Most small businesses price by calculating cost and adding a margin. That guarantees you cover costs and tells you nothing about what customers would pay.
Why cost-plus underperforms
Your costs are your problem, not the customer’s interest. Two businesses with identical products and different efficiency would charge different prices, which makes no sense from the buyer’s side.
It also systematically underprices anything valuable that was cheap to produce, which is most software and most expertise.
The alternatives
Competitive pricing – what comparable options cost. Easy, and it anchors you to competitors who may also be guessing.
Value-based pricing – what the outcome is worth to the buyer. The strongest approach where the value is quantifiable, and it requires understanding the customer’s situation properly.
What to actually do
Start higher than feels comfortable. Almost every small business underprices initially, and raising prices later is harder than lowering them.
Offer tiers. Most buyers choose the middle option, and the existence of an expensive tier makes the middle look reasonable. This is well documented and works.
Test. Different prices to different segments, or a change and a measurement. Guessing once and never revisiting is the most common error.
The signal you are too cheap
Nobody ever objects to the price. If every prospect accepts immediately, you are leaving money behind.
Some loss rate on price is correct and indicates you are near the right level.
What to avoid
Competing on price against anyone larger. They can outlast you, and the customers price attracts leave for the next cheaper option.