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Pricing Your Product in Your New Business or Side Hustle

Finding the right price to charge for your product or service will determine the success of your business. Learn how successful businesses find the price that maximizes profits.

Finding the right price to charge for your product or service will determine the success of your business. Learn how successful businesses find the price that maximizes profits.

“Start a side hustle or small business” is a common refrain when working to reduce debt or retirement planning is involved. It all sounds easy on paper until you realize most businesses fail within a year or so.

The problems with starting a business are myriad. Most businesses fail because they either have too little or too much business and the problems begin with the price or fee charged the customer.

Yes, some businesses fail over financing and other financial issues, but price frequently is the destroyer of small businesses. Charge too little and you end up with too much work and no profits to show for the effort; charge too much and nobody will even waste their time kicking the tires to see how good you really are.

The type of business also plays a role in pricing. A cheap attorney or doctor (or accountant!) is never a good idea. Even if it is a good deal you are unlikely to trust a cheap attorney. But what if you have a side hustle dog sitting? Is cheaper better then?

Then we get the loss leaders. Using our dog sitting example, do you offer a free trial to get clients in the door? It might work, but it costs the business owner money and time to promote in such a fashion. Research also indicates it is a poor way to promote your business.

Too Good a Deal

When I started my practice in the 1980s I subscribed to the “cheap is better” promotional school of thought. I was the first guy in town offering free e-filing for federal and was the only guy who could offer state e-filing the first year it was available because Wisconsin wanted to test their program with firms that offered the service for free and had no fraud cases. I fit the bill and the rest is history.

The free e-filing is a good example of giving something for free to grow your business. I still was paid for preparation services; only the e-filing was free. The benefit cost me nothing and saved time. My software provider only charged me a dollar and I saved that in toner and paper not printing copies to send to the government. This also saved time so I was a net winner. The best deal around town outside my office was $25 for e-filing. By the time other firms caught on it was too late. I was well established and well known for my progressive business ideas.

There was still one small problem. I prepared tax returns for a low fee. The goal was to grow the business fast and large. This is a massive problem when the service provided frequently required I personally work on or review most tax returns. I was providing value added service but not charging for it. That led to long hours and lower profits. Something had to change.

Quality or price, you can't have both. When you provide high quality service you deserve a higher price. See how professionals set price to maximize profits.

Quality or price, you can’t have both. When you provide high quality service you deserve a higher price. See how professionals set price to maximize profits.

By the time my practice reached 2,000 returns I was exhausted. Sure, anyone in the office can prepare a return. So can any other tax office. But not many can reduce a clients tax liability legally the way I can. That takes experience, skill, research, and most of all, time.

Around the year 2000 I was preparing about 1,600 individual returns  with another 400 business returns, amended returns and returns from prior tax years. Many clients walked in the door when I was giving my services away and I wasn’t bringing their fee to a reasonable level fast enough to regain my sanity. That, and attempts to increase prices brought loud complaints. It was exhausting. People wanted more and more without paying for it. Worse, clients didn’t take my advice seriously! What was it worth anyway? I gave the consulting away for fee and clients treated it as worth exactly that much.

The first year I decided to make a draconian cut. The tax software I use allows me to pull reports based on time spent preparing the return and the fee charged. I ran a report showing the least profitable to most profitable clients. To my surprise I had almost 400 clients that were money losing accounts! (I know, I know. I’m not proud of it either.) Those 400 clients were send a letter kindly asking them to leave.

That was the best tax season in years. Prices were not increased much, but the money losing accounts were out so I had time to breath and profits actually climbed because expenses dropped faster than revenue.

The next year I raised fees significantly. My real clients stayed. Fewer people left than I anticipated. Something else also started to happen. Clients, especially business clients, started saying it was about time I raised my fees so people would start respecting my work. Clients saw what I was blind to! People actually wanted to pay me more because they saw value and all the bottom feeders were sucking me dry, hurting the serious clients. In hindsight, I’m feel great gratitude these clients were willing to wait until I regained my sanity.

Perceptions of Value

How much do you value the endless supply of news online? Do you trust it? What if you pay for a newspaper? If you are like most people, paying for something causes you to value it more. It may have something to do with the sunk-cost fallacy businesses fall prey too. Regardless, we understand “free” does not bring out the best. A free report is valued lower than a report you pay for and for good reason. When a payment is made/received all parties expect a certain level of value to be provided.

But free works so well! But not really. In my line of work I see plenty of businesses. I know what does and does not work. The “free” thing has been done to death. The philosophy has destroyed more businesses than any other policy I know of. Free meals mean nothing to a restaurant if the food is no good. All free does is sink your boat faster.

Back to our dog sitting example. Giving away a free day when you have no way of creating more time is a rabbit hole you do not want to fall down. Instead, a free doggie treat might be a better way to promote the business. You still charge your regular fee, but you give something extra of value. The perception of value remains intact. The people who would turn their pet over to a free service are not the kinds of clients (and dogs) you want.


Finding the Right Price

Over the years I tried many methods of pricing my services. Checking the competition and pricing comparatively is the most common method of pricing I see and used it myself in the early days. It’s also the worst, except for the free or super cheap thing we talked about above.

Setting your prices/fees similar to or a nickle below competitors means you get paid nothing for any added value you provide. Here we are again at the trough of free stuff. If you charge what the other guys charge what is the incentive to use your product or service? If you provide greater value there is a reason to patronize your business, but you don’t get paid for the superior product if your only pricing method is to undercut competitors.

All these pricing issues lead to two problems: 1.) you are either too busy (or people don’t trust you’ll do a good job) due to your under-priced goods and services which leads to poorer quality as you are run raged, or 2.) your fee becomes over-priced compared to what competitors are selling due to market changes before you differentiate your product.

You can’t win if you do not differentiate your product or service. The differentiation is where the value is created and where clients are happy to pay your fee even if it is high.

There is a better way and I learned this trick from two men I highly admire: Seth Godin and Tim Ferriss. Seth Godin is well known from his numerous best-selling books; Tim Ferriss from his books and podcast.

Recently Tim invited Seth to join him on his podcast. It may have been the most important podcast I ever listened to.

Seth shared his method for setting prices for his speaking engagements. He said he only has two prices: free and full price. If Godin really wants to do the gig and if it is for a good cause he will sometimes do it for free. Otherwise his fee is full price, no discounts.

Wonderful! But how does Seth Godin find his price? Simple. He started by setting his price so a few people would hire him. Once someone—anyone—offered him more that was his new price. As simple as that.

However, this is simple theory, difficult in practice. Godin admits it’s tempting to take a gig when your calendar is empty. It takes time to learn the skill of saying “no” when you have lots of white space on your calendar. But if you don’t stick to your principles you dive head first down the aforementioned rabbit hole. And it is going to hurt really bad.

Higher is Better for Everyone

It may sound crazy, but a higher price is frequently better for the business and the customer! People will pay for quality and those who will not are not the kinds of people you want to serve. Remember, you’re a business, not a slave! You solve problems, fill a need. And do it well! You should get paid for that and paid well. If you don’t it is only a matter of time before you either quit or sacrifice your ethics and provide cut-rate products and services.

The fear business owners have when raising fees is the worry clients will leave. Well, I hope so!

Not everyone wants or needs the higher level of service and quality. Your choice is to produce crap and sell a manure spreader load full of it or to sell a respectable amount you can comfortably provide  at the highest quality money can buy. Either way is fine. But, crap gets old fast while quality instills pride and that carries you a lifetime and makes you feel proud of the work you do.*

Last year my small tax firm prepared around 550 tax returns in total. This is a long fall from the heady days of 2,000+ returns annually. It was the best tax season in years as I worked hard to adjust to my new worldview of a tax office with national exposure. This is easily the most difficult transition I ever went through. There were times I didn’t know if the firm would survive.

Here it is mid-January and I’m nervous. One of my preparers thinks I committed to around 650 returns for this tax season. (Was it that may?) If it’s true I have a real problem. I spent heavily on increased automation and productivity enhancements. However, the clients I serve now are of a different caliber than of the past. These are large returns with serious issues and I’m one guy. (Yes, my team does most of the heavy lifting, but I need to be in the final review process for virtually all returns so clients get maximum value.)

Finding the right price to charge is as important as the service you provide.

Finding the right price to charge is as important as the service you provide.

Fees have steadily climbed. As fees climbed some clients left. Revenue still climbs because fewer people leave than the fee increases. The higher fee allows me to add more value to each return. This means lower taxes for clients so my fee is really free after tax savings are included. But, Dawn, my ace tax preparer, and I will sit with every client this year. The last few years we allowed other team members to handle this. I hated it because I need to know my client better and the new system will allow for it as long as I don’t grow the business too large. (Clients living further away will have more phone time with us.)

The goal is to always provide a better experience for the client. Quality is important as long as the client feels respected. Doing the best work and ignoring the client is still bad form.

And don’t worry about losing all your clients. I’ve experienced that emotion all too often. Let me sooth your nerves with a story: This blog has produced an excessive flow of consulting clients. I love the work and with rare exception the client walks away from the consulting session with thousands or even tens of thousands in tax savings. There is a reason for the high demand.

I consult with new clients from June to December on Tuesdays and Thursdays. The max, I discovered, is two consulting sessions a day. Any more and the research and face time exhausts me too much. (Regular clients can have consulting sessions any time of year, even tax season.)

The past year I charged $275 an hour. When the new consulting season starts in June the fee is $350 per hour. Still a good value when thousands in taxes are saved.

You would think the fee increase would slow things down. It didn’t. June is already filling up six month in advance! Kind readers, please understand. People are hungry for top-quality service and products! They are sick and tired of junk. The more I raise my fee the more people know I’m focusing on increasing the value even more. And they want this even higher value product more!

Let me make one thing clear as we wrap this up. This is not about bilking the client. This is about serving the client at the highest level possible and pushing higher from there. You are good today; you’ll be even better tomorrow as you learn and accumulate more experience. People want that!

The increased consulting fee means I will work slightly fewer hours and, of course, will make more. But cutting the hours just a bit allows me to learn and grow more as I have the time to research ideas and strategies. This makes every hour of my time purchased worth significantly more.

Tax preparation fees are the same. Cheap is NOT better. Cheap means a shortcut was taken. You can’t do it profitably any other way. What you save in accounting fees is lost to your least favorite uncle in Washington. I’m not close to the cheapest. I played that game before. I’m embarrassed to say it because that means my clients were screwed by my lack of experience in those days. If I’d have raised priced I might have done a better job earlier in my career.

As for the dog sitting side hustle: People love their pets and want the best for them. Charge more and include a doggie massage and doggie treats. The dog and the human will thank you for such kind consideration.

As a bonus, you’ll have a profitable and successful business you enjoy running ever day. No retirement for you; you’re already living the dream.


* If you work at a job and hate it there is a good chance you work for a company peddling as much crap as they can flush out the door. People who work for companies that provide high quality products or services are almost always a pleasure to work for also.


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Mohan Ayer

Saturday 19th of January 2019

I believe this discussion should be confined to businesses that provide one on one service. I have not experienced any deterioration in quality of service by focusing on Vanguard, the low fee provider in the investment world and Amazon/ who have extremely low transaction fees. As my hero, the late Jack Bogle would say, “you keep what you don’t pay for”.

Keith Taxguy

Saturday 19th of January 2019


Katie Camel

Wednesday 16th of January 2019

Great topic and examples! I shared your post with my brother to encourage him to raise his fees. So many of his clients try to weasel more and more work out of him for nothing, which is completely unfair. His time is just as valuable as theirs. Some also try delay paying him, coming up with excuse after excuse after excuse for not paying upon completion of the project, even though he's out both time and money. Any advice for dealing with that too?

Thanks for a great post! I think it will help him plan pricing accordingly.

Marc Stump

Wednesday 16th of January 2019

Katie, I'm no expert on this, though I did purchase a lifetime consulting package and business plan from an accountant several years ago, planning to eventually go into business. The way he ran his business was that he didn't have receivables, therefore he didn't have to send out bills. His experience was that the accountant was always the last one to get paid. When he did tax work or monthly write up work he would give them an estimate, a range of highest to lowest prices the job would run and that payment was expected upon delivery of service. I don't know if the agreement was legally binding, but by signing it they couldn't claim ignorance. Tax work was paid for at pick up; monthly write up work was paid for at delivery. If the company would only write checks once a month on a certain date, he would give them that much grace. But he would not deliver the next months work to them until paid. He told me that many doctors and lawyers require payment up front, so he did the same. I'm sure that a business will have a lower customer base by not having receivables. The only time I heard it mentioned was in a talk by Dave Ramsey. I attended one of his "Live Events" back before his daughter started doing them for him; you couldn't purchase a book or product from him with a credit card, either debit or cash. He said that he had been told that by accepting credit cards he could increase his book sales by 30-40%, but he felt that his "cash only" message would be hypocritical if he accepted credit cards. With no receivables, I guess business would suffer, but stress would be much lower. Didn't meant to hijack this thread, Keith. Sorry.

Keith Taxguy

Wednesday 16th of January 2019

Katie, I'll assume your brother does some kind of contracting work.

My first advice isn't advice but an observation. Once you allow one client to take advantage of you they tell their friends (send them over) and now you have a mess on your hands as you work non-stop and have nothing to show for it. In some professions there is some room for negotiation. However, once a price is agreed upon that is the price. (I hope he has clients sign a contract for work ordered.)

If payment is not made on time that client will never be served again. For contractors this is a problem since many jobs are one and done. If scheduled payments are not made work in progress stops until paid! After a certain number of days the bill goes to small claims or in some cases a bill collector.

These people are everywhere and the sooner you get them out of your life the better. A couple years back I had a new client from New York who though he would play me. I did the work and he paid so I'd e-file his return. Then he blamed me because he owed taxes when I didn't even know he existed when the taxes were due to avoid penalty. He back-charged his credit card payment. He was sent to a bill collector and he still dragged his feet. He was this close to court. The day I got the call he paid I already had the paperwork ready to go. It would have been a lot more expensive for him then and the collection is on his credit report.

Most states have an easy process to slap a contractor's lien on a property. I would also consider making judicious use of this option.

My point: When it comes to late or unpaid invoices I don't mess around. They agreed to pay and if they don't I run a rapid collection course: firm disclosure to client about the required payment and demand for payment, collections company and then court. For contractor work you go straight to court.

Jamie V

Tuesday 15th of January 2019

Good advice! The timing, too, really - I was chatting with a guy last night at my other job about self-employment and side business ideas (I had no ideas). It was a good chat. I've been getting in to quilting, just the basics really, as a creative outlet, but I can't even fathom how one would go about turning that hobby into a small side hustle. Looked at Etsy and people are selling quilted items so cheaply. I got so many ideas but it looks like they hardly can cover cost of materials, and they must not be paying themselves anything for their time! I think if I start selling 4-piece sets of quilted coasters for $5 a pop, I'm not going to need your tax services anytime soon.. But this is just so timely with the conversation I had last night that it struck me. Thanks! :)


Monday 14th of January 2019

Thank you. I'm going to share this with my handyman husband who is facing some of the same issues you went through.

Marc Stump

Monday 14th of January 2019

People still believe that basically, you get what you pay for. An accountant I've purchase services from told me he had a client, an accountant that was working himself to death, charging an average of $200 for his "product"(don't know if it was monthly write-up work, bookkeeping or tax prep). He was advised to send a letter out, doubling his fees to all clients. The client told him he would probably lose a massive amount of customers. "Well" the consultant said "If you double your prices and lose half of your customer base, then you've lost no income but have cut your hours in half." So the accountant sent out a letter to his customer base announcing that he was doubling fees. He didn't lose one client! Another thing that Ferris pointed out in his book "The 4 Hour Work Week" is that the clients that are typically the ones that complain about the price are the ones that usually take up most of your time, and become high maintenance clients.As you found out! By "firing" these clients you lose a minimum of income but also lose a maximum amount of stress.

Keith Taxguy

Monday 14th of January 2019

Yes, Marc, yes!!! That is exactly my experience. I did lose some clients with the price increase, but I was losing more when I was drowning in work due to burnout. And you don't lose half your clients. Some go, probably the ones you should have let go. The ones who remain value your service, allowing you to excel even more. Smart clients know they benefit more from a higher fee than a lower one.

My goal with this post was to share my experience and hopefully help other small business owners make the leap to higher quality and profits.