How to set your prices

Section 01

The three main pricing strategies

1. 01

   Cost-plus pricing

   Calculate your total cost to deliver the product or service, then add a percentage margin. Simple and ensures you cover costs, but ignores what customers are willing to pay. Works best for products with predictable, measurable costs — manufacturing, retail, construction.

2. 02

   Value-based pricing

   Set your price based on the value you deliver to the customer, not your costs. A consultant who saves a client £50,000 in tax can charge far more than their hourly cost implies. Works best for professional services, software, and specialist expertise. Requires you to understand and articulate your value clearly.

3. 03

   Market-rate (competitive) pricing

   Price in line with what competitors charge for similar offerings. Safe but commoditising — if you charge the same as everyone else, customers have no reason to choose you. Use this as a floor, not a ceiling. Understand what competitors charge, then decide where you want to position.

Section 02

Calculate your minimum viable price

• List all your fixed monthly costs: rent, insurance, software subscriptions, loan repayments, your own minimum salary.
• Estimate your variable costs per unit or per hour: materials, packaging, payment processing fees, subcontractors.
• Divide your total monthly fixed costs by the number of units or hours you can realistically sell.
• Add your variable cost per unit. This is your break-even price.
• Add your target profit margin on top. For services, aim for at least 40% gross margin. For products, 30–50% depending on the category.

Section 03

Gross margin vs net margin — what's the difference?

• Gross margin tells you whether your core offering is profitable before overheads.
• Net margin tells you whether the whole business is viable.
• A business with a 60% gross margin but 2% net margin has an overhead problem.
• A business with a 20% gross margin will struggle to ever achieve a healthy net margin — the ceiling is too low.
• Use the profit margin calculator on this site to check your numbers before committing to a price.

Section 04

Pricing for sole traders and freelancers

• As a sole trader, you pay income tax and Class 4 National Insurance on profit — roughly 25–35% of profit above the personal allowance.
• You have no paid holiday, sick pay, or employer pension contributions — these must come from your rate.
• A rule of thumb: if you want to take home the equivalent of a £40,000 salary, you need to bill approximately £65,000–£70,000 per year.
• Divide your target annual billing by your realistic billable days (typically 200–220 per year, not 260) to get your day rate.
• Add VAT if you are VAT-registered — your rate to VAT-registered clients is effectively the same net, but you must charge 20% on top.

Section 05

How to test and adjust your prices

• If you win every quote or proposal, you are probably underpriced.
• If you lose more than 60–70% of quotes, you may be overpriced — or you are pitching to the wrong customers.
• Raise prices with new customers first. Existing customers can be migrated gradually.
• Anchor high: quote a higher-tier option first, then your standard offer. The contrast makes the standard offer feel reasonable.
• Never compete purely on price — there will always be someone willing to go lower. Compete on value, speed, reliability, or specialisation.