The right price depends on what customers value, what alternatives they see and what it costs you to deliver. A distinctive product or service may give you more room to set a price than something customers can compare directly with many competitors.
There is still a lower limit below which the work does not make commercial sense. Your price needs to contribute towards overheads and the income you need from the business.
Test the effect on profit
Try selected price changes and record what happens. Depending on your market, that could mean testing a higher price, a lower price or a different way of presenting the offer.
Judge the result by profit as well as revenue and volume. A discount may attract more orders while leaving you with less money and more work.
An illustrative comparison
Consider the example from the original helpsheet. A business sells 1,000 units at £100 each. Each unit costs £70 to supply and fixed overheads are £25,000. Revenue is £100,000, gross profit is £30,000 and the resulting profit is £5,000.
Now compare two hypothetical test results:
- Lower price: At £90 per unit, sales rise to 1,200 units. Revenue becomes £108,000, but direct costs rise to £84,000. After the same overheads, the business makes a £1,000 loss.
- Higher price: At £110 per unit, sales fall to 800 units. Revenue becomes £88,000 and direct costs fall to £56,000. After overheads, the business makes a £7,000 profit.
In this example, the higher price produces more profit from fewer sales. These are illustrative assumptions, not a forecast of how your customers will respond.
Use your own margins
The effect of a price change depends on the margin you start with and how sales volumes respond. A business with a small margin may need a substantial increase in volume to recover the cost of a discount.
Keep direct costs and overheads visible when comparing options. Our gross profit calculator can help you distinguish profit, margin and markup.
Use a calculation based on your own costs. Test the price, measure the response and review the resulting profit before changing your wider pricing.