Before setting a price, write out your costs to avoid being blindsided. You can get so far with a price until you write down the costs. “I can sell this at 25,” someone says, thinking that is a good price since it is on par with other companies or just seems affordable. Then, you start adding in the costs of materials, packaging, transaction fees, delivery time, subscriptions, repairs, and other ongoing expenses. What was simply a price for customers to see turns out to be more than a number; it is a business choice that needs to cover everything needed to make the offer.
Before setting a sample price, differentiate between the offer and your assumptions. List one product idea or service package at the top of a page. Then, write down what the customer gets in the offer exactly. A personal lesson, a handmade good, an online consulting meeting, a meal box, or a basic design gig are all very different products with their own sets of costs. If you are unsure about your offer, your list of costs will be uncertain as well, since you will have no idea what materials, time, gear, or follow-up items go in it.
The first set of costs are direct costs. These are costs directly related to each sale or each delivery of an offer. For a product, this can include your supplies, packaging, tags, delivery materials, or platform fees. For a service, it could involve time spent in preparation, printed goods, travel, transaction fees, or the tools you used to make the sale. You do not have to worry about using any specific accounting terms here. The goal is to see what goes into a sale before you decide on the price.
The second set of costs is one we often forget since they do not necessarily happen at the point of sale. The list of these costs includes things such as internet, utilities, equipment, software subscriptions, replacement tools, workspace expenses, market research, hosting fees, or accounting help. Someone new to running their business may not include this list at first since each seems like a small amount of expense. But small expenses add up over time and will impact margins. A price may look good if it pays for your materials but ignores the monthly costs, but that does not mean you are profitable.
Write your list on paper or in an online sheet. Draw three columns: item, estimated cost, and notes. In the notes, indicate when you incur this cost: in each transaction, every month, or maybe just occasionally. This is important. A container you buy for each sale is related directly to a specific offering. A program that you run every month may need to be divided into several transactions. A replacement item you purchase once every six months does not occur each time you make a sale, but you still have to account for it.
Review your costs once you have created your list against the prices you were thinking of setting. But first, do not change prices immediately. Ask what the costs will be at the final price, what margin you are working with, and if the value to customers justifies that price. This is the beginning of your analysis. You will not only ask yourself, “Will people pay this?”, but also, “Is this service viable at this price if I am not mixing up my revenue and profits?”
A competitor is not the only reference you should look at. They may have lower costs, a different business model, less product, a smaller margin, more product, cheaper sources, or a simpler offering. If you use that price without understanding your own cost structure, you can easily make mistakes. It is better to compare yourself against others once you have considered your supply chain, the labor involved, the expenses, and where your market fits.
One sign you are doing this correctly is not necessarily settling on the right price in one try. It is realizing which costs you were not aware of before. Maybe packaging is more than you realized. Maybe the service you offer will take longer than you anticipated. Maybe the offering needs to be smaller, simplified, or priced differently. Record this before you adjust. It is not just the price that the cost list affects, but also the process that will help you understand the viability of your business before you move forward.