How to Price Your Products and Services Correctly

One of the most common mistakes among entrepreneurs and freelancers is not knowing how to price correctly what they sell. Many people look at what competitors charge, set a similar number, and hope for the best. Others charge “what feels fair” without doing any math. The result? They work hard, but the money never seems to be enough.

Correct pricing is what separates a sustainable business from one that’s always in the red. Charging too much drives customers away. Charging too little generates losses — even if sales volume looks good. The right price is one that covers all costs, generates profit, and still makes sense to the customer.

In this guide, we’ll break down pricing with practical methods that work for both products and services. No impossible formulas, just real-world examples.

Why Wrong Pricing Kills Businesses

Before diving into formulas, let’s understand the impact of getting your price wrong:

• Price too low: You sell a lot but there’s no money left to reinvest, pay bills, or compensate yourself properly. It’s the trap of “I have tons of clients but I’m broke.”
• Price too high without perceived value: You lose sales to competitors offering something similar for less.
• Price that ignores taxes: Many freelancers calculate prices without including taxes, self-employment contributions, and platform fees. By month’s end, what looked like profit becomes an expense.

A study by the Small Business Administration (USA) shows that 29% of businesses that fail point to cash flow problems as the main cause — and incorrect pricing is directly linked to this.

The Components of Price

Every selling price is made up of three fundamental elements:

1. Direct Costs (how much it costs to produce/deliver)

For products: raw materials, packaging, shipping, direct labor.

For services: time spent (your cost per hour), tools used, transportation.

2. Indirect Costs (business overhead)

These are costs that exist whether you sell or not: rent, internet, software subscriptions, accounting, utilities, marketing. These costs need to be distributed across all products/services you sell.

3. Profit Margin (how much you want to earn)

Profit is what’s left after paying everything. Don’t confuse revenue with profit. If you bring in $10,000 per month but spend $9,500, your real profit is only $500.

Method 1: Markup (For Products)

Markup is the most widely used method for pricing physical products. It applies a multiplier to the cost to arrive at the selling price.

The Markup Formula

Markup = 100 / (100 - (% fixed expenses + % variable expenses + % desired profit))

Practical Example

You make artisanal candles. Each candle costs $8 to produce (materials + labor).

Your percentages of revenue:

• Fixed expenses: 20% (rent, internet, etc.)
• Variable expenses: 10% (taxes, marketplace fees)
• Desired profit: 25%

Markup = 100 / (100 - (20 + 10 + 25))
Markup = 100 / 45
Markup = 2.22

Selling price = $8 x 2.22 = $17.78

This means each candle needs to sell for at least $17.78 to cover all costs and generate a 25% profit.

Method 2: Hourly Rate (For Services)

If you’re a freelancer, consultant, designer, developer, or provide any type of service, the hourly rate method is the most appropriate.

Step by Step

1. Calculate how much you need to earn per month:

• Personal living expenses: $3,500
• Business costs: $1,000
• Savings/investment: $700
• Taxes (~25%): $1,300
• Total needed: $6,500

2. Calculate how many productive hours you work per month:

• Working days: 22
• Productive hours per day: 6 (after meetings, admin, etc.)
• Total: 132 productive hours

3. Divide:

Hourly cost = $6,500 / 132 = $49.24/hour

4. Add your profit margin (e.g., 30%):

Final hourly rate = $49.24 x 1.30 = $64.02/hour

Important: Not Every Hour Is Billable

A common mistake is calculating 8 hours per day, 22 days per month (176 hours). In practice, you spend time on:

• Prospecting for clients
• Meetings and emails
• Administrative tasks
• Learning and professional development

Your actually productive time usually falls between 60% and 75% of total time. Use this realistic number in your calculations.

Method 3: Value-Based Pricing

This method is more advanced and works especially well for specialized services. Instead of calculating cost + margin, you set the price based on the value you deliver to the client.

How It Works

If you’re a marketing consultant and your strategy can generate $100,000 in additional sales for the client, charging $10,000 for the service is reasonable — even if your actual time cost is only $2,000 in hours worked.

When to Use It

• When you have recognized expertise
• When results are measurable (increased sales, reduced costs)
• When the client is a business with a budget
• When your solution is hard to replicate

When Not to Use It

• For commoditized products (the customer can easily compare prices)
• For basic services (cleaning, delivery)
• When you’re just starting out and don’t have a portfolio

Comparison of Methods

Common Pricing Mistakes

1. Forgetting About Taxes

Self-employment taxes, income tax, sales tax — these can eat 15% to 40% of your revenue depending on your jurisdiction. If you charge $100 and pay 25% in taxes, your effective price is $75.

2. Not Including Your Own Salary

Many entrepreneurs pay employees, suppliers, rent — but forget to set an owner’s salary. If the business doesn’t generate enough to pay you, it’s not sustainable.

3. Charging Less to “Win the Market”

The low-price strategy to attract customers can work temporarily, but it creates a customer base that only buys on price. When you try to raise your rates, they leave.

4. Copying Competitor Prices

You don’t know your competitor’s cost structure. They might have lower fixed costs, a different margin, or be operating at a loss. Your price needs to be based on your reality.

5. Never Adjusting Prices

Inflation silently erodes your profit. If you’ve been charging the same amount for 2 years, you’re earning less in real terms. Review your prices at least every 6 months.

How to Test Your Price

After calculating the “theoretical” price, test it in practice:

• If you’re selling too easily, your price may be too low. Test a 10-15% increase.
• If no one’s buying, assess whether the issue is price or value communication. A lower price doesn’t always solve the problem — sometimes the customer doesn’t understand what they’re buying.
• Ask for feedback: Directly ask clients what they think about your pricing. They can reveal surprising insights.

How Monely Can Help

Correct pricing starts with knowing exactly how much you spend. Without this data, any formula is incomplete. Monely helps entrepreneurs and freelancers organize the foundation of pricing:

• Transaction tracking: Monitor all your business income and expenses separately from personal ones. With real data, you can calculate fixed and variable costs precisely.

• Custom categories: Create specific categories for your business (raw materials, tools, marketing, taxes) and know exactly where every cent goes.

• Reports: Visualize your monthly numbers and identify patterns. If your fixed costs have increased, it might be time to adjust your prices.

With organized financial data, pricing stops being guesswork and becomes a strategic decision based on real numbers.

Conclusion

Pricing correctly isn’t art — it’s math with strategy. The ideal price covers your costs, generates profit, and makes sense to the customer. There’s no magic formula, but the three methods we presented (markup, hourly rate, and value-based) cover the vast majority of scenarios.

The first step is knowing your numbers. How much does it cost to produce? How much do you spend to keep the business running? How much do you need to live comfortably? With these answers, pricing becomes much simpler and more precise.

Remember: low pricing isn’t a sustainable business strategy. The market pays well for those who solve real problems and communicate value clearly.

Next steps: Start organizing your income and expenses in Monely to get clarity on your real costs. With reliable data, you can apply the formulas from this article and set prices that actually work.