When it comes to pricing, the answer starts with your numbers, not your competitors’.
The Most Common Mistake Entrepreneurs Make
“I’ll charge about the same as everyone else.”
It sounds reasonable, but the truth is you don’t know whether your competitors are making money, losing money, or operating with completely different costs than yours.
Setting prices without doing the math is one of the fastest ways to work hard and earn very little.
The Basic Formula
Price = Total Cost ÷ (1 − Margin)
Your margin is the percentage of the selling price you want to keep as profit.
Step-by-Step: How to Calculate Your Selling Price
- Add up your direct costs.
Materials, packaging, shipping, transaction fees, and commissions. - Add up your indirect costs.
Internet, advertising, software, tools, rent, and other overhead expenses. - Put a value on your time.
If your work doesn’t pay you, it’s not a business. It’s an expensive hobby. - Define your profit margin.
Decide what percentage of the final selling price you want to keep after covering all costs. - Compare with the market.
Once you know your numbers, review market pricing and adjust if necessary, without selling below your costs.
A Simple Example
Let’s say you make candles and your costs per unit are:
- Materials and packaging: $30
- Indirect costs: $10
- Your time: $20
- Total cost: $60
- Desired margin: 40%
Using the formula:
Price = 60 ÷ (1 − 0.40) = 60 ÷ 0.60 = $100
If instead you simply add 40% to your cost:
60 × 1.40 = $84
Your actual margin would be about 29%, not 40%.
This is a very common mistake, which is why using the formula above is so important.
Figures are for illustration purposes only. Every business has different costs.
Signs You’re Charging Too Little
- You sell a lot, but your money never seems to go far.
- Nobody ever tells you your prices are too expensive.
- You don’t know how much profit you actually make.
- You finish each month working harder than your business is growing.
Making Payments Easy Matters Too
Even the best pricing strategy loses value if collecting payments is complicated.
Make it easy for customers to pay through a single, clear channel, such as your Kashtag or a QR code, and keep track of every payment through your transaction history.
Frequently Asked Questions
Can I raise my prices if I already have customers?
Yes. Give customers advance notice and explain the value you provide. Price increases are a normal part of running a business.
What profit margin should I aim for?
It depends on your industry and business model. The key is to ensure your margin covers your costs, pays for your time, and leaves enough profit to reinvest and grow your business.
