How to Price Your Products to Actually Be Profitable
Rent, overhead, suppliers, VAT... Many shop owners set prices by instinct and end up operating at a loss without realizing it. Here's the step-by-step method for calculating a fair price.
The "I sell for more than I buy" trap
This is the basic reasoning, and it's incomplete. A shop owner who buys a product for €3 and sells it for €5 thinks they're making €2. But have they factored in their share of the rent? Electricity? Losses on unsold stock? Card payment terminal fees?
In reality, many local shops operate at a loss without realizing it, because prices are set without a method.
The 3 concepts every shop owner must master
1. Gross margin
This is the difference between your selling price (excl. VAT) and your purchase price (excl. VAT). It's often expressed as a percentage of the purchase price (markup) or of the selling price (margin rate).
Example: bought at €4, sold at €7 incl. VAT (20% VAT) → selling price excl. VAT = €5.83 → gross margin = €1.83 → margin rate = 31.4%
2. Fixed costs
These are the expenses you pay every month, even if you sell nothing:
- Rent and property charges
- Electricity, water, internet
- Salaries (including your own, if you draw a wage)
- Business insurance
- Loan repayments
- Software subscriptions
3. The break-even point
This is the revenue or number of units sold beyond which you start making money. Below it, you're losing money. Above it, you're profitable.
The formula for setting the right price
A good method is to start from the bottom: what does each sale actually cost me, including all charges?
- Calculate your unit purchase cost
- Add variable costs (delivery, losses, bank fees)
- Divide your monthly fixed costs by your estimated sales volume → this gives you a per-unit share
- Add your target profit
- Apply VAT
The result is your minimum viable price. Below it, you're operating at a loss.
Margin benchmarks by sector
To guide your thinking, here are typical gross margin ranges:
- Food grocery: 20 to 35%
- Cosmetics / beauty: 40 to 60%
- Textiles / fashion: 50 to 70%
- Fast food: 65 to 75% (on raw ingredients)
- Niche imported products: 50 to 80%
Common mistake: confusing margin and markup
A 50% markup does not equal a 50% margin. If you buy for €10 and add 50%, you sell for €15. But your margin rate is 5/15 = 33%, not 50%.
This confusion is extremely common and can lead to systematic underpricing.
Use the Afasin calculator
To avoid doing these calculations by hand, Afasin provides a free margin calculator that factors in VAT, fixed costs, and the break-even point. No sign-up required for the essentials.
