A few years ago, an East Texas business owner started making custom cedar outdoor furniture. The craftsmanship was excellent, customers loved the product, and orders kept coming in. At first, pricing seemed simple enough. The owner looked around at what competitors were charging, picked a number that felt fair, and started selling.
Business was busy. Really busy. There was just one problem: At the end of the month, there never seemed to be much money left over. After reviewing the numbers, the owner discovered something surprising. While every table and bench sold generated revenue, the pricing wasn’t fully covering labor, materials, overhead, fuel, equipment maintenance, and the countless hours spent managing the business.
The business wasn’t losing money on each sale-but it wasn’t making enough either. That’s when the owner learned an important lesson:
Being busy and being profitable are not the same thing.
Many small business owners throughout the Trinity Valley face the same challenge. Whether you run a retail store, landscaping company, food truck, consulting business, online shop, or manufacturing operation, pricing can feel more like an art than a science. Fortunately, there are proven strategies that can help.
Why Pricing Your Product Matters More Than You Think
Many business owners assume customers are always looking for the lowest price. However, in reality, most customers are looking for the best value. Think about it this way: If your truck needs repairs, are you automatically choosing the cheapest mechanic in town? Probably not. You’re looking for someone who will do the job correctly, stand behind their work, and solve the problem.
The same principle applies to your business. Pricing too high can discourage customers, but pricing too low can create a different problem-it can make customers question quality while reducing your profitability. The goal is finding the balance between value and profit.
Start with Your Costs In Creating Your Product(s)
Before determining a price, you must know what it actually costs to deliver your product or service. Costs Include:
- Materials
- Labor
- Payroll taxes
- Rent or mortgage expenses
- Utilities
- Equipment costs
- Insurance
- Marketing
- Administrative expenses
- Shipping or fuel costs
Many small businesses only calculate direct costs and forget overhead expenses. That’s where pricing mistakes often begin.
A Simple Pricing Formula For Small Business:
One of the easiest ways to determine a starting price is through cost-plus pricing. The formula looks like this:
Price = Total Cost ÷ (1 – Desired Profit Margin)
Example:
If a product costs $40 to produce and you want a 30% profit margin:
Price = $40 ÷ (1 – .30)
Price = $57.14
This means selling the product for approximately $57 provides a 30% profit margin. While not perfect for every business, this formula gives owners a reliable starting point instead of guessing.
Understanding Common Pricing Strategies
Cost-Plus Pricing: This method adds a profit margin to your costs.
Best for:
- Manufacturers
- Retailers
- Product-based businesses
Competitive Pricing: This strategy considers what competitors charge for similar products or services.
Best for:
- Highly competitive markets
- Businesses with similar offerings
(Be careful not to simply copy competitors. Their costs may be very different from yours.)
Value-Based Pricing: Value-based pricing focuses on what customers believe the solution is worth.
Best for:
- Professional services
- Consultants
- Specialty providers
- Businesses with strong expertise
Customers often pay more when they perceive greater value.
Tiered Pricing: Offering multiple levels of products or services allows customers to choose the option that fits their budget.
Examples include:
- Basic
- Premium
- Deluxe
This strategy often increases average sales while serving a wider range of customers.
Tiered Pricing can be confusing, so here is an example of what that looks like:
Image you are a Lawn Care Company in East Texas: Instead of offering just one mowing service, the business creates three pricing tiers:
| Package | Price | Includes |
|---|---|---|
| 🌱 Basic Lawn Care | $45/visit | • Mowing • Edging |
| ⭐ Premium Lawn Care | $65/visit | • Mowing • Edging • Weed-eating • Blowing debris |
| 🏆 Property Care Plus | $95/visit | • Everything in Premium • Seasonal fertilization • Shrub trimming • Priority scheduling |
Why Tiered Pricing Works:
Customers feel they have options, and many naturally choose the middle package because it offers additional value without a dramatic increase in price. This approach can increase revenue while serving customers with different budgets and needs.
A homeowner who simply wants the grass cut may choose the Basic package. A busy professional might select Premium, while a customer who wants a “one-stop solution” may choose Property Care Plus.
Don’t Forget to Review Your Prices Regularly!
One of the biggest mistakes small businesses make is setting prices once and never revisiting them.
Costs change: Especially on imported goods
Fuel prices change: Plan for the highest cost scenario right now, since
Supplier costs change: Watch those closely!
Labor costs change: Watch those minimum-wage requirements!
If your prices stay the same for years while expenses increase, profit margins slowly disappear. Consider reviewing pricing at least once a year and after significant cost increases.
Pricing with Confidence
Many business owners fear raising prices because they’re worried customers will leave.
Some might.
However, many customers understand that quality businesses need to remain profitable to continue serving them. The businesses that thrive over the long term aren’t always the cheapest. They’re the ones that understand their costs, communicate their value, and price their products and services accordingly.
The Bottom Line with Pricing Strategy in East Texas:
Pricing should never be based solely on what competitors charge or what feels fair. A successful pricing strategy starts with understanding your costs, defining your desired profit margin, and recognizing the value you provide to customers. When you know your numbers, pricing becomes less of a guessing game and more of a business decision.
And that’s where long-term profitability begins.
Need Help Pricing Your Products or Services?
Whether you’re starting a new business, reviewing your pricing strategy, or looking to improve profitability, the Trinity Valley SBDC can help. Our no-cost business advisors work with entrepreneurs throughout Anderson, Henderson, Kaufman, Rains, and Van Zandt counties to help businesses make informed financial decisions and build sustainable growth.
The Trinity Valley SBDC provides guidance and business advising to help entrepreneurs strengthen operations, improve management practices, and prepare for sustainable growth.
Trinity Valley SBDC is a partnership program with the U.S. Small Business Administration, the State of Texas, and Trinity Valley Community College. Advising services are offered by Trinity Valley SBDC without regard to race, color, age, national origin, religion, sex, or disability. Special provisions will be made for limited English-speaking individuals and those with disabilities. Those interested may contact us at 903-675-7403.
The North Texas Small Business Development Center Network is funded in part through a Cooperative Agreement with the U.S. Small Business Administration and Dallas College. The North Texas SBDC is an Accredited Member of the Association of Small Business Development Centers. SBDCs are supported by the U.S. Small Business Administration and extended to the public on a non-discriminatory basis. The SBA cannot endorse any products, opinions or services of any external parties or services. Reasonable accommodations for persons with disabilities will be made if requested at least two weeks in advance. Language assistance services are available for limited English proficient individuals.
All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the U.S. Small Business Administration or other funding partners.