Key takeaways
- Start from what the product really costs you, including delivery and loss, not just the price on the supplier's bill.
- Choose a target margin per type of product, then check it against what customers will pay nearby. The answer is usually somewhere between the two.
- Write prices down, review them when costs change, and know your margin on your top sellers by heart.
Why pricing by feel costs money
Most small shops set prices the same way: look at what was paid, add a bit, round to something that sounds right. It works well enough until costs creep up. A supplier adds a few cents here, a delivery charge goes up there, and the old shelf price quietly stops making money.
The fix is not complicated. You need one honest cost figure per product, a target margin for each kind of product, and a quick check against what customers will actually pay. This guide walks through each step with plain numbers.
Step 1: Find your real cost
Your real cost is what it takes to get one unit onto your shelf. The supplier's unit price is the start, not the end.
- Unit price. If you buy a case of 24 for $36.00, each unit costs $1.50.
- Delivery or transport. If the run to the wholesaler costs $20 and you bring back 400 units, that is $0.05 a unit.
- Packaging you add. Bags, labels, tubs you repack into.
- Expected loss. If roughly 1 in 50 breaks, spoils or walks out, spread that cost over the other 49.
Eight cents does not sound like much. On a product you sell 30 of a day, it is $2.40 a day, or around $870 a year, that you would otherwise count as profit you never had.
Step 2: Choose a target margin
Margin is the share of the selling price you keep after paying for the product. Markup is how much you add on top of cost. They are easy to mix up, and the difference matters: a 50% markup is only a 33% margin. The markup and margin calculator converts between them.
Not every product should carry the same margin. A useful way to think about it is in groups.
| Product type | Typical approach | Why |
|---|---|---|
| Staples customers compare (rice, sugar, oil) | Lower margin | Customers know the price and will walk to save a little. These bring people in. |
| Everyday convenience items (drinks, snacks) | Middle margin | Bought on impulse or need. Fair price matters more than the lowest price. |
| Hard-to-find or specialty items | Higher margin | Few places stock them. Customers value finding them at all. |
| Slow sellers that tie up cash | Higher margin | They sit on the shelf a long time, so each sale needs to earn more. |
Pick the numbers that make sense for your shop. The point is to decide them on purpose, write them down, and use them every time you price something new.
Step 3: Check the street price
Your formula gives you a price that works for your shop. The street price tells you whether customers will pay it. Look at what shops near you charge for the same item, and what the manufacturer's suggested price is if there is one printed on the pack.
- Your price is well below the street price. You may be leaving money on the table. Consider moving up toward what others charge.
- Your price is close. Good. Keep it.
- Your price is well above. Either your cost is too high (shop around for a better supplier), or this product needs a lower margin than you hoped. Decide whether it is worth stocking.
Being a bit more expensive is fine if you are closer, open later, or always have it in stock. Being much more expensive on a staple customers compare will cost you visits.
Step 4: Round to a sensible price
A price of $2.26 is awkward at the counter. Round it to something easy to say and easy to give change for. Rounding up protects your margin; rounding down is a choice you make on purpose for a staple or a promotion.
| Product | Real cost | Target margin | Formula price | Shelf price | Actual margin |
|---|---|---|---|---|---|
| Juice box | $1.58 | 30% | $2.26 | $2.25 | 29.8% |
| Rice 2 kg | $3.10 | 15% | $3.65 | $3.75 | 17.3% |
| Phone charger cable | $2.40 | 50% | $4.80 | $5.00 | 52.0% |
Always work out the actual margin after rounding. That is the number you live with.
When to change your prices
Prices are not set once. Review them when any of these happen:
- A supplier raises their price. Update your cost straight away and check the margin. Small increases add up across a whole range.
- You switch supplier. A cheaper source might let you lower a price and win customers, or keep the price and earn more.
- A product stops selling. A price cut may move it. Read what to do about slow-moving stock.
- A product flies off the shelf. If you can barely keep it in stock, the price may be lower than it needs to be.
Common pricing mistakes
Using markup when you meant margin
Adding 30% to cost does not give you a 30% margin. It gives you 23%. If you plan your shop's profit around margin, price with the margin formula.
Forgetting the hidden costs
Transport, bags and breakage are real. Leaving them out makes every margin look better than it is.
Never updating the cost
If your records still show last year's cost, your profit reports are wrong too. Update the cost every time you receive a delivery at a new price.
Racing to the bottom on everything
Matching the lowest price in town on every item leaves no room for rent, wages or a bad month. Compete on the staples, and earn on the rest.
How Shopkeepa helps
In Shopkeepa, each product has a selling price and, if you add it, a cost. When both are there, reports show gross profit by product, so you can see which items earn their place and which only look busy. Owners see costs and profit; cashiers only see prices.
See how sales and profit reports work, or read gross profit for shop owners for the next step. Shopkeepa is in development, and early access shops will help shape it.
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