KEY TAKEAWAYS

• One in five small business owners globally say they wanted to raise prices in the past six months but held off out of fear of losing customers, according to a 2026 survey of small business owners across 57 countries.
• In Canada, planned price increases have hovered near 3% through mid-2026, even as fuel and other input costs, the top cost pressure for most firms, have risen faster than that.
• Underpricing is rarely a single bad decision. It is usually the accumulated result of pricing on cost instead of value, and then never revisiting the number once it is set.



One in five small business owners say they wanted to raise prices in the past six months but held off, fearing they would lose customers, according to a 2026 global survey of more than 500 small business owners and sole traders across 57 countries. In Canada specifically, the Canadian Federation of Independent Business found small business owners planned average price increases of just 3.1% as of mid-2026, even as fuel costs, the top cost pressure cited by nearly three-quarters of firms, continued climbing faster than that. The gap between what costs are doing and what prices are doing is where underpricing lives.

Underpricing rarely looks like a mistake from the inside. It looks like being competitive, being fair to loyal customers, or not wanting to be the business that raised its prices during a hard year. The problem is that none of those instincts are pricing decisions. They are relationship decisions wearing a price tag, and the difference between what was charged and what could have been charged accumulates for years into a business that works harder than it needs to for the margin it keeps.

Why Do Small Businesses Underprice Their Products or Services?

Most underpricing traces back to one of five mechanisms. Rarely is it just one.

1. Pricing is set on cost, not value. Cost-plus pricing, take what something costs to produce or deliver, add a standard markup, feels rigorous because it is based on real numbers. But it answers the wrong question. Cost tells you what you need to charge to survive. It says nothing about what the customer is actually willing to pay for the outcome, the time saved, or the risk removed. A business that only ever asks "what did this cost me" will consistently underprice anything where the value delivered exceeds the cost to deliver it, which is most things worth selling.

2. Prices are anchored to competitors without adjusting for what's different. Matching or slightly undercutting a competitor's price is a common default, especially for a new business trying to win its first customers. It treats price as the only variable customers care about, and it assumes the business is otherwise identical to the competitor, which it rarely is. A business with faster turnaround, better service, or deeper expertise that prices itself the same as a slower, less differentiated competitor is giving that difference away for free.

3. Prices lag cost increases because raising them feels risky. Once a price is set, it becomes the price, and changing it requires an active decision that most businesses put off. Costs, meanwhile, rise on their own: fuel, wages, materials, rent. Every quarter that a price stays flat while input costs climb is a quarter where margin erodes without anyone deciding it should. The fear of losing a customer over a price increase is real, but the businesses that never raise prices are absorbing that same risk anyway, just as a slow leak instead of a single decision.

4. Owners undervalue their own time. This is most visible in service and trades businesses, where the owner's labor is a direct input to what is sold. Many owners price a job by covering materials and a modest hourly rate for themselves, without accounting for the time spent quoting, scheduling, following up, or managing the business itself. As the business grows, this initial pricing logic often does not grow with it. The price that made sense when the owner was doing every job personally stops making sense once there is a team, overhead, and a business to run.

5. Every customer pays the same price regardless of the value delivered. A single flat price is simple to communicate, but it ignores that not all customers or projects are equal. A rush job, a complex project, or a high-value client relationship often costs the same to price as a routine one, even though it consumes more time, carries more risk, or delivers more value. Without segmentation, either the routine work is priced too high to stay competitive, or the high-value work is priced too low to reflect what it is actually worth.

The Real Cost of Underpricing

Underpricing does not show up as a single bad month. It shows up as a business that has to sell more, work harder, and take on more customers to hold its margin at the same level, and it feeds directly into the same cash flow strain most small businesses attribute to slow-paying customers or rising costs. A business earning 10% less margin than it should on every sale needs 10% more revenue to end up in the same place, before accounting for the added cost of serving that extra volume: more inventory, more staff time, more capital tied up in the cash conversion cycle.

This is why pricing and cash flow are the same conversation, not two separate ones. A business that fixes its pricing before trying to fix its cash flow often finds the cash flow problem gets smaller on its own.

How to Know If You're Underpriced

A few honest questions surface most underpricing problems quickly:

• When did you last raise prices, and was it a deliberate decision or something that happened by default?
• If you raised prices 10% tomorrow, could you say specifically which customers would leave? Or is the fear general rather than based on anything a customer has actually told you?
• Do your best, most differentiated customers pay the same price as your most price-sensitive ones?
• Does your price account for your own time, including the time spent on a job that isn't the billable work itself?
• Have your costs risen faster than your prices over the past 12 to 24 months?

If most of these are hard to answer confidently, the pricing has likely been set once and left alone, rather than managed as an ongoing decision.

How to Raise Prices Without Losing Customers

Separate the fear from the evidence. Most owners can name a specific customer they are afraid of losing, but few have actually tested whether that customer would leave over a reasonable increase. Fear of a general, faceless mass exodus is rarely borne out when tested against real customer relationships.

Raise prices for new customers first. A new price applied only to new business removes the risk of an existing relationship reacting badly, while immediately improving margin on everything going forward.

Segment before you raise across the board. Identify which customers or services are most underpriced relative to the value delivered, complex projects, rush work, high-touch relationships, and start there rather than applying a flat increase everywhere at once.

Tie the increase to something concrete. Rising input costs, added services, or improved turnaround time all give customers a reason for the change, rather than asking them to simply accept it.

Revisit pricing on a schedule, not a crisis. Businesses that review pricing annually rarely need a large, uncomfortable correction. Businesses that review pricing only when margins are already painful usually do.

Frequently Asked Questions

How do I know if my prices are too low? Common signs include costs rising faster than prices over the past year or two, being unable to name a specific customer who would leave over a reasonable increase, and charging the same price to customers regardless of how much value, complexity, or urgency their work involves.

Will raising prices cause me to lose customers? Some attrition is possible with any price change, but most small businesses overestimate how many customers will leave and underestimate how much margin they are giving up by not adjusting. Testing the increase with new customers first, or with a segment of existing customers, reduces the risk of a broad reaction.

What is the difference between cost-plus pricing and value-based pricing? Cost-plus pricing sets a price by adding a fixed markup to the cost of producing or delivering something. Value-based pricing sets a price based on what the outcome is worth to the customer, such as time saved, risk reduced, or revenue enabled. Cost-plus pricing tends to underprice anything where the value delivered is greater than the cost to deliver it.

How often should a small business review its pricing? At minimum annually, and more often in periods of rising input costs. Businesses that treat pricing as a scheduled review rather than a reaction to a cash flow problem tend to make smaller, less disruptive adjustments over time.

The Bottom Line

Underpricing is rarely a single decision a business owner can point to. It is the accumulated effect of pricing on cost instead of value, anchoring to competitors without accounting for what's different, and letting a number set once go unquestioned for years. The fix is not a dramatic overhaul. It is treating price as a decision to be revisited on purpose, on a schedule, using evidence rather than fear.

If you've ever found yourself wondering why the business is busier than ever but the margin doesn't reflect it, share this with the owner who needs to hear it too.

Sources: Bookipi, "The Cost of Doing Business: A Global Small Business Snapshot" (2026); Canadian Federation of Independent Business, Monthly Business Barometer (May 2026).

This article is part of eSupply Canada's Business Intelligence series for Canadian SME owners and operators.

Related reading: Why Profitable Businesses Still Run Out of Cash and Cash Problems Are Rarely Sudden.