Guides · 7 min read
How to price your product so you are not working for free
Add up everything it costs to make or bring one item: the materials, the small hidden costs like gas, transport and packaging, and your own time. Then add your profit on top. If your price does not cover all of that, you are paying your customers to buy from you.
Step by step
Write what you use for one batch, at today's prices
Take one batch: one pot, one set of cakes, one bale or one carton. Write every material you use and what it costs you today, not what it cost last month. Prices change, and old prices hide losses.
Add the hidden costs
These are the costs owners forget: gas or fuel, transport to buy materials, packaging like cups, nylon and labels, data for taking orders, and light. Work out each one's share of a batch. For gas, divide what a refill costs you by how many batches it usually lasts. If a refill costs you ₦12,000 and lasts 20 batches, each batch uses ₦600 of gas.
Count your own time
Write how many hours one batch takes you, from buying to selling, and put a price on each hour: what you would pay someone to do it. Your time is a real cost. If you leave it out, a business that looks profitable may only be paying you less than a helper would earn.
Divide by how many you make
Add materials, hidden costs and your time, and divide by the number of items the batch makes. That is your cost for one item. You should never sell below it.
Add your profit on top
Choose how much profit you want on each item. Many small businesses start by adding 25% to 40% to the cost of one item, then round to a price that is easy to pay, like ₦1,600 instead of ₦1,560.
Check the market, but do not copy it below your cost
Look at what others charge. If your price is higher, show why yours is worth it: better size, better taste, delivery, packaging. If you must come down, cut a cost, not your profit. Selling below your cost to match someone else only makes you busier and poorer.
Check your price every time a cost rises
When a supplier raises a price, work out your cost per item again the same day. A ₦500 rise on one material can wipe out your profit on every item until you notice.
An example: pricing a batch of parfait
Amaka makes parfait in batches of 20 cups. Here is one batch at today's prices:
- Yoghurt₦9,000
- Granola+ ₦4,000
- Fruits+ ₦3,500
- Cups and spoons+ ₦2,400
- Gas (₦12,000 refill, about 20 batches)+ ₦600
- Transport to the market+ ₦1,500
- Her time (3 hours at ₦1,000)+ ₦3,000
One batch costs her₦24,000
That is ₦1,200 for each cup. With 30% profit on top, a cup comes to ₦1,560, so she charges ₦1,600. She used to sell at ₦1,000, which was ₦200 less than each cup cost her once her gas, transport and time were counted.
Do this today: Take your best-selling product, write every cost of one batch at today's prices (gas, transport, packaging and your time included), and divide by how many it makes. Compare that with your price.
Questions owners ask
How do I calculate the cost of one item?
Add the cost of everything in one batch (materials, hidden costs like gas and transport, and your time) and divide by the number of items the batch makes.
How much profit should I add to my product?
Many small businesses start by adding 25% to 40% to the cost of one item, then check that the price is fair against the market. The right amount depends on your product and customers.
Should I include my own time in the price?
Yes. Your time is a cost. If you leave it out, you may be working for less than you would pay a helper.
Clara can do all of this for you
Instead of working out every cost by hand, tell Clara what one batch uses. She works out what each item costs you, and tells you when a material's price goes up.
One batch of parfait: yoghurt 9k, granola 4k, fruits 3,500, cups 2,400. It makes 20 cups
ClaraThat batch costs you ₦18,900 in materials, which is ₦945 a cup before gas, transport and your time.