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A price that is too low may mean that the business does not cover all its costs, while a price that is too high may make it difficult to compete in the market. 

Before deciding on a price, you need to clearly understand what it actually costs to produce the product or service. Costs can be divided into three main categories:

• Variable costs: These are costs that increase as production volume grows, such as raw materials, ingredients, packaging, and labels.
• Fixed costs: These costs stay the same regardless of production volume. Examples include rent for business premises, insurance, machinery, marketing, and administration.
• Labour costs: Remember to also take into account your own working time or the work contribution of employees. Labour costs should be based on a realistic hourly wage and the time used for production.

When all costs are added together, you get the product’s cost price, meaning what it actually costs to produce one unit.

• Read more: Pricing – how to set the right price for your products and services