Pricing

Revenue is not the amount you get to keep

Revenue is the money earned from selling your products or services before expenses. Profit is what remains after the relevant expenses. Selling ten dolls for $50 each gives $500 in sales revenue before refunds or discounts; it does not give $500 in profit. Sales tax collected for the state is not extra earnings. Shipping charged to a customer and shipping you pay need separate records. For comparisons below, the selling price excludes sales tax and shipping, the buyer pays actual shipping separately, and the provider fees shown are fictional assumptions, not current quotes.

Count the direct cost of each sale

A direct cost belongs to a particular product or job: the doll you bought for resale, cleaning supplies used at a client's home, or beads in a bracelet. Cost of goods sold, often shortened to COGS, is the cost assigned to products actually sold, not automatically all inventory bought that month. Unsold inventory is stock you still hold. For a service, keep track of direct supplies, travel, and paid labor under a consistent method. Include damaged stock, waste, and rework in planning instead of pretending every purchase becomes a perfect sale. Ask a bookkeeper how costs should be classified for your records.

Give your working time a place in the price

A service price must support time spent doing the job and time spent traveling, quoting, buying supplies, communicating, and keeping records. An hourly earnings target is a planning number, not a promise of wages. If you work for yourself, your own time is still valuable even when it is not recorded as a wage expense in a sole proprietor's accounts. Paid employee wages, payroll taxes, benefits, and legal employment obligations are different costs. Use a separate planning allowance for your own work so you do not confuse pricing math with tax bookkeeping.

Include overhead and payment fees

Overhead means shared costs that support the business, such as insurance, software, and equipment upkeep. Allocate, meaning assign, a reasonable share to each expected sale or working hour, then review that estimate against real sales. A transaction fee is a charge for processing a payment. Providers may charge a percentage, a flat amount, subscriptions, dispute fees, or currency charges. A hypothetical 3% plus $0.30 fee on a $50 charge is $1.50 + $0.30 = $1.80. Actual fees may apply to tax and shipping too. Check your provider's current contract, refund rules, and payout timing rather than using this example as a quote.

Gross profit, net profit, margin, and markup

Gross profit is revenue minus the cost of goods sold or cost of services under your accounting method. Net profit is what remains after the other applicable business expenses; be clear whether a figure is before or after income tax. Profit margin is profit divided by revenue, expressed as a percentage. Markup is the amount added to cost divided by that cost. If an item costs $20 and sells for $30, the $10 difference is a 50% markup ($10 ÷ $20) but a 33.3% gross margin ($10 ÷ $30), before other expenses. Those are not the same percentage, and neither includes every cost just because it is called a margin.

Work out a price, then check whether it fits

Start with direct costs, a fair allowance for working time, a share of overhead, fees, and room for risk or profit. Then research comparable offers and actual sold prices when available. An asking price is not evidence that someone bought. If the resulting price seems too high for likely buyers, examine the offer, sourcing, time, or customer fit; do not simply erase your labor cost. A cheaper product, a narrower service, or a different customer may be more workable. Discounts also reduce the money available for expenses; calculate the new total before advertising a sale.

A cleaning-service price with time included

A fictional $100 cleaning job takes two hours cleaning and one hour total for travel and administration. Supplies are $8, travel cost is $6, allocated overhead is $10, and a hypothetical fee is 3% + $0.30 = $3.30. The remaining $72.70 before owner pay and income tax is $100 − $8 − $6 − $10 − $3.30. A planning allowance of $20 per hour for three hours uses $60, leaving $12.70 for additional risk or profit. If work takes four total hours, the same allowance becomes $80 and the planning result is negative $7.30. Track real time, and revise the scope or price honestly.

Break-even shows a minimum, not a guarantee

Break-even is the point where revenue covers the costs included in your calculation. Contribution per sale is the selling price minus variable cost per sale; it is what each sale contributes toward fixed bills and then profit. Suppose a doll sells for $50 and variable costs total $30, leaving $20 contribution. With $100 monthly fixed costs, $100 ÷ $20 = 5 dolls covers those costs. Six dolls would leave $20 beyond them. This simplified calculation excludes owner compensation and income tax. Add those needs to planning rather than calling five sales a living income. If contribution is zero or negative, selling more does not solve the problem.

Make estimates and payment terms clear

An estimate is an expected price based on what you know; a quote generally states a price for a defined scope, subject to its written terms. Describe what is included, what costs extra, tax or delivery charges where applicable, when payment is due, and what happens if the customer changes the work. A deposit is an advance payment toward an order or booking, not necessarily nonrefundable money. Refund and cancellation terms must fit local law and be visible before payment. Do not add surprise charges later. See Bookkeeping for sample documents and Tax Overview for tax responsibilities.

Steps to take

1. List direct product or job costs and all working time.
2. Estimate shared overhead using a realistic sales volume.
3. Check current processor fees and what amount they apply to.
4. Calculate a tentative price and the money left after costs.
5. Compare relevant offers and adjust the scope if the numbers do not work.
6. Write the included work, extra charges, and payment terms before a customer agrees.

Go deeper in related modules

Not sure what a word means? Check Business Words Made Simple.

• Business Plan & Audience — connect your numbers and message to your plan
• Selling Online & Taking Payments — checkout and provider choices
• Shopify: Payments — store payment setup topics
• Content — explain the value and price clearly
• ChatGPT & AI: Prompt Library — draft with fictional examples, then check the result