Set Your Prices and Work Out Your Profit

1. Build your cost sheet

Pick one offer and define exactly what a customer gets. It might be one delivered item or a monthly content package. All figures below are hypothetical teaching examples, not market rates.

• Variable costs arise with each extra order. Include materials, packaging, delivery you pay for and transaction fees.
• Fixed costs stay broadly the same within your planned sales range. Examples include rent, regular salaries and monthly software subscriptions.
• Price your working time. A freelance project includes calls, preparation and revisions as well as delivery. Count your pay either within each project or as a monthly target, without counting it twice.
• Use past orders to estimate returns, waste and rework. Label any untested estimate so you know what to review.

1. Open Google Sheets or Microsoft Excel. Add columns for offer, unit price, variable cost per order, monthly orders and monthly fixed costs.
2. Fill the sheet from receipts and invoices. Keep shared business overhead in one place so it is not charged repeatedly.
3. Add low, expected and high sales scenarios. A spreadsheet calculates what you enter; it cannot confirm that your inputs are complete.

2. Turn your costs into a testable price

For planning, full cost per order equals its variable cost plus monthly fixed costs divided by expected monthly orders. This is an estimate tied to volume. Fewer orders mean more overhead for each order to cover.

• Markup is the percentage added to cost. If your full cost is $40, a 25% markup produces a $50 price.
• Margin measures what remains after the specified costs as a share of revenue. At $50, the margin in this example is ($50 − $40) ÷ $50 = 20%.
• To target a 25% margin on that cost basis, calculate $40 ÷ (1 − 0.25) = $53.33. Always state which costs your margin includes.
• For a monthly profit target, use: price = variable cost per order + (monthly fixed costs + target profit) ÷ expected orders. Recalculate any percentage-based payment or platform fee at the proposed price.

Compare three alternatives a customer could actually buy. Check scope, turnaround and support alongside price. Ask customers which outcome matters most to them. The [SBA business planning guide](https://www.sba.gov/counseling/plan-your-business/) includes practical questions about demand, alternatives and pricing.

3. Check profit, break-even and discounts

Imagine a small shop selling one product for $40. Each order costs $24 to fulfil, and monthly fixed costs total $800. Each sale contributes $16 toward those bills. That $16 becomes profit only after the fixed costs are covered.

• Revenue = price × orders. At 75 orders, revenue is $40 × 75 = $3,000.
• Monthly profit in this model = (price − variable cost) × orders − fixed costs. That gives ($40 − $24) × 75 − $800 = $400.
• Break-even is the order count that covers all included costs: $800 ÷ $16 = 50 orders. Round fractional results up to the next whole order.
• To earn $800 in monthly profit, you need ($800 fixed costs + $800 target profit) ÷ $16 = 100 orders.
• A 10% discount reduces the price to $36. If the variable cost stays at $24, the contribution falls to $12. You now need 67 orders to break even and 100 orders to recover the previous $400 profit.

These examples exclude tax and borrowing costs, so the result is not net profit. Add the expenses that apply to your business. If you sell several products, total their individual contributions before subtracting shared fixed costs once.

1. Complete the sheet for your main offer today. If price does not exceed variable cost, extra orders will not cover your overhead.
2. Use the proposed price on new enquiries this week. Track quotes, accepted orders and customer objections.
3. Compare actual costs and delivery time with your estimates. Review total contribution as well as revenue, and keep testing if the sample is small.

Go further with the AI Builders community

Visit the Azerbaijani AI Builders community at https://abcommunity.org/resurslar for real examples, peer feedback and discussion. Share your pricing worksheet and what you learned, with customer details and sensitive figures removed. Ask a focused question such as, “Which delivery costs might I have missed?”