The Hidden Cost of Undercharging And How to Fix It

The Hidden Cost of Undercharging And How to Fix It

Pricing decisions can make or break your profitability, yet many SMEs, especially in construction and service-based industries, undercharge for their services. Whether due to market pressure, fear of losing clients, or outdated pricing models, undercharging quietly erodes margins, strains cash flow, and limits your ability to grow.

At Jones Financial Accounts, we work with businesses to review their pricing strategies using real data, not guesswork, so they can charge what their service is truly worth and sustain profitable growth.

Why Undercharging Isn’t a Short-Term Sacrifice, It’s a Long-Term Risk

Many businesses believe offering lower prices helps them win work and grow faster. But this mindset often leads to:

• Eroded Profit Margins: You might win the work, but at what cost? If your gross margins fall below a sustainable level, even high revenue can result in little or no profit.

  
  

• Cash Flow Pressure: Low pricing means fewer reserves. Unexpected costs or delayed payments can create instant cash flow stress.

  
  

• Overworked Teams: Businesses try to “make up the numbers” through volume, stretching resources thin and reducing quality.

  
  

• Brand Devaluation: Clients start to associate low price with low value, making it harder to raise prices later or attract premium clients.

  
  

Most importantly, undercharging prevents investment in future growth, new staff, systems, or innovation because there’s simply no room in the budget.

The Value of Strategic Pricing

1. Price for Profit, Not Just Market Fit

   Strategic pricing begins with knowing your cost base, direct and indirect and building margin on top. It’s not about being the cheapest; it’s about delivering value at a price that ensures your business thrives.

   
   

2. Align Price with Perceived Value

   If your client sees the outcomes you deliver, time saved, risk reduced, revenue increased, they’re more willing to pay your true worth. Underselling not only undercuts your margin but also your credibility.

   
   

3. Room to Grow

   Charging correctly gives you space to invest: whether in better systems, skilled staff, or marketing that attracts more ideal clients. It moves you from survival mode to a position of strength.

   
   
   
   
   
   

When to Review Your Pricing

• You haven’t raised prices in 12+ months.

• Your gross margins are shrinking, even if revenue is up.

• You’re busier than ever, but profit hasn’t grown.

• You’re losing bids to competitors you know charge more.

• You’re constantly negotiating or discounting to close sales.

  
  

How to Fix Undercharging

Step 1: Understand Your True Costs

Include not just direct labour or materials, but all indirect costs, admin time, project management, overheads. Your pricing needs to cover the full cost of doing business.

Step 2: Analyse Client Profitability

Break down margin by client, service, or project. You’ll often find some are highly profitable while others are barely breaking even or even losing money.

Step 3: Benchmark Competitor Pricing

Know where you sit in the market, and how your service compares. If you offer more value or better outcomes, your pricing should reflect that.

Step 4: Introduce Price Tiers

Create service packages or levels that help clients self-select based on value, while giving you a structure to charge more for premium services.

Step 5: Communicate the Value

Price increases are best accepted when clients understand what they’re getting. Frame increases around improvements, investment in quality, or enhanced support.

How JFA Helps You Price with Confidence

At Jones Financial Accounts, we help SMEs develop pricing strategies that support sustainable growth:

1. Cost Analysis & Break-Even Reviews

   We review your cost base and help you build a pricing model that ensures every job contributes to your profit, not just your turnover.

   
   

2. Client Profitability Mapping

   We analyse your current book to show which clients and projects are delivering real margin, and which ones are dragging it down.

   
   

3. Value-Based Pricing Support

   We guide you in shifting from time-based or legacy pricing to models based on outcomes and strategic value.

   
   

4. Forecasting Impact

   We model pricing changes across your forecast so you can see how adjustments will impact cash flow, revenue, and growth goals.

   
   

5. Supportive Communication

   We help draft client communications that position pricing changes professionally and confidently, preserving relationships while improving your bottom line.

   
   
   
   

Getting It Right vs. Getting It Wrong

✅ Right:

• Higher margins with the same workload

• Confident, value-driven sales conversations

• Sustainable, reinvestable growth

❌ Wrong:

• Constant pressure to take on more work

• Burnout without progress

• Profit trapped in your pipeline instead of your bank account

Ready to charge your worth and build a more profitable future?

Let JFA help you refine your pricing strategy so you grow with confidence, not just with volume.

Wrapping up today's insights, tomorrow we simplify another accounting challenge