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Pricing: What AI Can't Work Out for You, and What It Can

Pricing by looking at what the competition charges quietly eats your margin. Here's what AI genuinely helps with in a cost calculation — and what it will confidently invent.

The most common way small businesses set a price is to look at what the shop down the road charges and go slightly under. That works right up until it turns out the shop down the road either did the arithmetic more carefully, or has been losing money for a year without noticing.

The second most common approach is more honest but just as leaky: materials plus however much doesn't feel greedy. It counts what appears on an invoice and misses everything else — your time, a share of the rent, platform fees, the batch that came out wrong, the hours spent answering questions before the sale.

AI is not the help people expect here. It doesn't know your numbers, and if you don't give them to it, it will invent them with total confidence. But there's one thing it does genuinely well, and that's the thing to ask for.

What not to ask for

"Calculate the cost of a gift hamper" will get you a calculation. A tidy one, with a total. Completely made up: the model has no way of knowing what your paper costs, what you pay in rent, or how many minutes go into packing.

The danger is precisely that it looks convincing. A table of numbers reads as fact even when the numbers came from nowhere.

What to ask for: the list of things you forgot

The valuable output isn't arithmetic — it's the list of cost categories. The model has read thousands of descriptions of what makes up a unit cost, and it will remember the ones that are invisible from inside a business.

Help me structure the cost calculation for [product or service].

Known costs: [list everything you know — materials, labour, rent].

List every cost category worth including, including the ones I might
forget: a share of rent, equipment depreciation, admin time, payment
fees, waste. Explain each in one line — why it belongs in the number.

Three or four lines usually come back that weren't in your head. The ones missed most often: marketplace and card-processing fees, the cost of returns, pre-sale conversation time, and the owner's own wages, which a lot of people simply never put in.

Your own hour is the most expensive missing line

That last one deserves its own paragraph. Someone who sews the thing, photographs it, answers the messages and takes it to the post office usually doesn't count their own time as a cost. That makes the unit cost look about half what it is, and the business look profitable — until they work out what they earned per hour.

My monthly income from the business: [amount].
Hours I actually work per month: [number].
My essential living costs: [amount].

Calculate the real value of my hour. Then compare it with what it costs
to delegate [a task I currently do myself]: [contractor's rate].
Is delegating worth it? Show the math.

This is one of the few cases where you can hand the model the arithmetic, because every number came from you. The result is often unpleasant and always useful.

Then move to a spreadsheet, not a chat

Once the list of cost lines exists, chat becomes the wrong tool. To recalculate after your materials get more expensive, you'd have to retype the whole prompt.

A small calculator in a spreadsheet does it better. The minimum working set of columns:

Here's the detail people get wrong most often: the recommended price is not cost plus margin. If you want a 35% margin, you divide by (1 − 0.35), not multiply by 1.35. Multiplying gives you 26% instead of the 35% you meant, and the gap isn't obvious until you look for it.

The pack includes this calculator ready-made, with formulas and a filled-in example row. But building the same thing in Google Sheets is half an hour of work, and none of the above changes if you do.

When the number comes out higher

The calculated price is almost always above the one you had. The fear that follows is that customers will leave.

Some will. But the conversation with the ones who stay gets easier once you know your own number: instead of "alright, I'll do it cheaper for you", you get "below this I'm working at a loss, and here's what makes it up".

That conversation is worth preparing in advance rather than improvising while someone is pushing:

A customer says [price] is too expensive and points to [competitor].

Write a calm reply in 3-4 sentences: no defensiveness, no running down
the competitor. Explain what's included in the price and what
specifically is different about what they get. Tone: level, not
apologetic.

Three things to check before you change any prices

That every number is yours. If the calculation contains a figure you didn't put in, it was invented. Models fill gaps confidently.

That fees are in. Marketplace commission, card processing, delivery — these are percentages of revenue that are easy to forget because they never pass through your hands.

That time isn't counted twice. If your own hour is already inside "labour", don't add it to overhead as well.

More on this: prompts for small business owners — the same approach across five areas of the business. And replying to reviews and customer messages, which covers the "too expensive" conversation in more depth.

There's a free demo with 15 of the prompts — no signup — if you'd rather see how one works before deciding anything.