Pricing is one of the few levers that changes your profit immediately. Set it too low and you work hard for nothing; set it too high and sales stall. A good price comes from knowing your costs, your target profit and the tax that sits on top.

Markup and margin are not the same

  • Markup is the profit as a percentage of cost.
  • Margin is the profit as a percentage of the selling price.

If an item costs KES 600 and you sell it for KES 1,000, the profit is KES 400. Markup is 400 / 600 = 66.7%, but margin is 400 / 1,000 = 40%. Many pricing mistakes come from mixing the two. If you want a 40% margin you need a 66.7% markup, not 40%.

The free pricing and markup calculator converts between them and shows the price for any target margin.

Step 1: know your full cost

The cost of a product includes the purchase price, transport, packaging and any import duty. For imported stock, see the landed cost calculator. Services have costs too: your time, tools, transport and a share of rent and utilities.

Step 2: add overheads

Overheads are costs that do not change with each sale, such as rent and salaries. Add up a month of overheads and divide by the number of units you expect to sell to get a per-unit share. If sales fall short, that share rises.

Step 3: add your profit

Choose a margin that rewards you for the risk. Check it against competitors, but do not copy a price you cannot afford.

Step 4: add tax

Prices shown to customers should include VAT if you are registered. VAT is 16% on most goods and services, so a KES 1,000 item becomes KES 1,160. Use the VAT calculator to add or remove it correctly, and read VAT for small businesses in Kenya for the registration rules.

If you pay turnover tax, 3% of your sales goes to KRA, which lowers your real margin; the turnover tax calculator shows the cost.

Find your break-even point

Break-even is the number of sales at which you cover all costs. The formula is:

Break-even units = fixed costs / (price - variable cost per unit)

If fixed costs are KES 100,000 a month, the price is KES 1,000 and variable cost per unit is KES 600, the contribution per unit is KES 400, so you need 250 sales a month to break even. The break-even and pricing calculator does this for you and shows how the answer changes with the price.

Test before you commit

Before changing your prices, work out how many extra sales you would need to make up a discount. A 10% discount on a 40% margin means you must sell about 33% more to earn the same profit. Check each change against your monthly sales tracker with targets.

Review regularly

Costs change. Review your prices every quarter and whenever a supplier raises theirs.

If you earn from freelance work, read tax for freelancers and content creators before you set your rate, so tax does not eat the margin you planned.

Prices and tax rates are for illustration. Confirm current rates with KRA.

Common questions

What is the difference between markup and margin? Markup is the percentage added to cost, margin is the share of the selling price that is profit. A 50% markup gives a margin of about 33%, so mixing them up leads to under-pricing.

Should prices include VAT? If you are VAT-registered, decide whether shown prices include VAT and say so clearly. Work your margin on the price without VAT, because the VAT belongs to KRA.

How do I check that a price covers my costs? Work out your break-even sales: fixed costs divided by the contribution per unit. If you cannot reach it at the prices you can charge, change the costs or the offer.