Stop Charging Less for Your Small Business Services
Arvid Kahl recently warned that low prices are sinking small tech businesses. Here is how to raise your rates without losing your best customers.
By MyBizNerd Team · Published
Key Takeaways
- Raising your prices by just 10% can significantly improve your cash flow without requiring new customer acquisition costs.
- Software and service businesses should focus on high-value problems rather than competing on being the cheapest option in the market.
- Verifying your business legal structure, such as an LLC or S-Corp, provides the foundation to justify professional-grade pricing.
- Before changing your rates, review the Small Business Administration's guide on tax obligations to ensure your new margins cover self-employment costs.
A solo graphic designer in Atlanta named Marcus spent three years charging $50 an hour while his overhead for software and insurance crept up every month. He was terrified that a price hike would send his six steady clients running to a cheaper freelancer on Upwork. By the time he realized he was netting less than minimum wage after taxes, he was too burnt out to even open his laptop.
Arvid Kahl recently highlighted a shift in how small software and service companies survive. He said on X that founders need to "Charge more" because legacy companies are being bought for pennies, leaving a gap for high-value, sustainable businesses. This isn't just a tip for tech geeks. If you run a 3-person cleaning crew, a solo bookkeeping firm, or a local repair shop, the lesson is the same. Selling your time or product for the lowest possible price is a race to the bottom where the only prize is going out of business. Many new owners think they've to be the cheapest to get a foot in the door. The reality is that cheap clients are often the most demanding and the least loyal. When you charge more, you attract people who value the result more than the receipt.
The High Cost of Being Cheap
When you undercharge, you aren't just losing money today.
You're actively draining the bank account you'll need for tomorrow's emergencies. If a plumbing truck breaks down or a laptop dies, a low-margin business has no safety net. gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes) to see exactly how much of every dollar is already spoken for before you even pay your rent. 3% self-employment tax plus your regular income tax, your "profitable" price might actually be a loss.
How to Raise Rates Without The Drama
- Bundle your value: Instead of selling one hour of consulting, sell a "Startup Audit Package" for a flat fee. It hides the hourly rate and focuses on the win for the client.
- Grandfather old clients: Tell existing customers their rate stays the same for 90 days, but all new business starts at the higher price immediately.
- Add a premium tier: Offer a faster turnaround or a direct cell phone line for a 30% markup. You'll be surprised how many people pay for convenience.
- Fix your messaging: Stop saying you're the "affordable" choice. Start saying you're the "specialized" choice for your specific neighborhood or niche.
The Math of a 20% Hike
If you've 10 clients paying $100, you make $1,000. If you raise prices to $120 and lose two clients, you still make $960 but you've 20% more time to find better customers. (Disclosure: we may earn a commission if you sign up through our links.)
Professionalism is a choice you make through your pricing and your paperwork. 4 LLC Mistakes That Quietly Pierce Your Shield shows that if you treat your business like a hobby, the law might treat it like one too. High prices signal that you're a serious professional who plans to be around in five years. Cheap prices signal that you might close up business the moment a better-paying job comes along.
Charging more gives you the breathing room to actually care about your customers instead of just rushing to the next invoice.
Related free tool
Break-Even Calculator — Find the number of customers you need to stop losing money. Free, no signup to start.
📋 Disclaimer
This article is for informational purposes only and does not constitute legal, tax, financial, or professional advice. Laws and regulations change frequently, and the information presented may not reflect the most current legal developments. Always consult with a qualified professional (CPA, attorney, financial advisor) before making business decisions based on this content. MyBizNerd may receive compensation through affiliate links, but this never influences our recommendations.