Many new entrepreneurs set prices by guessing or simply copying competitors. The result is often busy months with little profit. A clear pricing method helps you cover every cost, stay competitive and grow sustainably.
Step 1: Know your costs
Direct (variable) costs
Costs that rise with each unit you sell: raw materials, packaging, delivery, payment gateway fees and sales commissions.
Fixed (overhead) costs
Costs you pay every month regardless of sales: rent, salaries, electricity, internet, software subscriptions and loan EMIs. Divide them by the number of units you expect to sell each month to get the overhead per unit.
Your own time
Include a fair salary for yourself. If the price only works because you are working for free, the business is not truly profitable.
Step 2: Add your profit margin
Cost-plus pricing: Price = total cost per unit + desired margin.
Example: a home baker's cake costs ₹420 in ingredients and packaging, plus ₹80 of overheads per cake. Total cost: ₹500. With a 40% margin on cost, the price before tax would be ₹700.
| Item | Amount |
|---|---|
| Ingredients and packaging | ₹420 |
| Share of overheads | ₹80 |
| Total cost | ₹500 |
| Margin (40% of cost) | ₹200 |
| Price before GST | ₹700 |
Step 3: Account for GST correctly
If you are registered under regular GST, add the applicable GST on top of your price, or make sure your "inclusive" price already contains it. Many small sellers lose money by quoting a round price and then paying GST out of their margin. Composition taxpayers cannot charge GST to customers, so the tax must come out of the price.
Step 4: Check the market
- Study competitors' prices, but compare quality, service and delivery too.
- Ask what customers value: speed, customisation, trust, location or after-sales support.
- Decide whether you are the budget, mid-range or premium option.
Step 5: Consider value-based pricing
For services and specialised products, price based on the value to the customer, not just your cost. A website that brings a client new orders, or a repair that saves downtime, is worth more than the hours spent.
Smart pricing tactics
- Tiered packages: basic, standard and premium options help customers choose and often lift the average order.
- Bundles: combine products to increase order value.
- Minimum order values or delivery charges for small orders.
- Annual price reviews to keep up with rising costs.
Common mistakes to avoid
- Forgetting payment fees, wastage, returns and discounts.
- Competing only on price against bigger players.
- Offering heavy discounts too often, which trains customers to wait for sales.
- Never raising prices even as costs rise.
In Part 7, we cover invoicing and bookkeeping basics.
Start a Small Business in India: the full series
- Part 1: Choosing Your Business Structure
- Part 2: Registrations and Licences Checklist
- Part 3: Udyam (MSME) Registration
- Part 4: GST Registration and Composition Scheme
- Part 5: Bank Account and Digital Payments
- Part 6: How to Price Your Products and Services (you are here)
- Part 7: Invoicing and Bookkeeping
- Part 8: Getting Your First Customers
- Part 9: Funding and Government Loan Schemes
- Part 10: Taxes and Compliance Calendar
Disclaimer: This article is for general information only and is not legal, tax or financial advice. Rules, limits and fees change from time to time, so please check official government portals and consult a chartered accountant or company secretary for your specific situation.
