You have bought something to sell.
Now you need to answer one very important question:
“How much should I sell it for?”
Many people simply look at what they paid and add a small amount.
For example:
“I bought it for $10. Let me sell it for $12.”
But how did you arrive at $12?
Will the $2 you added really be enough to cover your other costs and leave you with a reasonable profit?
This is why you need to learn how to calculate your selling price.
Step 1: Know Your Real Cost
Before you decide your selling price, first find out how much the product really costs you.
Imagine you buy a bag for $10.
You spend $1 transporting it to your shop.
You spend another $0.50 on packaging.
Your real cost is now:
$10 + $1 + $0.50 = $11.50
So, even though the supplier sold the bag to you for $10, the bag actually cost you $11.50 to get it ready for your customer.
If you sell it for $12, you have only made $0.50 before considering your other business expenses.
That may not be enough.
Step 2: Decide How Much Profit You Need
After knowing your cost, you need to decide how much profit you want to make.
Imagine your real cost is $11.50.
You decide that you want to make $3.50 profit.
Your selling price would be:
$11.50 + $3.50 = $15
So you would sell the bag for $15.
The important thing is that you calculated the price based on your real cost, not just the supplier’s price.
Step 3: Check What Customers Are Willing to Pay
There is another important question.
Will customers actually pay your price?
Imagine you calculate your price and decide to sell the bag for $15.
But every other seller around you is selling the same type of bag for $12.
You now have a problem.
You cannot simply say:
“I want $15 because I want to make $3.50 profit.”
You need to understand the market.
Ask yourself:
- Can I find a cheaper supplier?
- Can I reduce my costs?
- Can I offer something better?
- Can I sell to customers who are willing to pay more?
- Can I improve the product?
- Can I provide delivery or better service?
Your price must make sense for both your business and your customer.
Step 4: Don’t Forget Your Business Expenses
Sometimes you calculate your product cost correctly but forget the costs of running the business.
Imagine you sell clothes.
You bought a shirt for $20.
Transportation and packaging cost another $3.
Your direct cost is $23.
But you also pay rent, electricity and a salesperson.
These expenses are not necessarily attached to one particular shirt, but your business still has to pay them.
If you sell the shirt for $25, you may think you made $2.
But after your other business expenses, that $2 may not be enough to keep the business running.
This is why your selling price must be high enough to help your business cover its overall costs.
A Simple Example
Imagine you buy 20 pairs of shoes.
Each pair costs you $20.
You spend $40 transporting all the shoes.
The total cost is:
20 × $20 = $400
Then:
$400 + $40 = $440
So your average cost per pair is:
$440 ÷ 20 = $22
If you want to make $8 on each pair, you could start with:
$22 + $8 = $30
Your selling price would be $30 per pair.
If you sell all 20 pairs:
20 × $30 = $600
Your total cost was $440.
The difference is:
$600 – $440 = $160
That is your gross profit before other business expenses such as rent, salaries and electricity.
But What If You Have Competitors?
This is where business becomes more than just mathematics.
Suppose other sellers are selling the same shoes for $25.
You want to sell yours for $30.
You now have to decide what to do.
You might:
- Find a cheaper supplier.
- Buy in larger quantities to get a discount.
- Reduce unnecessary costs.
- Sell a slightly different product.
- Improve your customer service.
- Offer delivery.
- Find a different group of customers.
The answer is not always to reduce your price.
Sometimes the answer is to reduce your costs or increase the value you provide.
Be Careful With Discounts
Imagine your normal selling price is $30.
A customer asks:
“Please, sell it for $25.”
You agree because you want to make the sale.
But if your real cost is $27, you have just sold the product for less than it cost you.
You may have made a sale, but you have made a loss.
This is why you should know your lowest safe selling price.
Before giving a discount, know the lowest price you can accept without losing money.
What This Knowledge Could Save You
Knowing how to calculate your selling price can save you from one of the most dangerous mistakes in business:
Selling a lot and thinking you are making money when you are actually losing money.
Before you put a price on something, ask yourself:
How much did it really cost me?
How much profit do I need?
What are customers willing to pay?
What are other sellers charging?
Will this price help me cover my business expenses?
A good selling price is not simply the highest price you can charge.
It is a price that allows you to cover your costs, make a reasonable profit, remain competitive, and keep your business alive.
You don’t need to be a business expert to start.
Just learn to calculate before you sell.
Know your cost. Know your market. Know your profit. Then set your price.
Previously: https://www.theprojectherald.com/cost-of-goods-explained-for-small-business-owners/