Why your Goldilocks pricing strategy isn’t working

How to Create a Pricing Strategy as a Small Business

When you create a new product, what’s your pricing process look like? Do you have one?

It may look something like this:

  • Plug your costs into some sort of formula and get a suggested retail price.

  • Scratch your head a bit. Can you really charge that price?!

  • Toss out your formula.

  • Surf some competing shops on Etsy to see how much they’re charging.

  • Drown down an internet black hole of misery and despair. Why are these people charging so little?! Are they paying themselves like fifty cents an hour?!

  • Charge a couple dollars higher or lower than your completion.

  • Call it a day.

Rinse and repeat and you’ve got a willy nilly pricing strategy that Goldilocks would envy.

Sometimes too high, sometimes too low, maybe sometimes just right – but without any real thought behind your pricing strategy and without any consideration of your long-term financial goals.

A lack of a clear cut pricing strategy means you may be running your business into the ground without even realizing it. Not properly pricing your work means you may not be able to pay yourself what you deserve, and not paying yourself eventually leads to dissatisfaction and burnout.

The problem with Goldilocks pricing is that you can end up making tons of sales, working really hard, and feeling like your business is doing well, but have little to no cash left in the bank at the end of the day.

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By “pricing strategy”, I mean having a plan and purpose with your pricing. I want you to feel confident that every time you sell an item, that sale inches you closer to meeting whatever big or small financial goals you’ve set for yourself and your business.

How to Create a Pricing Strategy as a Small Business Owner

Have a strategy so that your prices are set with purpose and not just on a whim.

The goal is for you to work smarter, not harder. That means your pricing structure is linked to your ability to pay yourself, re-invest in your business, and stick around for the long term.

A successful pricing strategy should be specific and strategic. No – you absolutely do not need to use a set, static formula. A formula is a great base to begin with, but I completely understand that the inflexibilities of a formula leave a lot to be desired!  

Your pricing strategy should also be built around the end goal of running a sustainable, profitable business run by a happy creative founder – the ability to pay yourself.

Every time you set a price, I encourage you to reflect on whether this price point fits in with your overall goal to pay yourself.

Four Factors to consider with Pricing for a product based business

You should consider each of these important factors within your pricing process:

1. The cost of your materials & supplies - basically, your cost of goods made. This is the obvious one that we usually remember to consider, but don’t make the mistake of stopping here!

2. Your time & labor

3. The costs of running your business, other than just the costs of materials – This is the factor we often forget. So many costs go into keeping your business running! A lot of times the markup we include for profit (#4) ends up being eaten up by our other business expenses, before it ever becomes profit. Thus, we end up with a bank account balance of zero and no money to pay ourselves. I generally like to factor in these costs by adding an overhead rate component to my pricing formula.

4. A markup for profit – This builds in the ability to both re-invest in your business and pay yourself.

I encourage you to take the above four factors and develop a pricing formula specific to your business and your comfort level, that could look something like this:

(supply costs ) x profit markup + overhead rate + labor rate = price

Looking for a Goal Setting Guidebook to guide you through the remainder of the year?  Purchase Janet’s Goal-Getting Guidebook here!

Looking for a Goal Setting Guidebook to guide you through the remainder of the year? Purchase Janet’s Goal-Getting Guidebook here!

That’s just an example to start with. You may need to adjust the components based on what type of products you offer, how much you want to pay yourself, whether you’re setting wholesale or retail prices, etc. Don’t be scared – there’s not one right way to do it. I just do encourage you to play with it and get more comfortable looking at your numbers.

Use your new formula as a starting point for your pricing process each time. Remember, you don’t have to be stuck in a specific formula – it’s just a convenient base to make sure you’re building in important things like your costs, time, and profit.

The nice thing about starting with a formula is that the numbers don’t lie. You can quickly see if this product can be profitable and sustainable for you as is or if things need tweaking.

Having a profitable pricing strategy in place gives you a foundation to set prices that you can feel confident about. It requires having a deep understanding of your costs and knowing how you should incorporate that into your pricing structure. It means knowing how to structure your business so that you can pay yourself for your efforts.

A profitable pricing strategy allows you to meet and exceed the financial goals you set for your business. What can YOU do to create a pricing strategy for your business, starting today?


Janet LeBlanc is a Certified Public Accountant, serial-entrepreneur, maker and mama located in Houston. In 2014, she founded Paper + Spark, where she offers educational content, tools, and spreadsheet templates for makers.

Her goal is to help creative entrepreneurs become more confident and less confused about the financial side of running their business. Janet is passionate about empowering makers and helping creatives bring their entrepreneurial dreams to life with clarity.

She will be leading the Money Session this Fall at our Conference. Learn more about this year’s Conference Experience here!

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