If you run a small business, one of the most important questions you will ask yourself is:

“How much should I sell this for?”

It sounds simple, but pricing can be confusing, especially when you are trying to balance affordability, profit, competition, and customer expectations.

Before you decide your selling price, it is important to understand two basic business terms: costing and pricing.

What Is Costing?

Costing is the process of identifying how much it costs you to make, prepare, or sell your product or service.

In simple words, costing answers the question:

“How much did I spend to create this?”

For example, if you sell banana bread, your costing may include:

  • Ingredients
  • Packaging
  • Labor or your time
  • Electricity or gas
  • Delivery costs
  • Transaction fees
  • Rent or other overhead expenses

Many small business owners only compute the obvious costs, like ingredients or materials. But the hidden costs matter too. These are often the reason why a business feels busy but still earns very little.

What Is Pricing?

Pricing is the process of deciding how much your customer will pay for your product or service.

Pricing answers the question:

“How much should I sell this for?”

Your selling price should not be based only on what others are charging. It should also consider:

  • Your total cost
  • Your desired profit
  • Your target customers
  • Your market position
  • The value your product provides
  • Your business goals

A good price should help you stay competitive while still allowing your business to earn sustainably.

Costing vs. Pricing: What’s the Difference?

Costing and pricing are connected, but they are not the same.

Costing is about your expenses.
It helps you understand how much money goes out.

Pricing is about your selling decision.
It helps you decide how much money should come in.

For example:

If it costs you ₱80 to make one product and you sell it for ₱100, your gross profit is ₱20.

But if you forgot to include packaging, labor, delivery, and transaction fees, your real cost might actually be ₱95. That means your profit is only ₱5, or worse, you might already be losing money without noticing it.

This is why costing should come before pricing.

Why Costing Is Important for Small Businesses

Costing helps you see the real numbers behind your business.

When you know your costs, you can:

  • Avoid underpricing
  • Protect your profit margin
  • Understand which products are profitable
  • Adjust prices when supplier costs increase
  • Make better business decisions
  • Know when a product is no longer sustainable

Without proper costing, you may keep selling products that look successful but are actually hurting your business.

Why Pricing Is Important for Small Businesses

Pricing affects how customers see your business.

A price that is too low may attract buyers, but it can also make your business difficult to sustain. A price that is too high may give you better profit, but only if your customers see enough value in what you offer.

Good pricing helps you:

  • Earn enough profit
  • Position your brand properly
  • Communicate value
  • Stay competitive
  • Grow with more confidence

Your price is not just a number. It is part of your business strategy.

Simple Formula for Product Costing

A basic costing formula is:

Total Cost = Materials + Packaging + Labor + Overhead + Other Expenses

Then, once you know your total cost, you can add your desired profit.

For example:

Total cost per product: ₱100
Desired profit: ₱50
Selling price: ₱150

This is a simple way to start. As your business grows, you can improve your costing by tracking more details, such as waste, rent, marketing costs, platform fees, and employee time.

Common Pricing Mistakes Small Business Owners Make

Many small business owners struggle with pricing because they often start with guesswork.

Here are some common mistakes:

1. Copying competitors without knowing your own costs
Your competitor may have different suppliers, lower rent, higher volume, or a different business model.

2. Forgetting hidden costs
Small costs like stickers, delivery bags, transaction fees, and electricity can add up.

3. Not paying yourself
Your time is part of the business cost. Even if you are doing everything yourself, your effort has value.

4. Pricing too low out of fear
Being affordable is good, but being too cheap can make your business unsustainable.

5. Not reviewing prices regularly
Supplier prices change. Rent, utilities, and labor costs can also increase. Your pricing should be reviewed from time to time.

How to Know If Your Price Is Sustainable

A sustainable price should cover your costs and still leave enough profit for your business.

You can ask yourself:

Am I pricing based on numbers or just feelings?

Am I covering all my materials and expenses?

Did I include packaging, labor, and overhead?

Am I earning enough profit per sale?

Can I still earn if supplier prices increase?

Is this price helping my business grow?