Pricing for profit.
Many small businesses are busy but broke, because their prices don't cover their real costs. Today you'll learn to calculate your true cost, choose a pricing strategy, and price with confidence.
Know your full cost
| Cost type | Examples (per cake) |
|---|---|
| Direct materials | Flour, sugar, cream, chocolate: ₹180 |
| Packaging | Box, board, candles, sticker: ₹40 |
| Delivery / payment fees | Delivery ₹50, payment gateway 2% |
| Your time | 1.5 hours × what your time is worth |
| Overheads (shared) | Gas, electricity, phone, oven wear, divided across orders |
Many home businesses forget their own time and overheads, then wonder why there's no money left.
Margin vs markup
- Markup = profit ÷ cost. Cost ₹400, price ₹600 → markup 50%.
- Margin = profit ÷ price. Same example → margin 33%.
People confuse them. When someone says "30% margin", make sure you both mean the same thing.
Pricing strategies
| Strategy | When to use | Example |
|---|---|---|
| Cost-plus | Simple products, clear costs | Cost ₹400 + 50% markup = ₹600 |
| Competitor-based | Many similar sellers | Similar cakes nearby sell at ₹550–700 |
| Value-based | Unique quality, strong brand, special occasions | Custom wedding cake priced on its value to the customer, not just ingredients |
| Tiered pricing | Different customers, different needs | Basic ₹500, Premium ₹800, Custom ₹1,500 |
Psychology that's honest
- Tiers help people choose (many pick the middle option).
- Bundles: "Cake + 6 cupcakes ₹899" increases order value.
- Clear prices build trust. "DM for price" frustrates many customers.
Competing only on the lowest price is a losing game for small businesses. Compete on quality, reliability, service and story. Discounts should be planned, not panic.
A cake costs ₹400 in total (including time and overheads). You sell it at ₹480. What's the margin?
Profit ₹80 ÷ price ₹480 ≈ 16.7%. (Markup would be 20%.)
Why do many home businesses think they're profitable when they aren't?
Count every real cost, including your time.
Your task (25 min)
Make a full cost sheet for your main product, including materials, packaging, fees, time and overheads. Calculate the price for a 40% margin. Compare with 3 competitors and decide your final price and one bundle offer.
Lesson 9 complete!
You can calculate full costs, margins and markups, choose a pricing strategy and use discounts wisely. Next: selling on Instagram and WhatsApp.
Next: Selling on Instagram and WhatsApp →