Pricing is one of the hardest decisions small business owners face. Set prices too low and you work yourself ragged for little reward. Set them too high and you lose sales to competitors. Get it wrong in either direction and your business suffers.
The good news is that pricing doesn't have to be guesswork. This guide walks you through a practical framework for setting prices that cover your costs, reflect your value, and keep customers coming back.
Step 1: Know Your True Cost
Most sellers underestimate their costs because they only count obvious expenses like raw materials. Your true cost includes everything that goes into delivering the product to a customer.
Direct costs (per unit)
- Raw materials or ingredients
- Packaging (boxes, bags, stickers, labels)
- Production labor (your time — this is real money, even if you're paying yourself)
Indirect costs (spread across all units)
- Platform fees (e.g., marketplace commissions, payment processing fees — usually 1–3%)
- Shipping supplies and delivery costs
- Equipment maintenance or depreciation
- Utilities (electricity, gas for production)
- Marketing and advertising spend
Formula: True Cost Per Unit = (Direct Costs) + (Total Monthly Overhead ÷ Monthly Units Produced)
If you don't know this number, you're not actually running a business — you're hoping for the best.
Step 2: Calculate Your Break-Even Price
Your break-even price is the minimum you must charge just to cover costs without making any profit. Selling below this price means you lose money on every unit.
Break-even price = True cost per unit
This is your floor. Never go below it, regardless of what competitors charge.
Step 3: Set Your Target Margin
Profit margin is what's left after paying all costs. For sustainable small businesses, aim for a minimum of 30–40% gross margin. Higher-end or handmade products often command 50–70%+.
Formula: Selling Price = True Cost ÷ (1 - Target Margin)
Example: If your true cost is Rp 35.000 and you want a 40% margin:
Selling Price = Rp 35.000 ÷ 0.60 = Rp 58.000
Step 4: Check the Market
Now that you have a cost-based price, check what comparable products sell for. Search for similar items on:
- Tokopedia, Shopee (for competitive market pricing)
- Instagram and TikTok Shop
- Direct competitors' catalogs
If your cost-based price is significantly higher than market price, you have a cost problem to solve. If it's significantly lower, you may be undervaluing your product — or you have a cost advantage you can leverage.
Pricing Strategies for Small Sellers
Value-based pricing (best for unique/handmade products)
Price based on what customers are willing to pay for the value they receive — not just your costs. A handmade cake with a unique recipe can often command a 2–3x premium over a mass-produced equivalent.
Competitive pricing (best for commodity products)
Price at or near market rate, then compete on service, speed, or a small differentiator. Don't race to the bottom — there's always someone willing to go cheaper than you.
Bundle pricing (great for increasing average order value)
Combine products into bundles at a slight discount. Example: Individual jar Rp 45.000, but 3-jar bundle for Rp 120.000 (saves Rp 15.000). Bundles increase revenue per customer and help you move slower-selling items.
Common Pricing Mistakes
Not counting your own time
If you spend 2 hours making a product and "only count materials," you're essentially working for free. Your time has real value — include it in your cost calculation.
Copying competitors without knowing their costs
A competitor charging low prices may have lower costs, higher volume, or be losing money. You don't know. Price based on your own cost structure.
Discounting too often
Frequent discounts train customers to wait for sales and devalue your brand. Use promotions strategically (flash sales, new customer offers, seasonal events) — not as a permanent pricing crutch.
Hiding prices
"DM for price" loses you more customers than it gains. Most people won't bother asking — they'll move on. Show your prices clearly.
How to Raise Prices Without Losing Customers
If you realize your current prices are too low, don't panic. Here's how to raise them without drama:
- Give notice: "Prices will increase on [date] — order now to lock in current pricing"
- Improve something alongside the price increase (better packaging, faster delivery)
- Raise prices on new products first, then gradually on existing ones
- Don't apologize — price increases are a normal part of running a business
Frequently Asked Questions
Should I price lower to attract more customers?
Only if your cost structure supports it. Competing on price alone is a losing strategy for small businesses — you'll almost always lose to larger players with more volume. Compete on quality, uniqueness, or service instead.
How do I know if my prices are too high?
If you're getting many "views" but few sales, check your price against competitors. But also check your photos and descriptions first — often pricing isn't the real issue.
What about platform fees and payment processing?
Always factor these into your costs before setting prices. On Catalo.id, payment processing fees are minimal — but on marketplaces like Shopee or Tokopedia, commissions can be 5–15% of your selling price.
Pricing is a skill that improves with practice. Start with an honest cost calculation, set a sustainable margin, and adjust as you learn how your customers respond. The worst thing you can do is set prices randomly and hope it works out.