How to Set a Pricing Strategy When You’re Undercharging
Undercharging can look like a sales problem, yet the real issue is often the price attached to each sale. You may be busy, receiving positive feedback and winning repeat customers, while still lacking enough cash to pay yourself properly or fund the next stage of growth. A sustainable pricing strategy connects what you deliver with the costs, risk and value involved.
For Australian businesses, pricing decisions also need to account for GST, card-processing fees, wages, freight, rent and changing customer expectations. Whether you operate from a home office in Brisbane, a studio in Melbourne or a consultancy serving clients across Sydney, a clear process can replace guesswork with commercial confidence.
Spot the undercharging pattern
The first sign is usually not a complaint about price. It may be a calendar packed with low-margin work, customers accepting quotes instantly, or frequent requests that fall outside the original scope. If you are constantly working evenings to deliver what the customer paid for, your effective hourly rate may be far below the figure on your invoice.
Review the last three to six months of sales. Compare quoted time with actual time, then include administration, travel, revisions, software, phone calls and follow-up. A $1,000 project that takes 20 hours does not produce a $50 hourly return if another five hours are spent on unpaid communication and corrections.
Your price may also be outdated because your business has changed. New qualifications, better equipment, stronger demand or a more specialised offer can justify a higher rate. Undercharging is often a legacy decision that remains in place long after its original assumptions have expired.
Rebuild price from business economics
Begin with the minimum revenue your business needs. Add your desired owner income, operating expenses, tax provision, equipment replacement, professional insurance, marketing and a reserve for quiet periods. Australian businesses should separate GST collected from operating revenue, since GST is generally not money available to spend.
Then estimate realistic billable capacity. A full-time professional rarely bills every working hour. Sales conversations, bookkeeping, training, leave and business development reduce available client time. If you need $120,000 in annual revenue and can bill 1,000 hours, your average rate needs to be at least $120 per billable hour before considering a buffer for risk and profit.
For products, calculate the full landed cost rather than the supplier invoice alone. Include freight, storage, packaging, payment fees, damaged stock and returns. For services, set a scope boundary and a charge for additional work. This prevents a low headline price from hiding an unprofitable delivery model.
Test the value customers receive
Cost-based pricing gives you a floor, but customer value helps define the ceiling. Consider the result your offer creates: time saved, revenue gained, risk reduced, stress removed or a better experience delivered. A bookkeeping service that helps a growing firm identify a major cash-flow leak has a different economic value from a simple data-entry task.
Speak with existing customers before changing every price at once. Ask what influenced their purchase, which part of the service mattered most and what alternatives they considered. Do not ask only whether they like the price; customers may say yes to a low price while still viewing the result as highly valuable.
Use a small pilot to test your assumptions. Offer a revised package to new customers, or apply the new rate to a clearly defined service. Track conversion, sales cycle, objections, delivery time and profit per job. A few weeks of evidence is more useful than relying on a single customer’s reaction.
Select a pricing model that fits the offer
An hourly rate is easy to explain, but it can penalise efficiency. If you become faster through experience, the customer may pay less even though the outcome is just as valuable. Fixed project pricing, tiered packages, retainers and value-based fees can give you better control over profit and customer expectations.
| Pricing approach | Useful when | Main risk | Practical safeguard |
|---|---|---|---|
| Hourly or daily rate | Scope is uncertain or work is highly variable | Faster delivery reduces revenue | Set a minimum engagement and review rates regularly |
| Fixed project fee | Deliverables and milestones are clear | Revisions consume margin | Define inclusions, exclusions and change fees |
| Tiered packages | Customers have different needs or budgets | Too many options create confusion | Offer three clear levels with distinct outcomes |
| Retainer | Support is recurring and predictable | Unused capacity is overlooked | Set response limits, hours and rollover rules |
| Value-based fee | Results can be measured or strongly perceived | Value is difficult to quantify | Use evidence, case studies and a defined success measure |
A practical Australian example is a digital marketing consultancy offering a basic reporting package, a growth package and a fully managed package. Each tier should differ in access, speed, strategy and expected outcome, rather than simply adding random features. Clear packaging makes the price easier to compare and reduces pressure to discount.
When refining the offer, use relevant marketing guidance such as these marketing tactics to communicate benefits consistently. Pricing becomes easier to defend when your website, proposals and sales conversations explain the commercial result rather than listing tasks alone.
Communicate a price increase with confidence
Give customers a clear reason for a price change without overexplaining or apologising. You might say that the service has been reviewed to reflect expanded expertise, delivery time and the level of support now included. Keep the message factual, specific and focused on what customers receive.
Existing customers may need notice, especially where work is recurring or governed by an agreement. Check the terms of the contract and provide reasonable lead time. A staged increase can protect important relationships, but it should have an end date rather than becoming another permanent discount.
In Australia, be precise about whether prices include or exclude GST. Consumer-facing prices generally need to be displayed transparently, and businesses should avoid representations that could mislead customers under Australian Consumer Law. If a price is “from” a particular amount, explain the conditions that affect the final fee.
Protect margin during negotiation
Discounting is not automatically harmful, but an unplanned discount can train customers to wait for a lower price. Before entering a negotiation, establish your minimum acceptable margin and the terms that would make a concession worthwhile. A reduced fee might be exchanged for a shorter scope, faster payment, a longer commitment or permission to use the work as a case study.
Create a discount approval rule. For example, you may allow a small reduction for a three-month retainer but reject discounts on urgent work or custom projects. This gives you a consistent answer when a customer asks for “your best price” and prevents emotion from setting the rate.
Build these safeguards into proposals and invoices:
- State the exact deliverables, assumptions and exclusions.
- Charge separately for rush work, travel and additional revisions.
- Set payment milestones for larger projects.
- Include a review date for retainers and ongoing services.
- Check that payment terms support cash flow, especially when suppliers and wages are due before the customer pays.
Payment habits also matter. Card fees, buy-now-pay-later arrangements and late payments can quietly reduce the amount you retain. Check the rules applying to surcharges and disclosure, and ensure your payment process is clear before work begins.
Measure the price after launch
A new price should be treated as a business experiment with commercial targets. Monitor gross margin, average transaction value, quote acceptance, repeat purchase rate, customer acquisition cost and owner hours. Revenue can rise while profit falls if the new offer attracts more complex work without sufficient scope control.
Review results by customer segment and product line. A rate that works for corporate clients in Sydney may be unsuitable for a small regional customer, while a local service in Adelaide may have different travel and competition costs from one in Perth. The answer is not always a cheaper price; it may be a smaller package, a remote delivery option or a different service boundary.
Ask customers about perceived value after delivery, not only before purchase. Their feedback can reveal which features deserve greater prominence and which activities should be removed. Over time, this creates a pricing system that improves with evidence instead of depending on occasional, stressful increases.
Put the new price to work
Choose one offer and calculate its true cost, target margin and customer outcome. Set a review date within 30 days, then test the revised price with new enquiries or a carefully selected group of existing customers. Keep notes on objections and avoid changing several variables at once.
Free mentoring can provide a useful second perspective when you are unsure whether your assumptions are realistic. SCORE Nashville’s small-business resources reflect the value of discussing pricing, finance, marketing and operations with an experienced adviser; Australian owners can apply the same principle through a local business mentor, accountant or industry association.
A price that supports your time, costs and future plans is part of responsible business management. Review your next proposal before sending it, replace vague discounts with defined trade-offs and make the value of the outcome visible. Then use the data from each sale to build a stronger, more profitable business.
