The short answer
Learn the key factors that impact pricing, including industry benchmarks, break-even points, margins, and business location.
Good pricing starts with your numbers: your break-even point, your operating costs and the profit margin you need. Then you check industry benchmarks to see what the market will pay, and factor in your location, because rent and wages in the city cost more than in the suburbs. Working back from costs and margin gives you a price that protects your profit.
What is your break-even point?
Break-even is the revenue you need just to cover your costs, with no profit. Add up your fixed costs (rent, wages, insurance, software) and understand your variable costs (materials, subcontractors, card fees). Your prices need to get you comfortably past break-even.
How do costs shape your price?
Every price should cover:
Direct costs of delivering the product or service
A share of overheads like rent, admin and marketing
Your own wage as the owner
Profit, so the business can grow and handle surprises
If you leave your own wage out, you’re working for free.
Why do industry benchmarks matter?
Benchmarks show typical margins and prices in your industry. They tell you whether your costs are out of line and what customers expect to pay. If your price is far below the benchmark, you may be leaving money on the table. If it’s far above, you’ll need a clear reason customers will pay more.
How does location affect pricing?
Rent, wages and parking costs vary a lot between a CBD office and a suburban shopfront. Customer expectations vary too. A café in Southbank and a café in Pakenham may sell the same coffee, but their costs and pricing will differ.
A typical Melbourne scenario
Tom runs a bookkeeping practice from Doncaster and charged $55 an hour. When his accountant mapped his costs (software, insurance, a part-time admin and his own wage) his break-even rate was $52. He moved to fixed monthly packages priced around $75 an hour equivalent, in line with industry benchmarks, and kept his clients because the packages included clear deliverables.
How often should you review prices?
At least once a year, and whenever costs change significantly, such as a rent increase, a new award rate or rising supplier prices.
Key takeaways
Start from break-even, costs, your wage and target margin.
Use industry benchmarks to sense-check your price.
Location changes both costs and customer expectations.
Review prices yearly or when costs jump.
General information only. Talk to your accountant about your circumstances.
Read why founders underprice and how to fix it and how to work out what your service is worth, or talk to our small business advisors.
Oz calls accounting "the great art", and his clients would agree. A CPA member and Xero specialist, he joined Elephant to provide a more holistic service that covers every base of building wealth. He believes long-term relationships are the only way to get clients real results. When he's not at his desk, he's at the gym, on his bike, or fishing - ideally all three.
