000 ÷ $55
≈ 164 T-shirts
So, you need to sell 164 T-shirts at $95 each to cover your indirect and direct costs.
Break-Even with Discounts: How a Discount Changes How Many T-Shirts You Need to Sell
Discounted price = $95 × 85% = $80.75
Market Campaign for Discount Sale: $1,000
Break-even quantity = $10,000 ÷ ($80.75 – $40)
= $10,000 ÷ $40.75
≈ 246 T-shirts
This shows that even a moderate discount significantly increases the number of units you must sell to break even and brings the question: Is the marketing campaign worth it?
Important Note: Sometimes creating large discounts is necessary in the trade. If a product didn’t perform well, offering a deep discount can help you recover your investment and reinvest in something more profitable. The key is being intentional—know the cost of the item, the impact on your margins, and use the strategy strategically to maintain overall profitability.
At Oakridge Consulting, we work with small business owners who are capable, busy, and ambitious—but unsure if they’re charging enough or maximizing profitability. We help you:
Our goal is to help you price confidently, maximize profit, and make decisions based on data instead of guesswork. With the right guidance, you’ll stop undercharging, reduce stress, and grow your business sustainably.