It's easy to price based on what feels right, or what competitors charge, without checking whether that price actually covers what it costs you to make or deliver the product. A business can be busy every day and still lose money if the pricing is wrong.
List everything that goes into one unit of what you sell: raw materials, packaging, your time, transport, a share of your rent and electricity. It's tempting to leave out things like your own labour or a portion of overhead costs because they don't feel like "real" expenses — but if you don't pay yourself, the business isn't actually profitable, it's just breaking even on paper.
Markup is the amount you add on top of cost. Margin is what percentage of the final price is actual profit. A 50% markup on a cost of 100 gives a price of 150 — but that's only a 33% margin, not 50%. Know which one you're actually calculating, because they're easy to confuse and can lead to underpricing without realizing it.
Work out how many units you need to sell each month just to cover your fixed costs (rent, salaries, subscriptions) before any of it counts as profit. If that number feels unrealistic given your actual sales volume, either your price is too low or your fixed costs are too high for the business at its current size.
Costs change — supplier prices rise, currency shifts affect imported goods, rent goes up. A price that made sense a year ago might not cover costs today. Set a reminder to review pricing every few months rather than only when something forces the issue.
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