Rule of Thumb: When you do not get too many complaints from customers that your prices are high, then your prices are too low. Relative to competitive pricing you can always use your customers as the barometer. However, most business owners have enough handle on their business to be able to discern whether their prices are too high or too low. 

The business owner also usually knows what their competitor’s prices are and that helps them price the product. One problem I see with business owners is when they are doing the selling they tend to give away too much when it comes to price. They tend to give too many discounts and credits. If you have a tendency to do that then it is best for an employee to close the sale.

Look at your Gross Profit Margins and see how they compare to the industry average and your overhead base. Gross Profit Margin is Sales Less Cost of Goods sold. The cost of goods sold are the direct materials, direct labor, subcontractor costs and other direct costs specifically associated with the production and delivery of the product or service you provide. There has to be enough gross profit to cover your overhead and reach the desired profit. When gross profit is too low cash flow problems can ensue. In addition to increasing selling prices your aforementioned direct costs need to constantly be reviewed and negotiated with suppliers. 

The other critical element to pricing is to know what your product or service costs. I have had many clients not understand what their product or service costs and it turned out that the client was selling their product or service below cost. You can just imagine the cash flow problems that was causing. You must know what your product or service costs in order to profitably price your product. If you find that your product or service costs too much and you cannot be competitive in the market then it is time to examine the components of the product or service cost to see what can be done to reduce it.