Pricing is the fastest lever to increase profitability—and the one most business owners get wrong.
Charge too little, and you work yourself to exhaustion while struggling to pay bills. Charge too much without clear value, and you lose deals to competitors.
The sweet spot isn’t just about covering costs. It’s about capturing the value you create for clients.
Let’s build a pricing strategy that maximizes your profit without sacrificing sales.
## Why Most Service Providers Underprice
If you’re reading this, you’re probably charging too little. Here’s why that happens:
**Imposter syndrome:** You doubt whether you’re “worth” higher rates, even when clients are thrilled with your work.
**Cost-based thinking:** You calculate your time and expenses, add a small margin, and call it pricing. This ignores the value you create.
**Fear of rejection:** Hearing “no” feels personal, so you price low to minimize objections—and minimize your income.
**Competitor anchoring:** You see what others charge and assume you should match them, regardless of your unique value.
The result? You resent clients, rush through projects, and wonder why business feels so hard.
Higher prices with fewer, better clients almost always beats low prices with volume.
## The Three Pricing Models (And When to Use Each)
### 1. Hourly Pricing
You charge for time spent. Simple to understand, but problematic.
**Pros:**
– Easy for clients to understand
– Low barrier to starting projects
– Protects you on open-ended work
**Cons:**
– Punishes efficiency (get faster, earn less)
– Clients focus on hours, not results
– Income ceiling tied to available hours
– Constant need to justify time
**Best for:** Discovery phases, consulting, ongoing retainers with variable scope.
### 2. Project-Based Pricing
Fixed price for defined deliverables. Better than hourly for most services.
**Pros:**
– Clients know total investment upfront
– Rewards efficiency
– Easier to scale and systematize
– Positions you as solution provider
**Cons:**
– Scope creep risk
– Requires accurate estimation skills
– Underpriced projects hurt badly
**Best for:** Defined projects with clear deliverables and outcomes.
### 3. Value-Based Pricing
Price based on the outcome value to the client. The most profitable model.
**Pros:**
– Highest potential earnings
– Aligns your incentives with client success
– Positions you as strategic partner
– Eliminates time-tracking overhead
**Cons:**
– Requires deep understanding of client business
– Harder to justify for skeptical clients
– Need confidence in your results
**Best for:** Strategic work where you can quantify ROI.
The best service businesses evolve from hourly to project to value-based as they gain expertise and confidence.
## Calculating Your Minimum Viable Rate
Before pricing strategically, know your floor—the minimum you need to survive.
**Step 1: Calculate your annual needs**
– Personal living expenses
– Business operating costs
– Taxes (typically 25-30% of gross)
– Savings and investment goals
– Emergency buffer
**Step 2: Determine billable hours**
You won’t bill 40 hours every week. Realistic billable time is 25-30 hours weekly after admin, marketing, and unbillable work.
That’s about 1,200-1,400 hours annually.
**Step 3: Divide**
Annual needs ÷ Billable hours = Minimum hourly rate
Example: $150,000 annual needs ÷ 1,300 hours = $115/hour minimum
This is your floor, not your target. Never go below this without a strategic reason.
## The Value-Based Pricing Formula
To charge based on value, you need to understand and quantify client outcomes.
**Ask these questions:**
1. What will this project help you achieve?
2. What’s that outcome worth in revenue or savings?
3. What happens if you don’t solve this problem?
4. What have you invested in trying to solve this before?
If your marketing strategy generates $500,000 in new revenue for a client, a $50,000 fee is a 10x ROI. That’s easy to justify.
**The formula:**
Price = (Expected outcome value) × (Your capture percentage)
Typical capture percentages range from 10-20% of the value created.
For strategic pricing insights on growth, see our guide on [growth hacking tactics](/blog/growth-hacking-tactics-2026/).
## Positioning Your Price With Confidence
How you present pricing matters as much as the number itself.
**Frame the investment:**
Don’t say: “My rate is $5,000.”
Say: “The investment for this engagement is $5,000, which includes [list deliverables and outcomes].”
**Anchor appropriately:**
Present your price after establishing value, not before. Context determines perception.
**Offer options:**
Three-tier pricing (basic, standard, premium) helps clients self-select and makes your middle option feel reasonable.
**Remove ambiguity:**
Itemize what’s included and excluded. Surprises kill trust.
Leverage data to improve your pricing decisions—our guide on [analytics for non-techies](/blog/data-driven-decisions-analytics-non-techies/) shows you how.
## Handling Price Objections
Price objections aren’t always about money. They’re often about value clarity or risk concerns.
**”That’s more than we budgeted.”**
Response: “I understand budget constraints. Let’s discuss what outcomes you’re hoping to achieve and find an approach that delivers value within your investment range.”
**”Competitor X charges less.”**
Response: “There are providers at every price point. My clients choose me because [specific differentiation]. Would it help if I shared some results we’ve achieved?”
**”Can you do it for less?”**
Response: “I’ve priced this based on the value it will create. I can adjust scope if needed, but I don’t discount my rates because that would require cutting corners, which neither of us wants.”
Never apologize for your prices. Confidence signals competence.
## When (And How) to Raise Prices
Raise your prices when:
– You’re fully booked for 2+ months
– Client results consistently exceed expectations
– Your skills and systems have improved significantly
– Market rates have increased
– You haven’t raised prices in over a year
**How to implement increases:**
**For new clients:** Just charge the new rate. No announcement needed.
**For existing clients:** Give 30-60 days notice. Frame it around value increases:
“I’m updating my pricing to reflect the expanded services and results I now deliver. Starting [date], our engagement will be [new price]. I value our partnership and wanted to give you advance notice.”
Some clients will leave. That’s okay—it creates room for better-fit clients at higher rates.
## Pricing Strategy Checklist
Before finalizing any price, verify:
– [ ] Does this price exceed my minimum viable rate?
– [ ] Have I quantified the value this creates for the client?
– [ ] Am I positioned clearly against alternatives?
– [ ] Does my proposal clearly communicate deliverables?
– [ ] Have I prepared for likely objections?
– [ ] Am I confident presenting this price?
– [ ] Does this price allow me to do my best work?
A price you resent is a price you’ll deliver poorly. Charge enough to stay motivated and invested in client success.
## Take Action Today
Your pricing shapes your entire business—the clients you attract, the work you do, and the life you build.
**This week:**
1. Calculate your minimum viable rate
2. Research competitor pricing (for context, not copying)
3. List the outcomes your services create
4. Draft three-tier pricing for your core offering
5. Practice presenting your prices confidently
Stop undercharging. Your expertise deserves proper compensation.
**Want to master pricing and business strategy?** AdCoach offers courses taught by entrepreneurs who’ve built profitable service businesses. [Explore our courses](/courses/) and start earning what you’re worth.