Pricing and profit: cost the work, then test the price
Before changing a price, work out what the sale needs to pay for. These guides follow a shipment, a recipe, a job or an order through its costs, then help you test what would be left.
Start with the foundation guide in each section. The worked examples use fictional Australian-dollar amounts, with the GST assumptions beside the table. Replace them with your own figures and keep contribution separate from the business's final profit.
Cost a product
Start with pricing fundamentals, then follow stock, usable yield and sales-channel costs through a worked example.
Pricing Strategy for Small Business: Cost-Plus vs Value Pricing
Cost-plus vs value pricing for Australian small businesses: work out your true hourly cost, set margins that stick, and know when to raise your prices.
10 min readLanded Product Cost: Work Out the Cost per Saleable Unit
Calculate landed product cost with freight, handling and saleable units. Compare shipments, allocate shared costs and keep recoverable GST separate.
4 min readCost of Goods Sold (COGS): Reconcile Stock and Purchases
Work through a cost-of-goods-sold reconciliation with opening stock, purchases and closing stock, plus a separate record for returns and stock differences.
4 min readRecipe Cost per Portion: Allow for Yield, Waste and Portion Size
Trace ingredients from purchased weight to saleable portions. Use a recipe-cost worksheet for trim loss, cooking yield, garnish, packaging and portion drift.
4 min readWholesale Pricing: What Remains After the Retailer Margin?
Work backwards from a retail price to test wholesale contribution. Compare direct sales, retailer margin, freight and returns on the same GST basis.
4 min readMarketplace Profit per Order: Include Fees, Returns and Fulfilment
Reconstruct marketplace profit per order from the sale and settlement. Check fee bases, shipping, fulfilment and return losses with a worked comparison.
4 min read
Cost a job
Establish a sustainable hourly rate, check actual delivery and make room for travel, shared costs and uncertainty.
How to Calculate Your Hourly Rate as a Sole Trader
Set a sustainable hourly rate using income, overheads and realistic billable hours. Worked Australian example, free calculator and a quote-check checklist.
5 min readJob Profitability Review: Compare Your Quote with Actual Costs
Compare quoted and actual labour, materials, travel and rework. Use a worked job-cost review to find the estimating assumption to change next time.
3 min readAllocate Overheads to Jobs: Choose a Cost Driver That Fits
Compare labour-hour, job-count and revenue allocations for two jobs. Check overhead recovery, capacity assumptions and the effect on your next quote.
3 min readCall-Out and Travel Charges: Calculate the Cost of a Visit
Calculate travel, setup and on-site cost for a service visit. Compare a call-out component with a bundled minimum price and test more distant jobs.
3 min readRush-Job Pricing: Cost the Work You Would Have to Displace
Cost an urgent job using extra delivery costs and displaced contribution. Compare accepting, rescheduling and declining before choosing a rush price.
3 min readQuote Contingency: Cost the Uncertainty and Explain the Scope
Build a quote-risk register with cost ranges, evidence and treatments. Separate the base estimate, contingency and any proposed scope-change process.
3 min readRetainer Profitability: Measure the Work Behind the Monthly Fee
Review monthly retainer fees against delivery time, direct costs and reserved capacity. Find revision creep and compare effective rates across months.
3 min read
Test a price
Check the contribution needed to support the business, then test discounts, delivery offers and small orders.
Break-Even Analysis Explained (With a Simple Formula)
Break-even analysis in plain English: split fixed and variable costs, work out your contribution margin, and see how much you must sell to cover costs.
8 min readDiscount Campaign Cost Sheet: How Many Extra Sales Do You Need?
Calculate the extra units a discount must sell to preserve contribution. Include payment fees, fulfilment and campaign spending, then test capacity.
3 min readVolume Discounts: Set Tiers That Preserve Order Contribution
Test volume-discount tiers with real handling savings. Compare all-units and incremental pricing, and spot thresholds where a bigger order earns less.
3 min readFree Shipping Threshold: Can the Basket Pay for Delivery?
Test a free-shipping threshold across basket sizes and delivery zones. Include product margin, packing, heavy items and a target contribution per order.
3 min readMinimum Order Value: Cover the Cost of Small Orders
Calculate a minimum order value from handling cost and contribution. Compare a minimum, a small-order fee and consolidation using the same baskets.
3 min read
Diagnose falling profit
Trace the change to sales mix, material usage, returns or the work behind each customer. Start with the result that no longer makes sense.
Sales Rose but Gross Margin Fell? Check Your Sales Mix
See how a change in product mix can lift sales while lowering gross margin. Use a two-product example to check the numbers before changing your prices.
3 min readGross Profit Variance: Separate Price, Input Costs and Waste
Trace planned gross profit to actual results with a worked price, input-cost and waste bridge. Find the cause of margin loss using records you already keep.
3 min readProduct Returns: Calculate Their Effect on Real Margin
Calculate margin after refunds, return freight, inspection and recovered stock. Compare three return rates without double-counting the cost of returned goods.
3 min readRecurring Revenue Profit: Model Cancellations and Service Costs
Build a six-month recurring-service forecast with cancellations, new customers and delivery costs. Separate customer churn, revenue churn and collected cash.
4 min readCustomer Profitability: Include Support and Delivery Complexity
Compare customers after support time, delivery, returns and account administration. Separate cost allocations from cash savings before changing an arrangement.
3 min read
Compare operating choices
Use future costs and available capacity to compare the options. Check cash affordability and tax treatment separately from the contribution calculation.
Multi-Product Break-Even: Use a Realistic Sales Mix
Calculate break-even for several products using a realistic sales basket. Compare two mixes, weighted contribution and the sales needed to cover fixed costs.
3 min readContribution per Bottleneck Hour: Choose Work When Capacity Is Full
Compare jobs by contribution per scarce machine or specialist hour. Include setup time, demand limits and existing commitments before changing the schedule.
3 min readMake or Buy? Compare Avoidable Costs and Released Capacity
Compare in-house production with bought-in supply using avoidable costs, unchanged overhead and released capacity. Work through a clear make-or-buy example.
3 min readRepair or Replace Business Equipment? Compare Future Costs
Compare repair and replacement over the same period, including downtime, running costs and resale value. Test another breakdown before committing to a purchase.
3 min readBuy or Lease Equipment: Compare the Total Commitment
Put purchase and lease proposals on the same timeline. Compare upfront cash, instalments, maintenance and end costs, with a checklist for unanswered terms.
3 min readWill a New Service Add Profit or Just More Work?
Test a new service using added revenue, direct costs, setup spending and displaced work. Compare low, base and high demand before expanding the offer.
3 min readShould You Stop Selling an Unprofitable Product?
Check whether dropping a product would improve profit. Separate lost contribution, avoidable fixed costs and overhead that remains with this worked example.
2 min readWould Longer Opening Hours Pay for Themselves?
Cost an extra trading period using added sales, product costs, staffing and cleanup. Allow for shifted sales and compare quiet, expected and busy trial weeks.
3 min readPrepaid Service Packs: Cost the Promises Before Discounting
Cost every session promised in a prepaid service pack. Allow for delivery time, rescheduling and rising costs before treating the upfront payment as profit.
3 min readSupplier Early-Payment Discounts: Compare Savings and Cash Cost
Work out whether a supplier discount covers the cost of paying early. Compare discount dollars, borrowing costs, payment dates and the remaining cash buffer.
3 min read