I was in a meeting with a client this week going over profitability, and I asked what her contribution margin was on her main service. She paused, and I could tell right away she wasn’t sure in the way that tells you the number has just never been calculated.
What she did know, and knew well, was her competitors’ pricing. She could rattle off what three or four other businesses in her space charged, almost line by line, like she’d studied for a test on it. The problem is that none of them were really her competition. They did adjacent work, things that sounded similar from the outside, but not what she actually does or how she does it. So she’d spent real time and effort building her pricing around businesses that weren’t the businesses she was actually up against.
There’s a line from The Art of War, Sun Tzu’s treatise on military strategy, that gets quoted a lot: if you know yourself and know your enemy, you don’t need to fear the outcome of a hundred battles. My client had done the enemy half of that homework thoroughly. What she hadn’t done was turn that same attention on her own numbers.
Knowing the Enemy Isn’t the Same as Knowing Yourself
I see this pattern more than I’d like. An owner can tell you exactly what three competitors charge down to the dollar, but ask what it actually costs them to deliver the service and you get silence. Someone else has the going industry rate memorized but has never once sat down and calculated their own labor cost per client. And I’ve had clients hand me a whole market report on pricing benchmarks who, when I ask if last month was profitable, genuinely don’t know.
None of that research is wasted, to be clear. Knowing the market matters. But it answers a different question than the one that actually determines whether you’re making money. Knowing where the market sits tells you nothing about what your own cost structure requires you to charge.
And there’s a layer underneath that in my client’s case too, which is that she was comparing herself to the wrong businesses in the first place. Something can look like your competition on paper, same general industry, a similar-sounding service description, and still not be playing your game at all. Different scope, different level of expertise, a completely different cost structure behind the scenes. When you price against a business that isn’t really your peer, you’re solving for the wrong terrain on top of not knowing your own.
What Knowing Yourself Actually Requires
- Calculate your contribution margin, service by service or client by client if you can. Not revenue, what’s actually left once direct costs come out.
- Know your true cost to deliver, including your own time. If you’re not billing hourly, you still need to know how many hours a service actually eats up.
- Get honest about who’s actually your competition. Not who looks similar from the outside, but who’s competing for the same client, at the same level, for the same scope of work.
- Let your own numbers set the price first, and use the competitive research afterward, as a sanity check rather than the starting point.
None of this requires complicated math. It mostly requires being willing to look at a number you’ve been avoiding.
Cafecito Takeaway
My client wasn’t doing anything careless, and I want to be clear about that. She was paying attention. She was gathering information and genuinely trying to be strategic about her pricing. She’d just pointed all of that effort outward, at everyone else, and never turned it back on her own business.
If someone asked you your contribution margin right now, in this meeting, no time to go check, could you actually answer? If the honest answer is no, that’s the number worth going and getting before you spend one more minute studying anyone else’s pricing.
