Business Advice

5 Signs You’re Undercharging and How to Avoid Them

Undercharging poses risks to the business and must be addressed as soon as possible.


Are you undercharging for your services? It can be hard to tell, particularly if you’re in a niche industry or a contractor. Costs have been rising, so it may be time to rethink your pricing.

Every business owner knows how crucial it is to set the right price for their products and services. However, some businesses still fail to develop the appropriate pricing strategy. Some may be setting prices too high, which may turn away clients. While some tend to undercharge, making it difficult to sustain a healthy cash flow and meet the business’s financial objectives.

Undercharging is not uncommon, especially for new and small businesses. This may be due to their fear of losing clients or simply because they want to set their pricing competitively against other companies. Whatever the reason, undercharging poses risks to the business and must be addressed as soon as possible to support the business and its growth.

Here are five signs that you might be undercharging.


1. You haven’t increased your prices in years

Setting small increases in pricing is common among businesses, especially with the rising costs for raw materials, wages, freight, and other product or service costs. Reviewing your fees annually and ensuring your pricing is proper to remain profitable and keep up with the market is healthy.


2. Your prices are significantly lower than your competitors

Competitive analysis is vital in setting your business plans and strategies. It’s good practice to regularly examine how your competitors set their prices to ensure your rates are competitive.


3. Your demand is too high

When your rates are low, chances are people will gladly accept your quotations without any questions or hesitation. This might mean good news for your business; however, it will be harder to keep up when too much work comes in. This would require you to expand, hire more staff or double your capital and assets to meet the growing demand.


4. You don’t have enough cash to cover your bills

You might notice you get more clients if you’re undercharging, but your bills are still stacking up. This is because your profit margins are too small to cover your expenses. This will make it more difficult for you to meet business demands as you may be unable to hire extra help or inject more cash to grow your business.

How To Improve Your Business Cash Flow​

5. Your clients take you for granted

Do you feel like your clients do not value your time? This might mean you’ve set your pricing so low that clients perceive you as a business offering cheap services and poor delivery. Ensure your pricing is proportional to the quality of your products and services so clients treat you as they should.


How to avoid undercharging?

Setting accurate prices for your products and services can be tricky. However, ensuring your rates are competitive to sustain your business and support its growth is crucial. 

If you have realised you may have been undercharging for your products and services, you still have the chance to resolve this before it poses severe problems for your business. Here are some tips to help you avoid undercharging.


Calculate your rates carefully

Take the time to work on your pricing strategy. Review your expenses, product and service costs (including labour, raw materials, general overheads, etc.) and ensure that your profit margins are large enough to sustain your business cash flow and meet your long-term financial goals. Also, assess if your rates are reasonable for the hours you will spend delivering your services.


Analyse the market

Reviewing your competitors to ensure you keep up with the market is good practice. You may research, ask, and see how your competitors set their rates. 


Stop undervaluing your products or services.

Most businesses tend to undercharge because they fail to recognise the value of their products and services. Instead of focusing on the cost of your product or service for your clients, assess how your offerings benefit them. How much can your product or service make your customers’ lives easier? How are you better than your competitors? Consider these to ensure you’re not undervaluing your product or service.

If you decide to increase your prices, raise your rates gradually. It would be good to start charging your new rates to incoming clients first and assess whether your new rates are feasible. It’s also important to note that price changes should be communicated clearly to your clients to avoid confusion and not drive them away.

Do you need help with your pricing strategy? Contact our specialists for expert advice and support. Reach out to our team today.

Share this

Subscribe for more insights

Need more?
Check out more insights


How Do I Avoid Insolvent Trading?


Navigating Employee Rights in Times of Company Insolvency

Business Advice

Financial Recovery: Negotiating Payment Plans With Creditors