This is the follow-up to my series on Alex Hormozi's Virtuous vs. Vicious Cycle of Price. In the first post, I introduced the framework. In the second, I broke down the seven psychological forces that make it work.
Now it's time to get practical. But before we talk about how to fix pricing, we need to understand how it actually gets done. Not the textbook version. The real version. The one I see every time I sit down with a business owner.
Be honest about whether this sounds familiar.
How Pricing Actually Happens
Step one: you look at what your competitors charge. You call around, check websites, ask friends in the industry, maybe get a few quotes. You now have a range.
Step two: you price yourself somewhere in the middle of that range. Not the cheapest (you don't want to look desperate). Not the most expensive (you don't want to scare people off). Somewhere safe.
Step three: you add a little if you think you're better than average, or subtract a little if you're new and need to build a book of business.
Step four : you rarely revisit it.
That's the pricing strategy for many service businesses, agencies, contractors, consultants, SaaS companies, and local businesses I've spoken to. Competitive pricing with a gut-feel adjustment.
What's wrong with this? Let's break it down.
Problem 1: You're Copying Someone Who Might Be Losing Money
Your competitor's price isn't a signal of what the market will bear. It's a signal of what one business decided to charge based on their cost structure, their overhead, their margin tolerance, and their level of sophistication.
Some of those businesses are profitable. Some are barely surviving and don't know it yet. There's no licensing requirement for good pricing. Your competitor didn't take a pricing course. They did the same thing you did. They looked at what everyone else charged and picked a number in the middle. The entire market is a chain of businesses copying each other's guesses.
An HVAC industry report from ServiceTitan found that the two most common pricing failures in the trades are: businesses price their services incorrectly, making profitability impossible, and even when they price correctly, prices aren't implemented consistently across the organization. The answer you're copying might be wrong. And you have no idea if their number works for them. You definitely don't know if it works for you.
Problem 2: You Don't Know Your Real Costs
This is the one that hits contractors and service businesses hardest.
A plumber who pays their tech $30/hour thinks their labor cost is $30/hour. It's not. Walk through it: $30 base wage. Add $8 for payroll taxes and workers' comp. $6 for health insurance. $4 for vehicle cost per hour. $3 for tools and equipment. That's $51/hour before you account for unbillable time. If that tech bills 25 of their 40 hours per week (the rest is travel, admin, quoting, callbacks, training), you need to recover 40 hours of cost in 25 hours of billing. The effective labor cost per billable hour: over $80. And we haven't added overhead yet.
If you don't know your real cost per billable hour, you can't know your floor. If you don't know your floor, you can't know your margin. You might be "competitive" and losing money on every single job without realizing it.
I've seen this pattern in dozens of conversations. The owner knows roughly what things cost, but they've never sat down and calculated their true overhead per billable hour. They're running on feel. And the feel is usually too low.
Problem 3: You Set It Once and Never Come Back
A pricing consultant (Atenga Insights) documented a case where a biopharmaceutical services company hadn't raised prices in seven years, despite rising costs for staff and facilities. The company's customers considered them the best value in the industry. A 12% price increase more than doubled their quarterly profit.
Seven years of margin nobody collected because nobody wanted to have the conversation.
Inflation alone erodes 3 to 5% of your margin every year you don't adjust. Over three years, that's a silent 10 to 15% pay cut. And your value has likely gone up in that time. More experience and a stronger reputation. The gap between what you're worth and what you charge widens every year you don't revisit it.
Problem 4: You're Pricing the Task, Not the Visit
A customer calls a plumber about a leaking faucet. The plumber shows up, fixes the faucet, charges $150, and leaves. That's a task.
A different plumber shows up for the same call. Fixes the faucet. But while they're there, they check the water pressure and find the pressure reducing valve is running high, slowly damaging the pipes. They notice the shut-off valves under the sink are the old gate-style that tend to seize up. They test the water heater and find two inches of sediment reducing efficiency.
Now the plumber isn't selling a faucet repair. They're presenting a diagnostic with three additional recommendations, each with its own flat rate price. The customer chooses which ones to address today and which to schedule later. The ticket goes from $150 to $450. Not because the plumber inflated the price of one task. Because they expanded the scope of what they delivered. The customer doesn't feel gouged. They feel taken care of.
That's the difference between pricing the task and pricing the visit. When you price the task, you're competing with every other plumber who can fix a faucet. When you price the visit as a diagnostic and comprehensive service, you've changed the conversation entirely.
And there's a perverse incentive hiding in task-based pricing: when you charge by the hour or by the job, getting faster and better at your work actually reduces your revenue. You've built a system that punishes your own competence.
Problem 5: You Offer One Price to Every Customer
When you add a higher-priced option to a menu, purchasing shifts upward. William Poundstone documented this in his book Priceless. Researchers offered beer at two price points, then added a "super premium" third option. More buyers chose the middle option, and a meaningful percentage chose the premium. Revenue went up without changing the product. Just by adding a third option that reframed the middle as a good deal.
If you only offer one price, you're leaving revenue uncollected from every customer who would have gladly paid more for a premium experience. And you're losing customers who need a smaller entry point. One price fits nobody perfectly.
But before you dismiss any of this, let me guess what you're thinking.
My market won't support higher prices. My customers are price-sensitive. My competitors would steal my business if I charged more. I hear this in every conversation.
But consider this: are your customers actually price-sensitive, or have you just never given them an option that justified a higher price? Research on small business pricing finds that owners consistently overestimate how price-sensitive their customers are. When businesses finally raise prices modestly, the typical result is minimal customer loss, improved margins, and little impact on demand. The fear was worse than the reality.
The Pattern Underneath All Five
These five problems have a common root. They're all defensive decisions. Every one of them is driven by fear: fear of being too expensive, fear of losing a deal, fear of the pricing conversation, fear of doing the math and finding out the number is bad.
The comp reflex is fear of being different. Not knowing your costs is fear of what the math might reveal. Never revisiting is fear of the client conversation. Pricing the task is fear of stating what you're really worth. One price for everyone is fear of asking for more.
Researchers who study small business pricing have a name for this pattern: price anxiety . Owner-managed firms exhibit it at unusually high rates, and the reason is structural. In a large company, the person who sets the price never hears the customer's objection. In a small business, the owner sets the price, delivers the work, and hears the pushback personally. Price rejection feels like personal rejection. That creates a loop: you set a price, you hear an objection, you feel the sting, and next time you price a little lower. Over time, the business drifts toward what researchers call an underpricing equilibrium. Not because the market demanded it. Because the owner's psychology did.
Dan Kennedy wrote an entire book on this (No B.S. Price Strategy). His central observation: the biggest pricing problem in small business isn't the market. It's the owner. Owners are terrified of rejection, terrified of losing clients, and terrified of being seen as too expensive. That fear drives every bad pricing decision on this list.
Kennedy puts it bluntly: when you compete on price, you can count on somebody coming along who will beat your price, even if doing so ultimately bankrupts them. The race to the bottom has no finish line.
If you recognized yourself in any of these five problems, that's a good sign. It means you know where to look.
In the next article, I'll walk through the fix. But here's the preview: the businesses that get pricing right start with their own numbers, not their competitor's. They build tiered offers around outcomes, not tasks. They use every service call as a diagnostic that expands the engagement.
They also add guarantees that reverse the buyer's risk. And they review pricing annually, like any other critical business metric.
The diagnosis is done. The prescription is next.