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Not financial advice: this guide is general information to help you understand the basics. It is not financial, tax or legal advice. Rules and figures can change, so check the linked official pages, and speak to an accountant or adviser about your situation.
Charging too little is one of the quietest ways a new business gets into trouble. Every sale feels like progress, but if each one costs you more than you charge, the busier you get, the faster you lose money. This guide walks through how to set a price that covers your costs and leaves something over, using the same approach recommended by Start Up Loans.
Start with your costs, not your competitors
It is tempting to look at what everyone else charges and pitch yourself a little lower. Knowing the going rate matters, and we will come back to it, but it should not be your starting point. Your starting point is what it actually costs you to deliver one product or one hour of service. Start Up Loans puts it simply: you must be careful not to price products or services below what it costs to produce them.
Costs fall into two groups.
- Fixed costs are the ones you pay whether you sell one item or a thousand: rent, insurance, software subscriptions, phone and broadband, loan repayments, and any salaries.
- Variable costs go up with every sale: materials, packaging, postage, card payment fees, marketplace fees and commission.
Write both lists down for a typical month. Be honest and thorough. Small things add up: a monthly app, a card reader fee, petrol to a market stall. If you take card payments, our card reader fee calculator shows what the fees on your monthly takings would look like with different providers, so you can put a realistic figure into your variable costs.
Work out your break-even point
Your break-even point is where the money coming in exactly matches the money going out. Below it you make a loss; above it you make a profit. Start Up Loans gives the formula:
Fixed costs ÷ (price − variable cost per unit) = number of units you need to sell to break even
The part in brackets is sometimes called your contribution: what each sale contributes towards your fixed costs once its own costs are paid. To show how it works with simple made-up numbers, imagine your fixed costs are £500 a month, each item costs you £4 to make and send, and you sell it for £14. Each sale contributes £10, so you need to sell 50 items a month just to break even. Sell 49 and you are making a loss, even though you are busy.
Now try changing the price. At £12, each sale contributes £8 and you need about 63 sales. At £18, each contributes £14 and you need about 36. This is the most useful thing about break-even: it shows you how much harder you have to work for every pound you knock off your price.
Never price below cost
If your price is lower than your variable cost per unit, the formula breaks: every sale loses money and no amount of volume fixes it. This happens more often than you would think, usually because a cost was forgotten. Common culprits are:
- card and marketplace fees, which are taken before the money reaches you
- postage and packaging, especially for returns
- your own time, if you are selling a service or handmade goods
- VAT, if you are registered (see our HMRC deadlines guide for the threshold)
Paying yourself counts too. If you do not include a fair amount for your own time, your price might look profitable on paper while you are effectively working for free.
Add a margin
Once you know your full cost per unit, add a margin on top. This is what pays for growth, slow months and the unexpected. Start Up Loans describes cost-plus pricing (cost plus a set percentage) as the simplest method, while pointing out its limits: it does not take account of what competitors charge or what customers will pay. That is why you should check it against the market next.
Check the going rate and your value
Look at what direct and indirect competitors charge on their websites and on marketplaces. If your price is well below theirs, ask why. If it is well above, make sure you can explain the difference, such as better materials, faster service or a specialist skill. Start Up Loans also describes value-based pricing: working out what your product is worth to the customer, not just what it costs you. Many new founders undercharge because they do not yet believe in the value they offer. Our personal development guides look at building that confidence.
Low launch prices: handle with care
Some businesses start with lower prices to win their first customers and raise them later. Start Up Loans mentions this as a strategy. If you do it, set an end date, tell customers it is an introductory offer, and make sure even the launch price is above your variable cost. Raising prices later is harder than starting at the right level.
Review your prices regularly
Costs change. Suppliers put prices up, fees change, and your own time becomes more valuable as you get busier. Put a reminder in your calendar to rerun your break-even sum every few months, and whenever a big cost changes. A price that was right in your first month may be wrong by your sixth.
A quick checklist
- List every fixed cost for a typical month.
- Work out the variable cost of one sale, including fees and your time.
- Calculate your break-even point at a few different prices.
- Add a margin and check it against competitors.
- Set a date to review it.
Cash matters as much as profit: a profitable sale that pays out slowly can still leave you short. Our payout speed and cash flow guide explains why.
Sources
- Start Up Loans: How to price your products and services
- Start Up Loans: How to calculate a break even point
- British Business Bank: Small business finance management
Free official help and our tools
- GOV.UK: Business and self-employed
- British Business Bank: Business guidance
- Start Up Loans: Support and guidance
- Our card reader fee calculator
- Our Find my card reader quiz
More free guides
- Separating business and personal money
- HMRC deadlines and Companies House basics
- Marketing on a small budget
- Legal setup
- Data protection & licences
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Last checked 29 October 2026. Spotted something out of date? Let us know.