One of the biggest mistakes small businesses make is pricing based on guesswork.
If your prices are too low:
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You struggle to make profit
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Customers don’t take you seriously
If your prices are too high:
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You lose sales
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You scare away your target market
So how do you price your products correctly?
Let’s break it down step-by-step.
Step 1: Calculate Your Total Cost
Before adding profit, you must know your true cost.
Your product cost includes:
✔ Raw materials
✔ Packaging
✔ Transport
✔ Labour
✔ Rent (if applicable)
✔ Utilities
✔ Marketing
✔ Transaction fees
Example:
If it costs you R80 to produce a product, that is your base cost.
Never price below your total cost.
Step 2: Add a Profit Margin
Once you know your cost, add profit.
A common method is:
Cost × Markup = Selling Price
Example:
R80 cost
Add 50% markup
R80 × 1.5 = R120 selling price
Your profit = R40 per item.
Step 3: Research the Market
Check:
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What competitors charge
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What customers are willing to pay
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What quality level you offer
Don’t copy prices blindly — understand positioning.
If your product offers higher quality or convenience, your price can reflect that.
Step 4: Choose the Right Pricing Strategy
Here are common strategies:
1️⃣ Cost-Plus Pricing
Add a fixed percentage to your cost.
Simple and effective for beginners.
2️⃣ Value-Based Pricing
Price based on perceived value.
If your product solves a big problem, you can charge more.
Example:
Business consulting services charge more than generic services because of expertise.
3️⃣ Competitive Pricing
Price slightly below or above competitors.
Good in crowded markets.
4️⃣ Tiered Pricing
Offer:
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Basic option
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Standard option
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Premium option
This increases average revenue per customer.
Step 5: Consider VAT (If Registered)
If your business is registered for VAT with the
South African Revenue Service (SARS)
You must include 15% VAT in your price.
Example:
R100 product
VAT (15%) = R15
Final price = R115
Failing to factor in VAT reduces your profit.
Step 6: Test and Adjust
Pricing is not permanent.
You can:
✔ Test higher prices
✔ Offer limited promotions
✔ Adjust based on demand
✔ Improve packaging to justify increases
If customers buy easily without resistance, your price may be too low.
Common Pricing Mistakes to Avoid
❌ Copying competitors without calculating your costs
❌ Underpricing to “get customers”
❌ Ignoring overhead expenses
❌ Forgetting tax implications
❌ Changing prices too often without strategy
Low prices don’t always mean more profit.
How to Price Services (Bonus Section)
If you sell services instead of products:
You can charge:
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Per hour
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Per project
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Per package
To calculate hourly rate:
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Decide how much you want to earn monthly
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Divide by billable hours
Example:
Target income: R20,000 per month
Available billable hours: 80
R20,000 ÷ 80 = R250 per hour
When Should You Increase Prices?
✔ Demand increases
✔ Costs increase
✔ Your experience improves
✔ Your brand grows
✔ You add more value
Never be afraid to adjust pricing as your business grows.
Final Thoughts
Good pricing should:
✔ Cover your costs
✔ Generate profit
✔ Reflect value
✔ Fit your target market
If your business is not profitable, pricing is usually the problem.
Price with strategy — not emotion.