Written by Evelyn Mytka, Contributing Writer
You’ve spent time developing your product, perfecting the details, and getting ready to sell. Now comes one of the trickiest questions for any new entrepreneur: How much should you charge?
Price your product too low, and you might struggle to cover your expenses. Price it too high, and you could have trouble attracting customers. Finding the right balance can feel overwhelming, especially when you’re just starting out.
With a little research, some basic calculations, and a willingness to make adjustments, you can develop a pricing strategy that works for your customers and your business.
Here’s how to get started and keep your pricing on track as your business grows.
1. Understand what your product actually costs
Before deciding what to charge, you need to understand how much it costs to make and sell your product.
It’s easy to think about obvious expenses, like materials or packaging, but there are often hidden costs that small business owners overlook.
Start by breaking your expenses into two categories:
Variable costs change depending on how many products you sell. These might include:
- Raw materials or wholesale inventory
- Packaging and shipping supplies
- Labour involved in making each product
- Payment processing fees
- Shipping or delivery costs
Fixed costs are expenses you pay regardless of how many products you sell. These might include:
- Rent and utilities
- Business insurance
- Website hosting and software subscriptions
- Equipment
- Accounting and administrative expenses
Don’t forget to account for your own time! If you’re making products by hand, the hours you spend creating them are part of your costs.
Once you understand your expenses, estimate how many products you expect to sell. This will help you determine how much each sale needs to contribute toward your operating costs and profit.
The Business Development Bank of Canada (BDC) offers a helpful guide on setting the right price for your products or services, including how to calculate costs and identify your break-even point.
2. Research your market and competitors
Your costs tell you what you need to earn, but your customers and competitors can help you understand what people are willing to pay.
Look at businesses selling similar products and compare their prices. Pay attention to what customers receive for that price.
Ask yourself:
- What are other businesses charging for similar products?
- How does the quality of my product compare?
- What makes my product different?
- Who is my ideal customer, and what matters most to them?
- Am I positioning my product as affordable, mid-range, or premium?
For example, if you’re selling handmade candles, you might find that similar products range from $15 to $40. A candle made with premium ingredients, unique scents, and reusable packaging may appeal to customers willing to pay more.
The goal isn’t necessarily to offer the lowest price. It’s to understand where your product fits in the market and why customers might choose it over another option.
Not sure where to start with your research? Business Link Alberta offers free market research services to help Alberta entrepreneurs better understand their industry, competitors, and target customers.
3. Choose a pricing strategy
Once you know your costs and understand your market, it’s time to decide how you’ll set your prices.
There are several approaches, and you don’t have to rely on just one.
Cost-plus pricing
This is one of the simplest methods. Calculate the cost of producing your product and add a markup.
For example, if a product costs $20 to make and you add a 50% markup, your selling price would be $30.
This approach gives you a straightforward starting point, but it doesn’t necessarily account for what customers are willing to pay or whether the price will cover all your business expenses.
Competitor-based pricing
With this strategy, you use the prices of similar products as a reference. You might charge roughly the same amount, slightly less, or more if your product offers additional value.
This can be useful in competitive markets, but be careful about copying another business’s prices without understanding your own costs.
Value-based pricing
Instead of focusing primarily on production costs, value-based pricing considers what customers believe your product is worth.
For example, a locally made skincare product with specialized ingredients, attractive packaging, and a strong brand reputation might command a higher price than a basic alternative.
4. Calculate your starting price
Let’s put these ideas into practice.
Imagine you’re starting a small business selling handmade ceramic mugs.
Here’s what one mug costs you to produce:
| Expense | Cost |
| Clay and glaze | $6 |
| Packaging | $2 |
| Labour | $8 |
| Other per-unit production costs | $4 |
| Total direct cost | $20 |
If you use a 50% markup, your calculation looks like this:
$20 × 1.50 = $30 selling price
At $30, you’d have $10 left from each sale to help cover your other business expenses and generate profit.
But that doesn’t mean you’re earning $10 in profit on every mug.
You’ll still need to account for expenses like rent, insurance, marketing, and website fees. You also need to consider whether you can sell enough mugs at that price to make your business financially sustainable.
This is why understanding your break-even point is so important.
Remember: Markup and profit margin aren’t the same thing. A 50% markup on a $20 product results in a $30 price, but the gross profit margin is approximately 33%.
If you’d like help working through the numbers, Shopify offers a product pricing guide and calculator.
5. Test your prices and listen to customers
Your first price doesn’t have to be your forever price.
Once your product is available, pay attention to how customers respond. You might discover that people are willing to pay more than you expected, or that your price is creating hesitation.
Look for patterns in your sales and customer feedback.
Are people buying your product regularly? Are they asking questions about the price? Are you making enough money to cover your expenses?
You can also experiment with different pricing approaches. For example, you might test product bundles, introduce a premium version, or offer a limited-time promotion.
Just be sure to track your results. Selling more products at a lower price doesn’t always mean earning more profit.
Rather than changing prices constantly, give yourself enough time to understand what’s working.
6. Know when it’s time to adjust your prices
As your business grows, your costs, customers, and products will change. Your pricing should evolve, too.
There are several signs it might be time to review what you’re charging:
- Your costs have increased. Materials, shipping, labour, and other expenses can become more expensive.
- Your product has improved. Better materials, new features, or improved quality may justify a higher price.
- Demand is growing. If you’re consistently selling out or struggling to keep up with orders, it may be worth reviewing your pricing.
- Your profit margins are shrinking. Strong sales don’t necessarily mean your business is making enough money.
- Your market has changed. New competitors, customer preferences, and economic conditions can all influence pricing.
Make it a habit to review your prices at least once a year, or sooner if your costs or market conditions change significantly.
A price review doesn’t always mean an increase. Sometimes it might make sense to reduce costs, introduce different product sizes, or adjust your offerings instead.
7. Communicate price increases with confidence
Raising prices can feel uncomfortable, especially when you’ve built relationships with loyal customers.
But price adjustments are a normal part of running a business.
If you decide to increase your prices, focus on being clear and transparent. Explain the change when appropriate, particularly if it affects existing customers or ongoing orders.
For example, you might share that rising material costs have made an adjustment necessary to maintain the quality customers expect.
You don’t need to apologize for running a sustainable business. Instead, focus on the value you continue to provide.
For businesses with repeat customers, consider providing advance notice before new prices take effect.
Most importantly, make sure your pricing decisions support the long-term health of your business.
Build confidence in your pricing decisions
Pricing isn’t a one-time decision. It’s an ongoing part of building a successful small business.
Start by understanding your costs, researching your market, and choosing a pricing strategy that makes sense for your product. Then, as you gain experience and learn more about your customers, use that information to make informed adjustments.
You don’t need to have every answer before making your first sale. What matters is having a starting point, tracking your results, and being willing to adapt.
Need help figuring out your next steps?
Business Link Alberta offers free, personalized guidance to help Alberta entrepreneurs navigate the challenges of starting and growing a business. Whether you’re developing your first product or looking for ways to improve your profitability, our team can help you explore your options and connect you with helpful resources.
