Pricing guide
How to Price Your Products or Services
Use costs, capacity and customer value to build a price you can explain and test.
Last reviewed: 30 October 2026
Understand the cost of a sale
List the direct costs of one unit or project. Include materials, packaging and fulfilment for a product. For a service, estimate delivery time and project-specific costs. Payment charges and expected returns can also reduce contribution.
List fixed costs such as software, rent, insurance and routine administration separately. They do not disappear because an order looks profitable. Keep a consistent VAT basis when comparing costs and revenue.
Choose a cost-based starting point
For a product costing £24, a 40% gross-margin target gives £24 ÷ 0.60 = £40. Adding 40% to cost gives £33.60 instead, producing only a 28.57% margin. State whether your target is margin or markup.
For freelance work, divide annual pre-tax income plus expenses by realistic annual billable hours. A £42,000 revenue target over 1,150 hours produces £36.52 an hour. A project needing 12 billable hours has a baseline of about £438.26 before additional project costs.
Check overhead recovery and capacity
If a project sells for £500 and direct costs are £200, contribution is £300. Monthly fixed costs of £1,800 require six such projects to break even. Compare that volume with available time and demand.
Include sales, administration, revisions and unpaid calls when planning capacity. A mathematically valid price can still rely on an unrealistic workload.
Test value and define scope
Costs give a baseline; they do not tell you what customers will pay. Describe the outcome, boundaries and delivery standard. Compare genuinely similar alternatives and test interest with a small number of prospects.
For fixed-price services, define included revisions, deliverables, payment dates and additional work. For products, consider delivery charges, bundles and minimum orders. Track actual time and costs after each sale. Test discounts in the margin calculator and review prices when supplier costs or scope change. Seek professional advice on tax and contractual questions.
Sources to check
This guide is general information for UK readers. It is not legal, tax, employment, insurance or financial advice.