How to price your products: a simple method for small businesses
To price a product: add up everything it costs you, decide the margin you need, divide the cost by one minus that margin, then check the result against what customers will actually pay.
1. Find your true cost
Include the item itself plus everything attached to it: transport, packaging, delivery, payment charges and anything that spoils or gets returned. Leave nothing out, because every missing cost comes out of your profit.
2. Choose the margin you need
Margin is the share of the selling price you keep as profit. Pick a number that also pays for your running costs such as rent, power, data and staff, not just the item.
3. Calculate the price
Price = cost ÷ (1 − margin). For a cost of ₦6,000 and a 40% margin, the price is 6,000 ÷ 0.6 = ₦10,000. Use the profit margin calculator to do it instantly.
4. Check the market
Look at what similar sellers charge, and what customers say when they hear your price. If the market will not pay your calculated price, you have two honest options: lower your cost, or sell something that earns more.
5. Watch for these mistakes
Copying a competitor's price without knowing your own cost.
Confusing markup with margin. See how to calculate profit margin.
Giving discounts that wipe out the profit.
Never reviewing prices when your costs rise.
6. Review regularly
Check your costs and margins every month. When your records show a product selling well but earning little, raise the price or find a cheaper supplier.