How to Price Your Products for Profit

Guessing your prices — or copying whatever the shop next door charges — is one of the fastest ways to run a small business into the ground. The right price covers your true costs, pays you for your time, and still looks fair to the customer — and getting there just takes a simple, repeatable method.

Why “cost plus a little” usually fails

Most small business owners in the Philippines price by feel. They look at the ingredients, add a “profit,” and call it a day. The problem is that “ingredients” is rarely the full cost. Packaging, delivery, platform fees, spoilage, and your own time quietly disappear from the calculation — and six months later, the business is busy but broke.

A better approach starts with one question: what does this product actually cost me to make and sell, down to the last centavo?

Step 1: Find your true unit cost

Your true unit cost (also called COGS, or cost of goods sold) is everything it takes to produce and deliver one unit. For most small businesses, this includes:

• Raw materials or stock (ingredients, supplies, items bought for resale)
• Packaging (box, sticker, ziplock, tape)
• Payment and platform fees (GCash, Maya, Maribank, delivery apps)
• Wastage or spoilage allowance
• A fair share of your labor for that item

If you have never broken this down line by line, start there before touching your price tag. Our guide on how to compute COGS walks through this in more detail, and it is the foundation every pricing decision should sit on.

Markup vs margin: know the difference

These two terms get mixed up constantly, and mixing them up leads to underpricing.

• Markup is how much you add on top of your cost, expressed as a percentage of the cost. Formula: (Price − Cost) ÷ Cost.
• Margin is how much of your final selling price is actual profit, expressed as a percentage of the price. Formula: (Price − Cost) ÷ Price.

A 50% markup does not equal a 50% margin — and this gap trips up a lot of first-time sellers. If something costs ₱40 and you sell it for ₱60, that is a 50% markup, but your margin is only 33%. Margin is what tells you the real percentage of every sale that stays in your pocket, so it is the number to watch when you set profit targets.

Step 2: Add overhead and pay yourself

Unit cost covers the product itself. It does not cover the electricity for your oven, the data you use to take orders, the rent on your stall, or the hours you spend packing and messaging customers. These are your overhead costs, and they need to be spread across every unit you sell — not treated as an afterthought.

A simple way to do this: total your monthly overhead (rent, utilities, transport, small tools, subscriptions), divide it by your expected monthly units sold, and add that per-unit amount to your cost before you apply markup. Your own time counts too. If you are not paying yourself something per hour of work, your “profit” is really just unpaid labor.

Worked example: pricing a food product

Say you sell a snack box with these true costs per unit:

• Ingredients: ₱25
• Packaging: ₱5
• Payment/delivery fee allocation: ₱2
• Overhead share (gas, electricity, rent): ₱5
• Your labor allocation: ₱3

Total true unit cost: ₱40

To hit a healthy margin, aim for at least 35–45% margin on food products, since spoilage and demand swings eat into profit fast. Let’s target a 43% margin.

Using a 75% markup, price = ₱40 × 1.75 = ₱70.

Check the margin: profit is ₱70 − ₱40 = ₱30. Margin = ₱30 ÷ ₱70 = 42.9%, or about 43%. That means every ₱70 sale, roughly ₱30 stays as profit before tax and any one-off expenses.

Sell 100 boxes a month at ₱70 and your gross profit is ₱3,000 — enough to actually mean something, instead of the ₱500–₱1,000 you’d be left with pricing on gut feel alone. To see how that gross profit turns into real take-home money after tax and other costs, run it through a simple profit and loss statement.

Step 3: Check the market before you finalize

Once you know your minimum viable price (cost plus the margin you need), compare it against what competitors charge and what customers are actually willing to pay. This is a sanity check, not the starting point — if you start from competitor prices instead of your own cost, you risk copying a price that does not even cover their costs, let alone yours.

If your calculated price is higher than the market, look for ways to trim cost (better sourcing, smaller packaging, batch buying) rather than slashing margin to zero. If your price is lower than the market, you likely have room to charge more and improve margin further.

Common pricing mistakes

• Pricing too low to “attract customers.” Low prices attract low-value customers and make it nearly impossible to raise prices later without backlash.
• Forgetting hidden costs. Payment gateway fees, delivery commissions, packaging, and spoilage are easy to leave out — and they quietly erase your margin.
• Copying competitors blindly. Their cost structure, supplier deals, and overhead are not yours. A price that works for them may lose you money.
• Never revisiting prices. Ingredient costs and fees creep up over time. A price set a year ago may already be under your true cost today.
• Not tracking cash flow alongside pricing. Good pricing on paper still fails if money is not moving predictably in and out of the business — our piece on cash flow basics for small business covers how to keep that steady.

Frequently asked questions