Are You Undercharging? Here’s How to Tell!

​Many entrepreneurs, especially new and small business owners, are undercharging for their services and products. 

There are many reasons for that, including impostor syndrome, fear of losing clients, a race to the bottom in one’s industry, etc. The results, however, are often the same: a lower income than you otherwise could have and more negative feelings towards your business and the work you do. 

In this article, you’ll discover if you are under-charging and how you can stop doing that.

How to tell if you are undercharging:

Here are 9 warning signs that you are charging too little: 

Warning signs

• You haven't raised your prices in years (not even to adjust for inflation).
• Your prices are significantly lower than other people in your industry.
• You have improved your services (for instance, through experience) or products (for instance, through updates) without ever increasing your prices. 
• You would like to charge more but you feel guilty/uncomfortable about doing so. 
• Your prices feel too low for you.
• You have been told (more than once) that your prices are too low.
• You sometimes feel resentful towards your customers. 
• You are working a lot without improving your financial situation.
• You have a wait list for your services.

Your result

If you said "yes" to two or more points above, it might be time to raise your prices. (And even if you didn't say "yes" to two or more points above, you might want to adjust your prices for inflation.)

Why you should stop undercharging

Alright, let's assume you have concluded that you are undercharging. Here are just some reasons why you should stop doing that (feel free to add your own reasons to the list):

Advantages of charging appropriate prices

• Raising your prices means you need to work less to bring in the same amount of income. 
• Clients sometimes respect entrepreneurs more who charge an appropriate amount for their products and services.    
• Sometimes, if people charge overly low prices because of their own unresolved issues around money, it can attract problematic/challenging clients.
• You will feel better about the work you put into something if you are adequately compensated for your time.

Apart from these reasons, you also should increase your rates to keep up with inflation. While inflation is far more complex than we can cover in this article, here’s an example of what I mean (using the CPI Inflation Calculator from the U.S. Bureau of Labor Statistics): 

If you live in the United States and charged 100 USD for something in December 2019, you would have needed to charge 101.36 USD a year later to have the same buying power. 

I recently talked to ​a man who hadn’t raised ​his prices for over 20 years. Let’s say he has been charging 100 USD/hour since 2000. Well, turns out an hour of ​his time now has a lot less buying power than when ​he started: 

In other words, this person now has to work almost 50% more to have the same buying power as in 2000 (despite having a lot more experience). 

If you continue to keep your prices the same year after year, you’re significantly decreasing your buying power. 

The solution to that? Raise your prices. 

How to increase your prices

While there are many ways to increase your prices (only for new or for all clients, huge increase vs. a small one for inflation, etc.), we can differentiate between two basic approaches: the minimum approach or the full approach. 

The minimum approach

• ​Raise prices for new customers by an amount that makes sense for your unique situation. 
• At a minimum, adjust your new rates for inflation. You might also want to increase your rates more than that. 
• If you feel very uncomfortable raising your rates, you can reduce what's included in it. For instance, instead of a 60-minute session, you might charge the same price for 45 minutes. If you offer a product (for instance, a course), you could try to split your current product into different parts that you sell separately.  

The full approach

• ​Raise prices for new customers by an amount that makes sense for your unique situation. If you have existing customers who pay you a recurring fee (for instance, as part of a membership), you also raise your prices for that subscription.
• For new clients, you can raise the rates immediately, while you might like to give your existing clients an adjustment period. 
• If an existing client is very unhappy with the price increase, you can always grandfather them into the old price if you want to keep them. 

The minimum approach — only adjusting prices for new customers — is less aggressive than the full approach.

The full approach — adjusting prices for new and existing customers — is more likely to rock the boat so you want to be more careful with it. ​

Since you know your own business and customers best, you should decide which approach is the best fit for your unique situation. Sometimes, it might even be best to not do anything for now.

What’s important is that you make a conscious decision on how to proceed. There’s a huge difference between consciously undercharging (because you decide that it makes sense for your business at this point) or undercharging because you haven’t even considered that it might be time to raise your prices. 

Often, people feel bad about charging an appropriate amount for their services. In some ways, this is similar to how many people feel about marketing. 

Often, people feel bad about charging enough for their services and products. 

While there are situations where that might make sense, in general your prices should be a win-win for both you and the customer. If you are giving too much for too little pay, it’s not a mutually beneficial relationship. 

Also, there is nothing inherently ethical about undercharging for your products and service. In fact, having higher prices allows you to be more generous with people in need.

So, do yourself a favor and stop undercharging!