How to price a product or a service

Start from what it costs you

The cost of a product is what you paid for it, plus anything it costs to get it to the customer, such as transport or packaging. The cost of a service is your materials plus the value of your time. Many businesses forget their own time, and pay for it later.

Write the cost down for every item. If you cannot say what something costs you, you cannot say whether you are making money on it.

Margin and markup are not the same

Markup is how much you add to the cost. Margin is how much of the selling price is profit. They are easy to mix up, and the difference matters.

If you buy something for 600 and sell it for 900, you added 300. The markup is 300 divided by 600, which is 50%. The margin is 300 divided by 900, which is about 33%. Same product, same profit, two different percentages.

Check the price against your costs

Add up your fixed costs for the month, such as rent, wages and power, and divide by the profit you make on each sale. That tells you how many sales you need just to cover the bills. Our break-even calculator does this for you.

Look at the market, then decide

Prices from competitors are information, not orders. If you are cheaper, make sure you are still making a profit. If you are dearer, be ready to say why: quality, service, location or trust.

Change prices gradually, tell regular customers early and write the new prices down where you can see them.

Include VAT properly

If you charge VAT, it is not your money. It belongs to the tax authority, so keep it out of your idea of profit. The standard rate here is 7.5%. Check your obligations with the tax authority or an accountant.