Are you charging enough? A pricing guide for small business owners

Being busy doesn't always mean you're making money. Here's how to price your services, understand your costs and make sure your hard work is actually paying off.

You've had a busy week. The phone has been ringing, customers have been booking, and you've barely had time to catch up with everything on your list. By Friday, you're exhausted, but at least business is going well.

Or is it?

You look at what you've earned, take away the money spent on supplies, transport, equipment and other expenses, and suddenly the week doesn't look quite as profitable as you thought.

It's a familiar challenge for many small business owners. Whether you're a cleaner in Luton, a decorator in Dunstable, a freelance designer in Bedford or a photographer working across Hertfordshire, knowing what to charge can be surprisingly difficult.

You don't want to scare customers away with prices that seem too high. But you also don't want to spend your days working hard for an amount that barely covers your costs.

The temptation is often to look at what everyone else charges and choose a similar figure. That's understandable, especially when you're just starting out. But the price that works for someone else's business might not work for yours.

Good pricing starts with understanding your own numbers. And once you do, you can make decisions with much more confidence.

Being busy isn't the same as being profitable

Imagine you're a self-employed cleaner charging £15 an hour. You work 30 paid hours a week, bringing in £450 before expenses.

At first glance, that might seem reasonable. But those 30 hours aren't necessarily the only hours you've worked.

You've travelled between customers, bought cleaning supplies, responded to enquiries, arranged appointments and handled your accounts. You might also have paid for insurance, equipment, parking or advertising.

If you've spent another ten hours on those activities, your £450 has actually taken 40 hours of your time to earn. That's £11.25 per hour before deducting a single business expense.

And once those expenses are taken into account, the amount left is lower still.

This doesn't mean £15 an hour is automatically the wrong price. It means you need to understand what that price really leaves you with.

One of the most useful habits you can develop is separating the money coming into your business from the money you're actually earning.

Revenue is the total amount customers pay you. Profit is what's left after business expenses. And even then, profit before tax isn't necessarily the same as the money you can comfortably spend personally.

A business can generate plenty of revenue without producing enough profit to support its owner.

That's why pricing deserves more thought than simply choosing a number that sounds competitive.

Start with the costs you might be overlooking

Most business owners know about their obvious expenses. A decorator buys paint and materials. A caterer pays for ingredients and packaging. A photographer invests in cameras and editing software.

It's the less obvious costs that often get forgotten.

Think about the fuel used to travel between jobs, the insurance you renew every year, your business phone, payment processing fees, software subscriptions, equipment repairs and the time spent preparing quotations that never turn into paid work.

Even small expenses add up over twelve months.

HMRC recognises a range of business running costs, including eligible travel, insurance, premises, marketing and office expenses. However, what you can claim for tax purposes depends on your circumstances and isn't necessarily identical to every cost you should consider when setting prices.

For pricing, the question is broader: what does it actually cost you to operate your business?

A useful exercise is to look through your business spending over the past few months. Include both regular expenses and occasional ones. If you pay £240 annually for something, that's still effectively £20 a month you need to account for.

You should also consider replacing equipment. If your laptop, tools or other essential items eventually need replacing, that future expense shouldn't come as a complete surprise.

Once you've identified your costs, you can begin working out how much revenue your business needs to generate.

How to calculate your hourly rate

Let's say you're self-employed and want your business to produce £30,000 a year after business running costs but before your personal tax obligations.

You estimate that your annual business expenses will be £6,000. That means you'll need approximately £36,000 in annual revenue to cover those expenses and leave £30,000.

Now comes the part many people overlook: how many hours can you realistically charge customers for?

You might work 40 hours a week, but that doesn't mean you can bill for 40 hours. Some of your time will go towards administration, travel, marketing, preparing quotations, buying supplies and dealing with customers.

You'll also need to allow for holidays, quieter periods and time away from work.

Suppose you expect to work 46 weeks during the year, averaging 25 billable hours each week.

That's 1,150 billable hours annually.

Your calculation would look like this:

Target annual income before personal tax: £30,000

Annual business expenses: £6,000

Total annual revenue needed: £36,000

Billable hours: 25 hours × 46 weeks = 1,150 hours

Required hourly rate: £36,000 ÷ 1,150 = approximately £31.30

In this example, you'd need to charge around £31.30 per billable hour to meet those assumptions.

That's a very different figure from simply dividing £30,000 by the number of hours in a conventional full-time working year.

It's also a starting point rather than a guaranteed profitable selling price. You may need to allow for unexpected costs, unpaid invoices, future investment, additional profit or VAT, depending on your circumstances.

And if you want £30,000 in personal take-home income after tax, you'll need to work backwards from that goal using your expected tax position, rather than treating £30,000 of pre-tax profit as take-home pay.

Still, even a simple calculation like this can reveal whether your current prices are realistic.

Not every hour of work is a billable hour

One of the biggest pricing mistakes in service businesses is assuming that every hour worked generates income.

Consider a mobile beauty professional who spends four hours with paying customers but another two hours travelling, cleaning equipment, preparing supplies and managing appointments.

Or an electrician who completes a two-hour job but spends additional time collecting materials, travelling to the property and preparing the quotation.

Those activities are part of running the business, even if customers never see them.

This is why two people charging the same hourly rate can end up with very different earnings.

If one business has more efficient scheduling, shorter journeys or fewer administrative tasks, it may be able to operate profitably at a rate that wouldn't work for another.

Before setting your prices, try tracking your time for a couple of weeks. Record both paid work and everything else you do to keep the business running.

You might discover that you have fewer billable hours than you expected.

You might also identify ways to improve your working day, such as grouping appointments geographically, setting clearer booking arrangements or reducing the time spent on repetitive administrative tasks.

Sometimes improving profitability isn't only about increasing prices. It's also about using your time more effectively.

Should you charge by the hour, by the job or by the package?

An hourly rate is useful for understanding your costs, but it doesn't mean every customer needs to receive an hourly quotation.

Different pricing methods suit different businesses.

A cleaner might charge by the hour for certain services, while offering a fixed price for a regular cleaning arrangement. A decorator might quote for an entire room. A freelance designer could offer a package covering a defined set of deliverables.

Hourly pricing can be straightforward when the amount of work is uncertain or when customers are paying directly for your time. But it can also limit your earnings if you become faster and more experienced at what you do.

Fixed-price work gives customers greater certainty, provided you've estimated the time, materials and other costs accurately.

Packages can be useful when customers want a combination of related services, particularly if you can explain clearly what's included.

For example, a photographer might offer a straightforward portrait session, a larger family photography package and a commercial photography package for businesses. Each has a different scope and price, giving customers options without forcing every enquiry into the same arrangement.

The important thing is to make sure your pricing method reflects the work involved.

A fixed-price job that takes twice as long as expected can quickly become unprofitable. And a package that includes unlimited changes or additional work can create the same problem.

Whatever method you choose, be clear about what the customer is paying for, what's included and what might cost extra.

What should you do about competitors' prices?

It's natural to want to know what other businesses charge.

If you're a gardener in Luton, you might look at the prices of other gardeners nearby. If you're a photographer in Dunstable, you might compare different photography packages across Bedfordshire.

Competitor research can help you understand the market, but it shouldn't become your entire pricing strategy.

You rarely know the full financial picture behind another business's prices.

They might have lower overheads, work from home, own their equipment outright or serve a different type of customer. They might also be undercharging themselves.

And sometimes two services that appear similar aren't really the same.

One decorator's quotation might include preparation, materials and finishing work, while another's might cover labour only. A cheaper service isn't necessarily better value, and a more expensive service isn't automatically better quality.

When comparing prices, look at what's actually being offered. Consider experience, service quality, reliability, convenience, turnaround time and what's included.

It can also help to ask customers what matters most to them. Some may prioritise affordability, while others value convenience, flexibility or the reassurance of working with someone they trust.

Your goal isn't necessarily to be the cheapest business in the area. It's to offer a service that customers understand and value at a price that makes sense for your business.

Don't confuse a markup with a profit margin

This is one of those small financial details that can make a surprisingly big difference.

Let's say you provide a service that costs £80 to deliver, including the direct costs you've allocated to it.

You decide to add a 25% markup.

That gives you a selling price of £100, leaving £20 after those costs.

But that doesn't mean you have a 25% profit margin. Your £20 represents 20% of the £100 selling price.

If you wanted a 25% margin on the selling price, you'd calculate it differently:

Selling price = Cost ÷ (1 − desired margin)

In this example:

£80 ÷ 0.75 = £106.67

The difference might seem small on one job, but across dozens or hundreds of transactions it can become significant.

And remember, the result is only a true business profit margin if the costs used in the calculation account for all relevant expenses. If you've included materials but forgotten overheads, the apparent margin will overstate what you're actually making.

You don't need to become an accountant to understand pricing, but knowing the difference between cost, markup and margin can help you avoid expensive mistakes.

When is it time to increase your prices?

Increasing prices can feel uncomfortable, especially when you've built good relationships with your customers.

You might worry that people will leave, complain or choose someone cheaper. Those concerns are understandable, but keeping prices unchanged indefinitely isn't always sustainable either.

Your costs may have increased. You may have gained experience, invested in better equipment or improved the quality of your service. You might also have discovered that the time required to complete certain jobs is much greater than you originally estimated.

These are all reasons to review your pricing.

That doesn't mean every increase is automatically justified or that customers will always accept it. You still need to consider the market, the value you provide and how price-sensitive your customers may be.

But it does mean you shouldn't treat your original prices as permanent.

If you're planning an increase, communicate it clearly and give existing customers reasonable notice where appropriate. Explain what's changing without feeling the need to apologise for running a sustainable business.

For example, a regular cleaning service might tell customers that its rates will change from a particular date, while reassuring them that the agreed service will remain the same.

Some customers may decide the new price no longer works for them. Others may be happy to continue because they value the reliability and quality of your work.

The important thing is to make the decision based on your numbers and business circumstances rather than fear alone.

Discounts can help, but make sure they don't cost you

Offering a discount can be a useful way to introduce a service, reward loyal customers or encourage bookings during quieter periods.

But discounts deserve the same careful thinking as your regular prices.

Suppose you charge £100 for a job that costs £70 to deliver. That leaves £30 before any other costs not already included.

If you offer a 20% discount, the customer pays £80. Your remaining amount falls to £10.

You've reduced the price by 20%, but the amount left after those costs has fallen by two-thirds.

That's why discounts should have a purpose.

Perhaps you're offering an introductory price for a limited number of appointments, or a reduced rate for customers who book several services together. In either case, you should know how the offer affects your earnings.

Sometimes adding value is a better approach than reducing the price. You might offer a more convenient booking arrangement, clearer service options or an additional feature that costs relatively little to provide.

A discount should help your business achieve something worthwhile, not simply make you busier for less money.

Remember tax, VAT and the money you actually take home

Pricing also needs to account for your financial responsibilities.

If you're self-employed, your business profit may be subject to Income Tax and National Insurance, depending on your circumstances. Your business structure will affect how you calculate and pay tax.

It's important not to confuse a business expense with a personal withdrawal. Taking money out of a sole trader business for personal use doesn't automatically make it a deductible business cost.

VAT is another consideration as your business grows.

As of October 2026, the UK's compulsory VAT registration threshold is £90,000 in taxable turnover, subject to the relevant registration rules. The threshold relates to turnover, not profit, and HMRC considers taxable turnover over a rolling 12-month period, as well as certain expected future turnover.

If you're VAT-registered, you need to understand how VAT affects the prices customers pay and the revenue your business retains. The treatment depends on the goods or services you provide and the applicable VAT rules.

You don't need to work out every tax detail on your own. GOV.UK provides official guidance, and an accountant can help you understand how the rules apply to your business.

The main point is simple: the amount a customer pays isn't necessarily the amount you get to keep.

If you are VAT registered, the free VAT Calculator helps you check prices with and without VAT.

A simple way to review your prices

If you haven't reviewed your pricing recently, set aside an hour to look at the numbers.

Start with what your business earned over the past few months and what it cost to operate. Think about how much time you spent delivering paid work compared with the time spent on travel, administration and other tasks.

Then consider how much income you want your business to generate over the coming year.

Once you have those figures, calculate the revenue you need and compare it with what your current prices are likely to produce.

You don't have to change every price immediately. You might discover that certain services are already profitable while others need adjusting. Perhaps one type of job takes longer than expected, or a particular package includes more work than the price allows.

Small changes can make a difference.

You could introduce clearer service packages, set minimum charges for short jobs, review travel fees or improve how you estimate the time required for a project.

The important thing is to stop guessing.

Your prices should work for you, not just your customers

Running a small business takes effort. Whether you're working alone, managing a small team or building something alongside another job, there's a lot that goes into delivering a good service.

Your customers see the finished work, the appointment or the product they receive. They don't always see the planning, investment, preparation and administration behind it.

But those things still matter when you're deciding what to charge.

Pricing isn't about finding the highest amount someone might be willing to pay. Nor is it about being the cheapest option available.

It's about understanding what your business needs, offering genuine value and finding a price that allows you to deliver your service sustainably.

And remember, being busy is only part of the picture. The real question is whether the work you're doing is helping you build the business and income you want.

Building a business in Luton? Make it easier for customers to reach you.

Once you've worked out what to charge, it helps to make your services and contact information easy for potential customers to find.

That's where LutonSites, from OneLuton, comes in.

LutonSites helps local businesses, freelancers and independent professionals create a simple online presence, share what they offer and give customers a straightforward way to get in touch.

You don't need a complicated website to explain your services clearly or make a professional first impression.

Explore LutonSites at site.luton.one

Because running a good business isn't just about getting more customers. It's about making sure the work you do is worth doing.

This article provides general business information, not personalised financial or tax advice. The pricing examples are illustrative rather than verified local market rates. For tax obligations and business-specific financial decisions, consult official guidance or a qualified adviser.