How to Price Products for Profit

Price too low and you erode your profit on every sale. Price too high and you may not sell enough to cover your costs. Good pricing sits between the two — informed by what things cost you, what profit you need, what the market will bear, and how many units you can realistically sell.

This guide walks through a practical approach that ties together cost, markup, margin, break-even and VAT, so you can set prices deliberately rather than by guesswork.

Start from your fully landed cost: the purchase price plus delivery, import duty, packaging and any other direct cost of getting the product ready to sell. Leaving these out is the most common reason a “profitable” price turns out not to be.

Once you have the cost per unit, you have the floor below which you should not sell — unless you are deliberately loss-leading, which is a strategy, not an accident.

The simplest method is cost-plus: add a markup to your cost to reach a selling price.

Selling Price = Cost Price × (1 + Markup ÷ 100)

Alternatively, start from the margin you want to keep and work back to the price. Because margin is profit as a share of the selling price, the price is cost divided by (1 − margin):

Selling Price = Cost Price ÷ (1 − Margin ÷ 100)

Not sure which to use? Read our margin vs markup guide and use the markup calculator or profit margin calculator.

A profitable unit price is not enough if you do not sell enough units to cover your fixed costs. Break-even tells you how many units you must sell before you start making real money:

Break-even Units = Fixed Costs ÷ (Selling Price − Variable Cost per Unit)

The figure in the brackets is your contribution per unit — what each sale contributes towards fixed costs and then profit. Use the break-even calculator to find yours.

If you are VAT-registered, decide whether your prices are shown net (before VAT) or gross (including VAT). Adding 20% VAT to a £100 net price gives £120 gross; removing 20% VAT from £120 gross gives £100 net. At the 20% rate, the VAT in a gross price is exactly one sixth.

Confusing net and gross is a frequent source of pricing errors. Use the VAT calculator to add or remove VAT at the UK standard, reduced or zero rate.

Your cost-based price is a floor, not a verdict. Compare it with what customers expect to pay and what competitors charge. If the market will not bear your price, you have three levers: reduce your cost, accept a lower margin, or add value so customers will pay more. Simply raising the price without one of these rarely works for long.

• Understating cost by forgetting delivery, packaging or payment fees.
• Mixing markup and margin when setting or reporting prices.
• Ignoring break-even and pricing for profit per unit without checking volume.
• Mishandling VAT — quoting a net price as if it were gross, or vice versa.
• Copying a competitor’s price without knowing their cost structure, which may be very different from yours.

A sound price is one where your cost is fully counted, your profit is deliberate (set by markup or margin), your volume clears break-even, VAT is handled correctly, and the result makes sense to customers. Work through the calculators above and you will have numbers you can trust — then adjust with your eyes open.