Q: How do I figure out if my prices are right for my type of business? Too high? Too low?

A: Setting the proper prices for your small-business products and services can be very tricky. Some business owners think they have it down. But after reviewing costs, expected profit, what competitors charge and what they think customers will pay, it becomes more complex.

Pricing too low can cut into your profits, while overpricing also can hurt your business. Finding just the right balance between all of the factors involved is more an art than a science.

A common misstep - especially in the early stages of a business - is pricing too low in order to attract customers. While special deals can work in some cases to start the ball rolling, going low is not always the best path. Low prices can draw customers interested only in price. They are the ones most likely to abandon you the moment they find an even lower price elsewhere.

Choosing excessively low pricing levels to attract clients is even more dangerous for service businesses. You only have so many hours to sell. Your business can't make it up in volume like a retailer who still profits from lower prices if volume is high enough.

Pricing is partly psychological. You will want to set your levels according to the perception of your product or service "brand." If you want to be in the "premium" neighborhood, your pricing can be higher to match an upscale image.

Pricing is an ongoing process, so test your pricing periodically. You may need to adapt to changing conditions. Competitor prices, your own costs, customer perceptions and your profit expectations all can change. You may want to simply test different pricing levels to see what works best for your business.

Research the norms for your industry, including price ranges across the country if you sell nationwide. You may want to charge more or less, depending on your brand positioning.

No pricing strategy is complete unless you know with as much precision as possible what your own costs are to deliver the product or service. Don't guess. Price it out to the penny and include all of your overhead costs, direct and indirect. You should know exactly what you have to do in order to earn the profit you want.

-Carol A. Harding, SCORE counselor

Meet a SCORE counselor

Elmer Hawkins is an active law partner at Brown, Hawkins, Basola & Mattingly. His counseling specialties are real estate, estate planning and legal issues for small business. He has been a SCORE member for eight years.