A price list is a layout problem for an afternoon and an arithmetic problem for as long as the business runs. The layouts are below. The arithmetic is two calculations — working a price from a target margin, and working out what a discount costs you — and getting either one wrong quietly removes money from every sale you make. The second one in particular is the reason most advice to undercut your competitors is worth ignoring.
The figures on this page are arithmetic, not advice. No margin, discount or tax rate here is suggested as normal or appropriate for your business — they are inputs to worked examples, and no currency is implied. Pricing, tax display requirements and what you may and may not agree about prices with other businesses are all matters for a qualified accountant or adviser in your country.
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Markup is not margin, and the gap is expensive
Two formulas, one difference, and it underprices more small businesses than anything else:
- Markup is the uplift measured against your cost: (price − cost) ÷ cost.
- Margin is the same money measured against your price: (price − cost) ÷ price.
Suppose a product costs you 60 and you want a 40% margin. The intuitive move is to add 40%: 60 × 1.40 = 84. That price carries a margin of 28.6%, not 40%. You are 11.4 percentage points short, and the price is 16.00 too low — more than a sixth of what you should be charging, on every unit, indefinitely.
The correct calculation divides rather than multiplies: price = cost ÷ (1 − margin). So 60 ÷ 0.60 = 100.
| Target margin | Price on a cost of 60 | Which is a markup of |
|---|---|---|
| 25% | 80.00 | 33.3% |
| 33% | 89.55 | 49.3% |
| 40% | 100.00 | 66.7% |
| 50% | 120.00 | 100% |
Read the bottom row twice. Doubling your cost gives you a 50% margin, not a 100% one. And running it the other way: a 50% markup on a cost of 60 is a price of 90, which is a margin of 33.3%. If you have ever heard someone say they work on 50% and been unsure which they meant, that difference is 30.00 a unit here.
Whichever you use, use the same one everywhere — in your price list, in your quotations, and in whatever you report to your accountant. Mixing the two between documents is how a business discovers at year end that it has been working for less than it thought.
Free price list templates
Twenty-one layouts. Pick by how often the prices change: something you will update monthly wants a spreadsheet, something going to print does not.
No file format is recorded for these individually, so only the size is shown. Open the one you want before you build your list around it — and note that template 09 is substantially larger than the rest.
What a discount really costs
Every price cut is a bet that extra volume will cover the margin you gave up. The bet is winnable, and it is arithmetic rather than optimism, so here is the table.
Each cell is the extra unit volume you need in order to end up with the same gross profit you had before the discount:
| Your margin | 5% off | 10% off | 15% off | 20% off | 25% off |
|---|---|---|---|---|---|
| 20% | +33% | +100% | +300% | never | never |
| 30% | +20% | +50% | +100% | +200% | +500% |
| 40% | +14% | +33% | +60% | +100% | +167% |
| 50% | +11% | +25% | +43% | +67% | +100% |
| 60% | +9% | +20% | +33% | +50% | +71% |
Worked through, so you can see it is not a trick. Sell 1,000 units at 100 on a cost of 60 and the gross profit is 40,000. Take 10% off and the price is 90, so the profit per unit falls from 40 to 30 — and 40,000 ÷ 30 is 1,333 units. A third more sales, for exactly the same money. Take 20% off and the unit profit is 20: you need 2,000 units, precisely double, to be no better off than before you discounted.
The two cells marked “never” are the ones to understand. Once the discount equals your margin, each unit makes nothing at all, and no amount of volume multiplies nothing into a profit. At a 20% margin — which is not an unusual place to be — a 20% discount is not a thin deal, it is an unwinnable one.
Which brings us to the advice that used to be on this page. “Price lower than your competitors to attract customers” is one strategy among several, and the table above is its price tag. Before you set a price below a competitor’s, work out which row you are on and whether you can plausibly sell that much more. Sometimes you can, and undercutting is then a reasonable choice made with open eyes. Sometimes the answer is in the “never” column, and the right move is to compete on something other than price. The point is that you can know which before you commit, and the arithmetic takes a minute.
If a discount is part of the plan, the extra volume it requires is a forecasting question rather than a pricing one — it belongs in your sales forecast, where you can see whether the units are realistic alongside everything else you are expecting to sell.
Bulk discounts: the one condition that makes them sound
A volume discount is subject to exactly the same table, with one difference that can rescue it: if selling in bulk genuinely costs you less per unit, the margin does not fall as far as the price does.
That is a real effect and it is worth quantifying rather than assuming. Larger orders can mean one delivery instead of six, one invoice instead of six, one picking and packing operation instead of six, and sometimes a better purchase price on your own inputs. Work out what those savings actually come to per unit, and you have the headroom your discount can occupy.
What does not work is a tier structure invented because tiers look professional. Three rules keep them honest:
- Set each tier from your own cost saving at that quantity, not from a round-numbered ladder. A 5-10-15 structure is a guess wearing a suit.
- Put the break points where orders actually cluster. A tier starting at 500 units when your customers buy in 100s and 1,000s does nothing except give away margin on the 1,000s.
- Never let a tier reduce the total order value. If 99 units at one price bills more than 100 units at the next tier down, customers will find it, and the fix is to round the tier price rather than to hope.
The fields that stop arguments
A price list is a document that people rely on months after you wrote it, which is why the boring fields matter more than the layout. Several of them have to survive onto whatever you eventually bill from — currency and tax basis in particular, which is where invoicing inherits the problem if the list was vague. These are the ones whose absence causes disputes:
| Field | What goes wrong without it |
|---|---|
| Effective date | A customer produces a list from two years ago and asks for that price. With a date on it, the conversation is short. |
| Version or revision number | Nobody can tell which of three circulating copies is current, including you. |
| Valid until | Prices are treated as permanent. An expiry date makes an increase an expected event rather than a surprise. |
| Currency, written out | A bare number is ambiguous and a bare symbol often is too, because several currencies share one. |
| Whether tax is included | The expensive one. See below. |
| Unit of measure | Per item, per hour, per kilo, per thousand. A price with no unit is not a price. |
| Minimum order | Otherwise someone orders one of something you only supply in boxes of fifty. |
| What is not included | Delivery, installation, setup, support. Cheaper to state than to argue about. |
On the tax line, the arithmetic is worth seeing. Take a printed price of 100 and an example tax rate of 20%. If the list means that figure to be exclusive of tax, the customer pays 120.00. If it means inclusive, the price still reads 100 but your net is 83.33 and 16.67 goes to the tax authority.
Same printed number, and a difference of 16.67 a unit in what you keep. Which basis you must use, and whether it differs for business and consumer customers, depends on where you are and is a question for your accountant — but saying which basis you have used is free and takes one line.
How often should I update a price list?
Often enough that the one in circulation is still true, which in practice means whenever your input costs move materially rather than on a calendar. Put a valid-until date on it instead of trying to revise quietly — an expiry that passes is a prompt to review, and it means an increase arrives as something the customer was told about rather than as a shock.
Should I show prices publicly at all?
It depends on whether your prices vary by customer. A published list is simpler, builds trust, and saves a great deal of time answering enquiries. It also means a competitor knows exactly what you charge, and it makes individual negotiation awkward. Businesses whose pricing genuinely varies by job tend to publish nothing and work from quotations instead; businesses with standard products usually gain more than they lose by publishing.
How do I raise prices without losing customers?
Give notice, change the list rather than the individual invoice, and let the valid-until date do the explaining. It also helps to know what you are protecting: run the discount table backwards and you can see what a small increase is worth, because the same arithmetic works in your favour. A 5% increase at a 40% margin means you can afford to lose roughly a ninth of your volume and be no worse off — which is usually far more headroom than people assume they have.
What margin should I aim for?
This page will not give you a number, and any page that does is guessing. Margins that are healthy in one trade are impossible in another, and the figure depends on your fixed costs, your volume and what you are actually selling. What this page can tell you is how to calculate the price once you have decided, and what it costs you to move off it afterwards. The decision itself is one to take with an accountant who can see your numbers.
Should my price list match my quotations?
The prices should, unless you have a stated reason for a difference such as a volume tier or a long-standing agreement. What should definitely match is the basis: the same currency, the same tax treatment, the same units. Most pricing disputes are not about the number but about whether the number included something, and a list and a quote that disagree on that are a dispute waiting to happen.
Can I have different lists for different customers?
Businesses do this routinely — trade and retail lists, for instance. Two practical cautions. Version the lists distinctly so the wrong one does not reach the wrong customer, because it eventually will. And be aware that there are real rules in many jurisdictions about what you may agree with other businesses regarding prices, and about discriminating between customers in certain circumstances. Worth a conversation with an adviser before you build a complicated structure.
Where does pricing belong in a business plan?
In the part that has to hold together with everything else, because the price drives the revenue line, the volume assumption and the break-even point simultaneously. A plan containing a price that was never worked back from cost and margin tends to fail in the forecast rather than in the market. The business plan templates have the sections for it; the arithmetic above is what fills them in.
One last practical point. Before a price list leaves your hands, check it against the field table above — date, version, currency, tax basis, units, minimum order. It takes two minutes and is the sort of thing a short checklist exists for, because the field you forget is the one somebody asks about.
