A window cleaner takes over a round and keeps the old prices because the customers are used to them. Four years later he is doing sixty houses a week at £9 a house, he has not had a rise because a rise now would look like a big rise, and he cannot afford to employ anyone because there is nothing in the margin to pay them with.
The price was set once, by someone else, in a different year, and it has quietly decided everything since.
Cost-plus tells you the floor and nothing more
Work out your cost per hour properly, because you need it. Take your total annual overhead: premises, insurance, vehicle, software, accountancy, phone, your own salary at a figure you could live on. Divide by the hours you can actually sell, which is not 2,000. Take 52 weeks, remove 5.6 weeks of holiday, remove training, quoting, invoicing, van time and the days nothing comes in. A working figure for a one-person service business is often 1,000 to 1,200 chargeable hours a year, and people who assume 1,800 go out of business.
If your overhead is £30,000 and you want £35,000 of income, you need £65,000 from 1,100 hours, which is £59 an hour before materials and before tax. That is your floor. Below it you are subsidising your customers.
What cost-plus cannot tell you is what to charge above the floor, because your costs are not interesting to the buyer. Nobody has ever chosen a plumber because of the plumber's van finance.
Value is what the problem costs them, not what the work costs you
The same two hours of work is worth very different amounts depending on what it prevents. Two hours replacing a tap is worth the price of two hours of tap-replacing. Two hours at eleven at night, stopping a leak that is coming through a ceiling into a restaurant that opens at noon, is worth considerably more, and everyone involved knows it.
Value pricing means asking what happens to the customer if this is not done, or is done badly. For a commercial client that is usually a number: lost revenue, a penalty, a failed inspection, a claim. Price against that number, not against the clock.
This is also why hourly billing punishes competence. Get faster and better and you earn less per job for the same outcome. Fixed price for a defined outcome fixes that, as long as your scope is tight and your change control is real. The phrase that protects you is written into the quote: what is included, what is not, and what happens to the price if the scope moves.
The first price is the ceiling
Whatever you charge a customer first becomes the anchor against which every subsequent price is judged. Go in at £40 an hour to win the work and £65 will always feel to that customer like you have put your prices up by 60%, regardless of what the market says.
It is worse than that, because of who you attract. The customers who choose you because you were the cheapest quote are, by definition, buying on price. They will leave for the next cheapest quote, they negotiate hardest, they pay slowest, and they complain most. The customers who chose you for something other than price are considerably less trouble and pay more.
So discounting does not just cost margin. It selects a worse customer base, which then makes it harder to raise prices, because the customers you have are the ones who care most about them.
If you need to win early work, discount in ways you can withdraw: a stated introductory offer with an end date, a first-job price, a reduced scope. Never simply be cheap, because cheap is not an offer, it is a position.
Losing some quotes is the evidence that the price is right
If you win every job you quote for, your price is too low. That is not a slogan. A win rate near 100% means you are never the expensive option, which means you are leaving money on every single job you do win.
Nobody can tell you the correct win rate, because it varies by trade, by how you get leads and by how many of your quotes are speculative. But a business winning roughly half of its considered quotes at a good margin is usually healthier than one winning nine in ten at a thin one. Half the work, the same profit, and a great deal less wear on the van.
Test it rather than theorising. Put the price up 10% on the next ten quotes and count. The worst case is that you lose two jobs you would have made very little on.
Review annually, in writing, without apologising
The window cleaner's problem was not that £9 was wrong in year one. It was that he never revisited it.
Set a date. Most businesses use the start of the financial year or the anniversary of trading. Look at three things: what your costs have done, what you are now capable of that you were not before, and what your win rate says. Then write to customers with the new price, the date it takes effect, and a sentence of explanation. Four to six weeks notice is normal and courteous.
Do not apologise, do not over-explain, and do not offer to hold the old price for anyone who objects, because the ones who object are the ones you have been underpricing for longest and the exception will follow you for years.
A few legal points worth knowing. If you sell to consumers, the Consumer Rights Act 2015 implies that a service will be performed with reasonable care and skill and, where no price has been agreed, for a reasonable price, so an unquoted job is not an open cheque. If you display prices to consumers you are subject to the Price Marking Order 2004. The Digital Markets, Competition and Consumers Act 2024 tightened the rules on drip pricing and on presenting mandatory charges, enforced by the Competition and Markets Authority, so whatever a consumer has to pay should be in the headline figure. And you cannot agree prices with your competitors: that is a cartel under the Competition Act 1998, and the conversation in the pub counts.
Finally, put the price where the customer can find it. A business that will not publish an indicative price is asking every enquirer to spend effort to learn something basic, and most of them will not bother.
Where this shows up in the game
Pricing in Business Baron is a decision you make repeatedly and live with. Cut prices and you get volume, thinner margins and customers who leave the moment somebody undercuts you. Hold a premium and you turn work away and keep the people who value it. Across more than two hundred business types the elasticity differs, so what works for a café does not work for a plant hire yard. A salon in the free game is enough to run a full price war and regret it.