Price for margin, not for the market rate
Set a price from your own costs that leaves enough to run the business.
6 min read
Most small businesses set their price by looking at what the shop next door charges and going a little lower. It feels safe. It is often how a busy business ends up making nothing: the neighbour's costs are not your costs, and cheaper is the hardest way to win.
Start from your cost, not their price
For one unit of what you sell, add up what it costs you to make or buy and deliver:
- Materials or stock
- Packaging
- Direct labour, if you pay by the piece or the hour
- Delivery, payment charges, commission to a marketplace
That is your direct cost. Anything you charge above it is your margin — the money that pays rent, salaries, bills and you.
Then check the margin can carry the business
Use the break-even sum from Cost your first month:
monthly running costs ÷ margin per sale = sales you need each month
If the margin is ₹20 and running costs are ₹60,000, you need 3,000 sales a month just to stand still. If that is not realistic, the price is too low — however competitive it looks.
A made-up example. Two tailors charge ₹400 for a blouse. One has a shop on the main road paying ₹30,000 rent; the other works from home. The same price leaves them very different margins. Matching a competitor's price means matching their costs — which you may not have.
Charging more, and getting it
Customers pay more for something they see as better, faster, more reliable or more convenient. Before you cut your price, ask what you could add that costs you little:
- Speed — same-day, or a fixed delivery time you always keep
- Reliability — you answer the phone, you turn up when you said
- Convenience — home pickup, WhatsApp ordering, paying later for regulars
- Bundles — a set or a package priced better than its parts
Three pricing mistakes
- Never raising prices. Costs go up every year. A price you set two years ago is a smaller margin today. Small, regular increases are easier for customers than one large jump.
- Discounting by default. A discount comes straight out of margin. Ten percent off a product with a twenty percent margin halves what you earn on it.
- Forgetting GST. If you are registered and sell to households, the GST is part of what they pay. Price so that what is left after GST still covers your costs.
A low price is the easiest thing for a competitor to copy. A reputation for being reliable is the hardest.
Look at it every quarter
Once a quarter, take your three best sellers and redo the sum: what does one cost you now, what do you charge, what is left? Prices drift; margins quietly disappear unless someone checks.
Ask the tool below about pricing your own product — with your costs and your city — and it will work through it with you.