HOW TO ACTUALLY KNOW IF YOU’RE UNDERPRICED

The first two essays in this series were about feelings.

The fear of charging more, the hamster wheel that spins faster the harder you work & the moment you realize the number on your invoice was never built for the business you actually wanted.

This essay is about math.

If you’re a self-declared non-numbers person, hang with me. All we are talking about here is just two numbers that will tell you, clearly and without emotion, whether your pricing is working — or quietly killing you.

First, let’s rule out the other suspects

When margins are thin and cash is tight, most business owners go looking for expenses to cut. And look — I get it. Expenses feel controllable. You can open a spreadsheet, find a line item, and eliminate it. It feels like action.

But here’s what I see over and over again: by the time a business owner lands in my office, they’ve already cut what they can cut. They’ve canceled the subscriptions. They’ve renegotiated the contracts. They’ve stopped buying the nice coffee for the break room.

The expenses are as lean as they’re going to get.

Their second instinct is to sell more. More clients, more revenue, more volume. They push harder on sales — and something strange happens. The more they sell, the more stretched they feel. The budget doesn’t expand… it contracts. Every new client feels like it costs them something instead of adding to them.

When I see both of those things happening at once — expenses already cut, more sales making things worse instead of better — I know exactly what I’m looking at.

A pricing problem.

This is good news, because this is not a hustle problem & it’s as controllable as an expense problem.

The two numbers that tell the truth

Once I’ve ruled out expenses and volume, I go straight to two metrics: gross margin percentage and cost per client.

Gross margin percentage tells you how much of each dollar of revenue you actually get to keep after the direct costs of delivering your product or service. It’s the number that answers the question: is this business structurally profitable, or is it working hard just to break even?

I won’t give you a magic number to aim for here, because the honest answer is that it depends on your industry, your model, & whether you’re product-based or service-based. What I will tell you is this: if your gross margin makes your stomach drop when you look at it, it’s not because you didn’t hit your sales goal.

And if you’ve never calculated your gross margin, that’s the first thing I’d advise you to fix. You cannot price correctly if you don’t know what it costs you to deliver what you sell.

Cost per client is the second number — and in my experience, it’s the one that surprises people most. This is what it actually costs you to serve one client, fully loaded: your time, your team’s time, your tools & software, your overhead allocated across your client base.

When business owners calculate this for the first time, one of two things happens. Either they discover they’re profitable per client and the problem is somewhere else, or they discover that what they’re charging per client barely covers — or doesn’t cover — what it costs them to serve that client.

That second scenario is more common than you’d think and it means that every new client you sign or sale you make isn’t growing the business, it’s growing the problem.

What to do when the numbers tell you what you already suspected

First: don’t panic. Knowing is always better than not knowing, even when what you know is uncomfortable. Don’t make this discovery mean anything other than a piece of data you can now use to make a more informed decision.

Second: don’t try to fix it all at once. A sudden dramatic price increase can spook existing clients and create chaos you don’t need. What you’re looking for is a deliberate, defensible path to where you need to be.

Here’s what that looks like in practice:

Start with new clients. Raise your prices for any new business you bring in, if you’re service-based. This lets you test the market, build confidence, and start shifting your revenue mix without disrupting your existing relationships. If you’re product-based, start by increasing a single product price by a percentage or two. See how the market reacts.

Then, audit your most expensive clients (or products). These are not the clients who pay the least (or the cheapest products). The most expensive clients (products) are the ones who cost the most. Sometimes a pricing problem is actually a client (product) mix problem. A handful of clients (products) consuming a disproportionate amount of your time (inventory cost) at a lower rate can drag your whole margin down.

Build the Disneyland budget. I talked about this in Essay 2 — the exercise my sister walked me through where you price from the business you want, not the one you’re afraid to want. Build that budget. Then work backwards to what you’d need to charge to fund it. That number is your north star.

And finally: get the numbers in front of someone who can help you read them. Yes, you could figure that out on your own, but that’s not why I need you to get a second pair of eyes. You need a neutral third-party, one who isn’t emotionally attached to your invoice amounts. It’s almost impossible to see your own business clearly when you’re inside it.

The thing nobody tells you

Fixing your pricing doesn’t just fix your margins. It fixes your energy.

When you’re charging what your work is actually worth, you show up differently. You have the resources to hire well, serve well, and build the kind of business that doesn’t require you to be on the hamster wheel forever.

The math is the easy part. The hard part is believing you’re worth it before the numbers prove it.

You are. Start there.

The Profitability Project helps small business owners stop guessing and start knowing — bookkeeping, tax, payroll, fractional CFO, and everything in between. Not your dad’s CPA.