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Learning to price your products so that you make a profit

This may seem like an easy thing to do, but actually, it’s a careful balancing act. You have to make sure that you price your product so that you don’t make a loss. After all, the aim of any company is to make a profit and, if you don’t, you’ll soon be out of business. However, that does not mean you can just pick any price that’s higher than your costs and go with that. If you do that, you may price yourself out of the market and, once again, not make any sales.

How do You Work Out What Price to Sell Your Products at?

Most retail businesses will be buying in and selling on other people’s products, rather than manufacturing their own, so we’ll assume that’s the case for the purposes of this article. As a starting point for pricing, you should add together how much the product costs you to buy, plus your mark-up and then include any other sales taxes you might need to pay. In an equation form it looks like this:

Selling price = cost price + mark-up (percentage) + sales tax

The mark-up you add will need to cover all the fixed costs involved that you need to pay, plus the wages you intend to pay yourself, your staff, if you have any, and a small amount of profit too. Otherwise, what’s the point? Whilst it is tempting to add on as large a mark-up as possible to maximise your profits, it may not always be possible, even if you want to. Often suppliers will have a maximum amount they’ll want you to sell their products at and could refuse to supply you if you try to sell them at a much higher or lower price. And, as mentioned earlier, if you price your products much higher than your competitors, your customers will shop with them instead. So it’s important that you check how other sellers price the product to ensure your prices are competitive.

How Much Mark up Should You Add?

Most companies typically add between 30 and 100 percent depending on what the product is. You should do some research to find out what the typical mark-up is on the product you want to sell and start your pricing there. To give you an example, you purchase a product for £2.00 and your research shows you that the average mark-up is 75%. You work out the price you should be selling at using this formula 2 + (2 x 75/100) = £3.50. But, if this formula gives you an awkward price, like £2.01, you should think about selling at under two pounds, maybe £1.95, which works better psychologically.

So there you have it! Pricing your products is not that hard, is it? But, if you feel you’d like further help, you should think about enrolling on our Start Your Own Business Course.