Running & growing a business
Set prices that cover your costs
A price must make sense to your customer and cover more than the direct cost of a job. Start with your costs, then test the market and review the result.
- Last reviewed
- Reading time
- 2 min read
Quick answer
Calculate the direct cost, allow for overhead and a target profit, then test whether customers see enough value at the resulting price. Review prices when costs or demand change.
Pricing starts with two questions: what does it cost to deliver, and what value does the customer see? Copying a competitor’s price without answering either question can leave a busy business with very little profit.
Separate direct cost from overhead
Direct costs change with a sale: materials, a subcontractor, packaging or delivery for a particular order. Overheads include rent, software, insurance and administration. Your gross profit after direct costs has to help cover those overheads before you make a net profit.
Suppose a repair job sells for $300 before GST. Parts and job-specific labour cost $165. Gross profit is $135, or a 45% gross margin. That does not mean the business keeps $135: the workshop still has to pay rent, utilities and other shared costs.
Use the gross margin calculator with your own figures. The markup vs margin calculator shows why a percentage added to cost is different from a percentage of the final price.
For project work, check whether each job is profitable using the actual hours and materials, not only the original quote.
Test the price against the market
Ask customers which parts of your service matter most: speed, reliability, quality, convenience or support. Compare your offer with alternatives, not only the headline price. A premium promise needs a delivery experience that supports it. If your price looks too high, check whether the offer can be improved or the delivery cost reduced before cutting margin.
Understand what a discount costs
If that $300 job with $165 direct costs is discounted by $30, gross profit falls from $135 to $105. The price fell by 10%, but gross profit on that job fell by more than 20%. A discount can still make sense to win repeat work or clear excess stock, but record the reason and measure the result.
Review the whole business
Compare actual price, volume, direct cost and overhead each month. A business with a good margin per sale can still lose money if it does not sell enough units to cover fixed costs. The break-even calculator helps you test that volume. Use the business budget template to track assumptions against actual results.
Important things to know
- Keep your price and cost figures on the same GST basis when calculating margin.
- No single margin suits every industry or business model. Your capacity, overhead, customer value and risks matter.
- If a contract fixes your price while costs can change, understand that exposure before accepting the work.
- Ask an accountant to review costing and tax treatment for material pricing decisions.
Who can help with this
Depending on your situation, these professionals may be the right next step.
How to find and check a professionalOfficial resources
- Choose a pricing strategy — business.gov.aubusiness.gov.au
Related guides
Understanding your numbers
Margins and break-even: how pricing and costs drive your profit
Your margins show how much of each sales dollar you keep. Your break-even point shows how much you need to sell before you make any profit. Together they explain how prices and costs drive profitability.
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Understanding your numbers
How to read a profit and loss statement
A profit and loss statement lists your sales and expenses over a period and shows whether the business made a profit. Reading it top to bottom tells you how much each sale earns and where the money goes.
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Running a business
How do I know if a job is profitable?
A job can bring in cash and still earn too little after materials, labour, rework and the business costs shared across jobs.
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Put this into practice
Sources
- Choose a pricing strategy, business.gov.au (accessed 1 Oct 2026)
- Key financial terms, business.gov.au (accessed 1 Oct 2026)
Last reviewed 1 Oct 2026. We review this guide regularly and when official guidance changes.