You’re probably leaving six figures on the table every year. Not because you’re bad at business. Not because you’re lazy. But because you set your prices five years ago based on what you thought the market would bear, and you haven’t touched them since. Meanwhile, your costs have gone up 30%, but your prices haven’t moved.

Most service business owners are terrified of raising prices. They worry about losing customers. They assume clients will leave for cheaper competitors. So they keep their prices the same year after year, slowly eroding their profit margins until they’re working harder than ever for less money than they made five years ago.

In this article, I’ll walk you through a five-minute pricing audit that will tell you exactly whether you’re undercharging. No complex calculations. No spreadsheets. Just five simple questions that reveal the truth about your pricing. By the end, you’ll know if you’re leaving money on the table and exactly how much. More importantly, you’ll understand why most service businesses underprice themselves and what to do about it.

The Hidden Cost of Underpricing (It’s Not Just Lower Profit)

When you underprice your services, you don’t just make less money per client. The damage runs much deeper. Underpricing creates a cascade of problems that affect every area of your business, from the quality of clients you attract to your ability to hire top talent.

You attract price-sensitive clients. Low prices attract customers who care most about price. These clients are the hardest to please, the quickest to complain, and the first to leave when someone cheaper comes along. They nickel and dime every invoice. They question every decision. They treat you like a commodity instead of a trusted partner.

You can’t afford top talent. Underpricing means lower profit margins. Lower margins mean less money to pay competitive salaries. You end up with mediocre staff because you can’t afford the best people. Your A-players leave for competitors who pay better. You’re stuck in a cycle of training new people who leave as soon as they’re competent.

You can’t invest in growth. Every dollar you leave on the table is a dollar you can’t reinvest in marketing, systems, or innovation. Underpricing keeps you stuck in survival mode instead of growth mode. You can’t hire that operations manager. You can’t upgrade your equipment. You can’t launch that new service line. You’re trapped.

You signal low value. Price communicates value. When you charge less than competitors, prospects assume your service is inferior. Low prices hurt your positioning more than they help your sales. You attract people looking for cheap, not people looking for quality. The clients who would value your expertise never call because your pricing tells them you’re not in their league.

You resent your clients. When you’re overworked and underpaid, resentment builds. You start avoiding client calls. You deliver minimum viable service. Your best clients feel the difference and leave. The work that used to energize you now drains you. You wonder why you started this business in the first place.

The cost of underpricing isn’t just lower profit on your financial statements. It’s the opportunity cost of not being able to grow, the psychological cost of working for less than you’re worth, and the strategic cost of attracting the wrong clients while repelling the right ones.

5 Questions That Reveal If You’re Undercharging

You don’t need a consultant to tell you if you’re underpricing. You just need to answer five honest questions. Grab a piece of paper. Write down your answers. If you answer yes to three or more, you’re definitely undercharging. Even two yes answers means you’re likely leaving money on the table.

Question 1: When was the last time you raised prices?

If it’s been more than 18 months since you raised prices, you’re undercharging.

Your costs have increased. Wages, insurance, materials, software, rent, everything costs more than it did 18 months ago. If your prices stayed flat while your costs went up, your profit margin shrunk. This isn’t about greed. It’s about maintaining your margin so you can stay in business and serve clients well.

Most service businesses should raise prices 3-5% annually just to keep pace with cost inflation. If you haven’t raised prices in three years, you’re effectively 10-15% behind where you should be. Five years? You’re 20-25% below market rate. That’s not a small gap. That’s the difference between struggling and thriving.

Think about it this way: if your costs went up 4% per year for five years, that’s a 22% increase in your operating expenses. If your prices stayed the same, your profit margin dropped 22 percentage points. A business that was making 25% profit five years ago is now making 3% profit today. Same work, way less money.

Schedule a price increase. Not someday. Put it on the calendar. New prices effective 60 days from today for new clients, 90 days for existing clients.

Question 2: Are you consistently booked at capacity?

If you’re turning away work because you’re too busy, your prices are too low.

Supply and demand. When demand exceeds supply, prices should rise. If you’re booked solid for the next six weeks and have to turn away new clients, you’re underpricing. The market is telling you they’d pay more. People are literally trying to give you money and you can’t take it because you’re maxed out.

Service businesses should operate at 75-85% capacity. This gives you room to serve rush jobs, handle emergencies, and maintain quality. If you’re at 95-100% capacity consistently, you should raise prices until demand drops to 80-85% capacity. You need breathing room. Operating at 100% capacity means any problem, any sick day, any unexpected issue puts you underwater.

Industry data shows service businesses operating at 95% or higher capacity can typically raise prices 15-20% and still maintain 80-85% utilization. Let’s do the math. If you’re doing 100 jobs per month at $5,000 each, that’s $500,000 in monthly revenue at full capacity. Raise prices 15% and lose 15% of volume. Now you’re doing 85 jobs per month at $5,750 each. That’s $488,750 in revenue with 15% less work, less stress, and higher margins.

Raise prices 10-15% immediately for new clients. Some will walk away. That’s the point. You need breathing room. The clients who stay will pay more, and you’ll do less work for the same or higher revenue.

Question 3: Do prospects choose you based on price?

If the main reason clients choose you is because you’re cheaper than competitors, you’re undercharging and positioning yourself poorly.

Competing on price is a race to the bottom. There’s always someone willing to charge less. If low price is your competitive advantage, you have no competitive advantage. You’re a commodity.

The most profitable service businesses compete on value, expertise, results, or specialization. Never on price. When prospects choose you because you’re cheap, they leave when someone cheaper shows up. You’re not building loyalty. You’re renting customers until a better deal comes along.

Research indicates that only 15-20% of service buyers choose based primarily on price. The other 80% value expertise, reliability, and results over cost. If you’re competing on price, you’re fighting over the worst 20% of the market. The clients who will never be loyal. The clients who will always complain. The clients who suck the life out of your business.

Change your positioning. Lead with results, expertise, or your unique process. Price should be the last thing discussed, not the first. If you can’t articulate why you’re worth more, you’ll never charge more. Your marketing should answer “Why you?” not “Why cheap?”

Question 4: Are your profit margins below 15%?

If your net profit margin is below 15%, you’re either undercharging or operating inefficiently, or both.

Service businesses should target 15-25% net profit margins. Below 15% means you have no cushion for slow months, unexpected expenses, or investment in growth. You’re one bad quarter from trouble. One major equipment failure. One client who doesn’t pay. One economic downturn. Any of these could put you out of business.

According to IBISWorld and industry benchmarks, professional services like law, accounting, and consulting should hit 20-30% net margins. Skilled trades like HVAC, plumbing, and electrical should be 15-20%. Technical services should be 18-25%. Home services should be 12-18%. If you’re below these ranges, pricing is usually the culprit.

Calculate your actual margin. Revenue minus all costs, including your salary, divided by revenue. Be honest about your costs. Don’t forget vehicle expenses, insurance, software subscriptions, that office you work from at home. Count everything. If you’re below 15%, raise prices. If you’re at 5-10%, you need an immediate 20-30% price increase just to reach healthy margins.

A 15% margin isn’t greedy. It’s survival. You need that cushion to weather problems, invest in growth, and actually build a business instead of buying yourself a stressful job.

Question 5: Do you feel resentful about what you charge?

If you cringe when you tell prospects your price, or feel guilty charging what you charge, you’re underpricing.

Your gut knows. When you’re undercharging, you feel it. You know you’re delivering more value than you’re being paid for. That resentment seeps into your client relationships and affects service quality. You start cutting corners. You stop going the extra mile. You deliver exactly what’s in the contract and nothing more.

Pricing isn’t just math. It’s psychology. You should feel confident, even slightly uncomfortable, stating your price. If you feel apologetic or defensive about your pricing, you’re charging too little. Good pricing makes you a little nervous. You think “Will they really pay this?” That nervousness means you’re in the right range.

Comfortable pricing equals underpricing. When you state your price and feel totally comfortable, you’re leaving money on the table. Slightly uncomfortable pricing equals market-rate pricing. When you quote a number and feel a tiny bit of anxiety, that’s the sweet spot. You’re charging what you’re worth, not what feels safe.

Raise prices until you feel a little nervous quoting them. That slight nervousness means you’re in the right range. If a prospect questions your price and you immediately want to discount it, you’re underpricing. If you can confidently explain why you charge what you charge, you’re probably close to market rate.

If you answered yes to three or more questions, you’re definitely undercharging. Two yes answers means you’re probably leaving money on the table. Even one yes suggests room for a price increase. The good news? This is fixable. And unlike most business problems, pricing changes can happen quickly.

Why Smart Business Owners Charge Too Little

You’re not underpricing because you’re bad at business. You’re underpricing because of three deeply ingrained fears that every service business owner faces. Understanding these fears is the first step to overcoming them.

Fear of losing clients. The biggest fear is “If I raise prices, my clients will leave.” Reality? Most won’t. Studies show that when service businesses raise prices 10-15%, they lose 5-8% of clients. Do the math. You make more money with fewer clients. And the clients who leave over price were price-sensitive clients you didn’t want anyway. They were the ones who complained the most, paid the slowest, and demanded the most. Good riddance.

Fear of not being competitive. You worry competitors charge less. But competing on price is competing on the wrong thing. Clients choose service providers based on trust, expertise, results, and reliability. Price matters, but it’s rarely the deciding factor for good clients. If it is, those aren’t your ideal clients. You don’t want people who choose based solely on price. They’re impossible to satisfy and the first to leave.

Fear of not being worth it. Imposter syndrome hits service business owners hard. “Am I really worth that much?” Yes. You are. Your prices should reflect the value you deliver, not the time it takes. A lawyer who solves a $500,000 problem in 3 hours isn’t overcharging at $10,000. They’re solving a massive problem efficiently. An HVAC technician who prevents a $30,000 system replacement with a $5,000 repair isn’t overcharging. They’re saving the client $25,000.

Value pricing, not time pricing. You’re not selling hours. You’re selling outcomes, solutions, and peace of mind.

The 3-Step Fix for Underpricing

If your pricing audit revealed you’re undercharging, here’s exactly what to do. These three steps will get your pricing back to healthy levels without losing your current clients or damaging relationships.

Step 1: Calculate your target margin

Work backwards from the profit margin you need. If you want 20% net profit and your current costs are $500,000 annually, you need $625,000 in revenue. Divide that by your typical number of clients. That’s your target price per client.

Compare this to what you currently charge. The gap is how much you’re underpricing. If your target price is $8,000 per client and you’re charging $6,000, you’re 25% below where you should be. That’s not a small adjustment. That’s a major pricing problem that’s costing you real money every single month.

Be realistic about your costs. Include everything. Your salary, your benefits, your retirement contributions. Include the vehicle you drive for business. Include the home office. Include the software subscriptions. Include the insurance. Most business owners dramatically underestimate their true costs, which makes them think their margins are healthier than they actually are.

Step 2: Implement a tiered increase strategy

Don’t raise prices 30% overnight. That’s jarring. Instead, raise prices in tiers. New clients pay new rates immediately. No exceptions. If someone calls today and you’ve decided to raise prices 20%, they pay the new rate. Don’t grandfather them in. They don’t know what you used to charge.

Existing clients get 90 days notice of a 15% increase. Send a professional letter or email explaining that costs have increased and you’re adjusting pricing to maintain service quality. Don’t apologize. Don’t justify it excessively. Just state the facts clearly and professionally. Most will accept it without complaint.

Announce that prices will increase another 10% in 12 months. This shows you’re serious about reaching market rates and gives people time to adjust. It also creates urgency. Clients who were thinking about a project will move forward now to lock in current rates.

This tiered approach feels fair. You’re not shocking anyone with massive one-time increases. You’re gradually moving toward market rates over 12-18 months. Most clients will stay with you through the entire process.

Step 3: Change your positioning before you change your price

Price increases are easier when accompanied by value additions. Add a guarantee. Upgrade your service delivery. Improve your client experience. Bundle additional services. Reposition yourself as premium.

Then raise prices. When you add value first, price increases feel justified rather than arbitrary. Clients understand they’re paying more because they’re getting more. Maybe it’s faster response times. Maybe it’s a dedicated project manager. Maybe it’s a more comprehensive warranty. Whatever it is, give them something tangible to point to.

This isn’t about tricking people. It’s about genuinely improving your service while charging what you’re worth. The improvements make you better. The higher prices fund the improvements. It’s a virtuous cycle that benefits both you and your clients.

The Bottom Line on Pricing

Underpricing is the silent killer of service businesses. It attracts the wrong clients, prevents you from hiring top talent, and traps you in a cycle of working harder for less money. The five-question audit reveals if you’re undercharging. If you answered yes to multiple questions, it’s time to act.

Don’t wait. Every month you delay a price increase is another month of leaving money on the table. Calculate your target margin this week. Announce the price increase to existing clients. Implement new rates for new clients immediately. Your future self and your bank account will thank you.

Remember, you’re not overcharging when you charge market rates. You’re overcharging when you deliver poor value at high prices. If you deliver excellent service, charge accordingly. Your prices should reflect the value you create, not just the hours you work.

Want to Know Exactly How Much You’re Leaving on the Table?

I’m currently interviewing service business owners for the second edition of my book on profit strategies. During these conversations, we analyze your entire pricing structure and identify exactly how much potential profit you’re missing.

These aren’t sales calls. I walk you through the complete Pathway to Profit framework, including pricing strategy, and show you specific opportunities to increase margins without losing clients.

If you’d like to be interviewed and receive a complimentary copy of the book when published, schedule here: https://advisors.mediaacemarketing.com/contact/

There’s no cost, no pitch, just a strategic conversation about growth.