Product Pricing Template for Small Business

Start with the variable cost of one unit: everything you would save if it were never made or sold. The US Small Business Administration defines contribution margin as the price minus the variable cost per unit, divided by the price¹. Fixed costs such as rent, salaries and insurance stay out of the unit cost.

Count materials at yield: if roasting loses 16% of the weight, a 12 oz bag needs about 14.3 oz of green coffee. Add labor, packaging, shipping you absorb and the card fee. Stripe, a payment processor, charges 2.9% + 30¢ per successful transaction² on US cards, so the fee grows with the price.

Cost each channel separately, since wholesale orders ship and get paid for differently. Then divide monthly fixed costs by monthly revenue. A product whose margin falls below that line isn't covering its share of overhead.

Your sales history already records how customers reacted when a price moved. Include changes that don't feel like price changes: a supplier increase passed straight on, a smaller pack at the same price.

1. 1

   Find each change

   In a sales export by product and month, note each time the price moved.

2. 2

   Match the windows

   Compare about three months either side, in the same channel.

3. 3

   Reject spoiled readings

   A promotion, stockout or new account in either window, or a seasonal peak in only one, spoils it. Keep the row and note why.

4. 4

   Work out the response

   Divide the percentage change in units by the percentage change in price.

Economists call this ratio price elasticity. Measure each change against the average of the before and after figures. OpenStax's economics textbook explains that this midpoint method gives the same elasticity between two prices whether the price rose or fell³. A result above 1, ignoring the minus sign, means volume moved more than price did.

If a product has never changed price, write unknown and plan a test. Don't borrow an industry figure, which looks as solid as a measured one and isn't.

A rise pays if the extra contribution on units you keep beats the contribution lost on units you don't. So the break-even loss is the gain per unit divided by the new contribution per unit. An 8% rise on a $10 product with a 40% margin lifts contribution from $4.00 to $4.80. It can lose 0.80 divided by 4.80, or 16.7%, of its volume.

Work it out per product at the new price, since a card fee takes a slice of the rise. Then compare it with the loss its history predicts: roughly its elasticity times the rise.

The roaster first planned 8% on everything. Total contribution would still have risen 9.3%, so monthly reports would have looked fine, while three products lost $1,582 a year between them.

Read the current prices of the three or four rivals you actually lose customers to, and note the date. A competitor analysis gathers them with what their customers say.

Then convert every price to the same unit. A rival's $19.00 bag looks like a modest premium over a $16.00 one until you see it holds 10 oz: $1.90 an ounce, or $22.80 for 12 oz. NIST's unit pricing guide cites a 2023 report from FMI, the food industry association: 74% of shoppers use unit pricing in a store when it is available⁴.

Competitors show the range and where you sit in it, not how your customers will react. In the roaster's comparison, the median price per ounce is 9.4% above its house blend's, yet its own history says an 8% rise there would lose money. When the two disagree, trust the history.

If you charge more than most rivals, make the reason visible, in your words and your customers'. A testimonial request email asks them for a quote.

Set each price by comparing the product's predicted loss with its break-even, and write the reason beside it.

• Predicted loss well under break-even: raise it, in two steps if the rise is big
• Close to break-even: take less, or hold
• Above break-even: hold, and work on the cost or the product instead
• No history: test a rise the break-even can absorb

A good test changes one price and nothing else. Make the rise big enough to read, often 5% to 15%, run it for about three months, and decide first what drop in sales would reverse it.

A new price only works once the old one is gone everywhere. List each place it lives: product pages and variants, point-of-sale buttons, wholesale price lists, marketplace listings, subscription billing, open quotes and standing orders. Give each an owner and a date.

Date each change to meet its notice terms, keep promotions out of the window, and measure the result after three months. For the customer emails and the exception rule, use a price increase communication plan.

In the US, the FTC's pricing guides cover sale ads. The old price in the ad should be one you offered to the public on a regular basis for a reasonably substantial period of time⁵.

For wholesale, the FTC warns that charging competing buyers different prices for the same commodity⁶ may violate the Robinson-Patman Act. Real cost differences, such as volume discounts, are one defense.

The template on this page covers each step, filled in for the made-up roaster. With Edit with AI, River fills in the same sheets from your sales export, unit costs and competitors' prices.