Short answer: Work out the full cost of each product (purchase price, transport, packaging, fees), decide the gross margin you need to cover running costs and profit, and set the price as cost ÷ (1 − margin). Remember that markup and margin differ: a 30% markup on cost is only a 23% margin on price. Check the result against what customers will pay and what competitors charge, and review prices whenever costs rise.
Step 1: know your full cost per item
The purchase price is only the start. Add everything it takes to get the item to the customer:
| Cost | Example (one dress) |
|---|---|
| Purchase or fabric and sewing | ₦12,000 |
| Transport from market or supplier (share per item) | ₦800 |
| Packaging and branded bag | ₦500 |
| POS or payment charges | ₦150 |
| Delivery you don't charge for (average) | ₦550 |
| Full cost | ₦14,000 |
For services, cost is your materials plus the time spent, valued at what you need to earn per hour.
Step 2: understand markup vs margin
- Markup = profit ÷ cost. Selling the ₦14,000 dress for ₦20,000 is a markup of 42.9%.
- Margin = profit ÷ price. The same sale is a margin of 30%.
| Cost | Markup | Price | Margin |
|---|---|---|---|
| ₦14,000 | 25% | ₦17,500 | 20% |
| ₦14,000 | 42.9% | ₦20,000 | 30% |
| ₦14,000 | 66.7% | ₦23,333 | 40% |
| ₦14,000 | 100% | ₦28,000 | 50% |
The trap: "I add 30%" feels like a 30% margin, but it's only 23%. If your rent, staff and other overheads need 30% of every sale, a 30% markup loses money. Try your own numbers in the free profit margin calculator.
Step 3: decide the margin you need
Add up a month's overheads (rent, salaries, power and diesel, data, marketing, your own pay) and compare with expected monthly sales. If overheads are ₦600,000 and you expect ₦2,000,000 in sales, overheads are 30% of sales, so you need a gross margin above 30% just to break even. Aim higher for profit and for the months that sell less.
Price for a target margin: price = cost ÷ (1 − margin). For a 40% margin on ₦14,000: ₦14,000 ÷ 0.6 = ₦23,333.
Step 4: check the market
Compare with what similar businesses charge and what your customers can pay. If the market price gives you less margin than you need, you have three options: cut costs (buy in bulk, cheaper packaging), change the product (smaller size, bundles), or position higher (better quality, service, delivery speed) and justify a higher price. Don't simply price below cost to compete; it doesn't get better with volume.
Step 5: VAT, discounts and round numbers
- VAT isn't your money. If you're VAT-registered, work out margins on prices before VAT, then add 7.5% on top.
- Discounts come out of margin. A 10% discount on a 30% margin product cuts your profit by a third.
- Price points: ₦19,500 or ₦20,000 both work; pick what fits your brand and makes change easy for cash sales.
Step 6: review prices when costs move
With inflation and exchange-rate swings, supplier prices in Nigeria can change monthly. Record your cost of sales in your books and check your gross margin every month. If it's sliding, update prices before it hurts. A small, regular increase is easier for customers than a big jump once a year.
Pricing services
For salons, tailors, consultants and caterers: estimate the hours, multiply by your hourly target, add materials, then check the margin. Quote by package ("bridal make-up with trial") rather than by hour where customers prefer certainty, and take a deposit.
Example: pricing a custom cake
A baker in Port Harcourt prices a two-tier birthday cake:
| Cost | Amount |
|---|---|
| Flour, sugar, butter, eggs, flavours | ₦18,000 |
| Fondant and decorations | ₦9,000 |
| Board, box and dowels | ₦4,000 |
| Gas and power (share) | ₦2,000 |
| Delivery (average) | ₦3,000 |
| Full cost | ₦36,000 |
Her monthly overheads are about 35% of sales, and she wants 15% profit, so she needs a 50% gross margin. Price = ₦36,000 ÷ (1 − 0.5) = ₦72,000. Similar bakers in her area charge ₦60,000 to ₦80,000, so ₦72,000 is realistic. She quotes ₦72,000 with a 60% deposit, and lists design work as its own line so customers see what they're paying for.
When butter prices rise 20%, her cost rises by about ₦1,500. She updates the ingredient line in her costing and reviews her price instead of quietly absorbing it.
Key takeaways
- Price from your full cost, including transport, packaging, fees and delivery.
- A markup on cost is always a smaller margin on price: 30% markup is only about 23% margin.
- Your gross margin must be higher than your overheads as a share of sales.
- Use price = cost ÷ (1 − margin) for a target margin.
- Work out margins before VAT, and remember discounts come out of margin.
- Review prices whenever supplier costs move.
Frequently asked questions
What is the difference between markup and margin?
Markup is profit divided by cost; margin is profit divided by selling price. The same sale always has a higher markup than margin.
How do I calculate selling price from cost and margin?
Divide the cost by (1 − margin). For a 25% margin on ₦8,000: ₦8,000 ÷ 0.75 = ₦10,667.
What is a good profit margin?
One that covers your overheads with profit left over. Work out your overheads as a percentage of sales; your gross margin must be higher than that.
Should I include VAT in my margin?
No. VAT you collect belongs to the tax authority. Work out margins before VAT.
We build the ENB business platform and support Nigerian businesses from our offices in Yaba, Lagos and Owerri. This guide is general information, not legal, tax or accounting advice; for your own situation, speak to a qualified professional.