Chris Petzoldt, CEO of value monetisation consulting firm Pretian Squared, dispels the myth that cost-of-living pressures mean that small-business owners need to discount to retain customer
When margins get squeezed, small-business owners need to navigate fast decisions under pressure.
The knee-jerk reaction
And the default reaction is almost always the same: cut the price, offer a deal or match the competitor down the street.
It feels generous, it feels competitive – it’s usually a mistake.
Australia’s cost-of-living pressures have made the temptation worse. Customers are more careful with spending. Inquiries are slower to convert. So, the discount comes out early, almost as an apology for charging in the first place.
But discounting doesn’t fix a pricing problem. It creates one.
Give a discount once and customers expect it. Offer it twice and it becomes the real price. Provide it routinely and you’ve trained your market to wait you out, while quietly eroding the margin you needed to grow.
The competitor trap
Many small businesses set prices by looking sideways. What’s the competitor charging? Match it. Maybe go slightly lower to win the work.
There’s a problem with this logic. Competitor-based pricing assumes your competitor knows more than you, prices better than you and has identical value to you. This is almost never true on any count.
Your competitor has different costs, different customers, a different story. If you built a better product, hired better people or created a genuinely different experience, pricing to match someone else means giving that away for free.
Competitive context matters. Know where you sit. But don’t outsource your price strategy to someone else’s P&L.
What customers actually value
Here’s what most business owners underestimate: customers are not primarily buying on price. They’re buying on value. Price only becomes the deciding factor when value isn’t clear.
You don’t need a huge market research budget to understand this. Talk to five to ten of your best customers. Ask what they’d miss most if you disappeared tomorrow. And what frustrates them about other alternatives. Ask what they’d genuinely pay more for if it were better.
The answers will tell you more than any pricing spreadsheet.
A useful example: automotive manufacturers don’t price metallic paint at cost-plus. The actual cost difference is around $50. At a 100 per cent margin that would be $100. The price charged is $1,000 or more. Why? Because customers have demonstrated they value it, and the manufacturer understood that. The margin is captured by understanding willingness to pay, not by adding a percentage to a cost figure.
Most small businesses are sitting on similar opportunities, invisible only because no one has stopped to look.
One size fits nobody
And here’s a simple gut check: if none of your customers complain about your pricing, you are almost certainly too cheap.
A flat, single price for everything is one of the most common ways small businesses leave revenue on the table.
Customers have different needs and different budgets. Some want the essentials. Others want the full service. Some will pay a premium for speed, certainty or expertise. A single price forces everyone into the same box, which means over-serving price-sensitive customers and under-charging your best ones.
A simple good/better/best structure changes this. It doesn’t need to be complicated. Three clear options, with obvious differences in what you get, letting customers self-select. Average spend goes up without any hard selling.
Bundling works the same way. Think grouping complementary services. Make it easy for a customer to say yes to more, only paying a little more in a single convenient decision.
The number that matters
Pricing drops straight to the bottom line. Here’s a practical example:
A retailer selling a $100 product at a 10% margin makes $10,000 profit on 1,000 units. If you raise the price by two per cent and that profit jumps to $12,000 we see a 20 per cent improvement. A two per cent cost reduction gets you to $11,800 which is meaningful, but harder to sustain and leaving $200 on the table.
But here’s the number most business owners miss: you could lose 20 per cent of your customers after that two per cent price increase and still make the same profit as before. The fear of losing customers keeps prices artificially low. The maths rarely justifies that fear.
In thin-margin businesses, that difference is often the gap between a viable year and a difficult one.
Australia’s small business sector is under real pressure right now. The businesses that come out stronger won’t be the ones who discounted hardest. They’ll be the ones who understood what they’re actually worth.
