“Customer is king, so let me reduce the price small.” Many Nigerian small business owners cut prices to win customers, then wonder why they’re always busy but never have money. With raw material costs rising and fuel prices changing constantly, underpricing is one of the fastest ways to run a business into the ground.
To price your products or services profitably, first calculate your full costs (including your own time and overheads), then research what customers will pay and what competitors charge, and set a price that covers costs, delivers a healthy margin and reflects the value you provide. Many small businesses fail not because they lack customers, but because their prices don’t cover their true costs.
Key takeaways
- Know your full costs: materials, time, transport, fees, overheads and taxes.
- Cost-plus pricing sets your price floor. Value-based pricing sets the ceiling.
- Review prices regularly, especially in a high-inflation economy.
- Compete on value, not only on being the cheapest.
Step 1: Calculate your true costs
- Direct costs: materials, packaging, delivery, and payment or POS fees per sale.
- Overheads: rent, electricity and fuel, data, equipment, marketing and software, divided across your expected monthly sales.
- Your time: pay yourself. Estimate an hourly rate and multiply it by the hours each product or service takes.
Example (cake business): ingredients ₦12,000 + packaging ₦1,500 + share of gas and power ₦2,000 + your time (3 hours × ₦2,500) ₦7,500 = ₦23,000 total cost. Selling at ₦20,000 means you’re losing money, even if you’re very busy.
Step 2: Choose a pricing method
Cost-plus pricing
Total cost + markup. For example, ₦23,000 + 40% = ₦32,200. It is simple and ensures you cover costs, but it ignores what customers are willing to pay.
Competitor-based pricing
Set prices relative to similar businesses. It is useful for checking the market, but don’t copy prices blindly, because your costs and quality may differ.
Value-based pricing
Price according to the value the customer receives. A website that generates ₦5 million in sales for a client is worth more than the hours it took to build. This works best for services and differentiated products.
Tiered pricing
Offer basic, standard and premium options. This lets customers self-select and often increases average order value.
Step 3: Test and adjust
- Try a slightly higher price with new customers and watch conversion rates.
- If nearly everyone says yes immediately, your price may be too low.
- Track profit margins monthly.
Step 4: Communicate value
Customers pay more when they understand the benefit. Highlight quality, reliability, speed, convenience, testimonials and guarantees.
Handling inflation and price increases
In periods of rising costs, review prices often. Give loyal customers advance notice, explain briefly, and consider smaller, more frequent adjustments rather than rare, large jumps.
Try this this week
Take your best-selling product or service and calculate its full cost, including your time, transport and overheads, using the example above. If your current price doesn’t leave a healthy margin, plan a price review within the next month, and let loyal customers know in advance.
Frequently asked questions
What profit margin should I aim for?
It varies by industry. Service businesses often have higher margins than product resellers. Know your numbers and compare them with industry norms.
How do I handle customers who say “it’s too expensive”?
Understand their concern, explain the value, offer a smaller package if appropriate, and accept that not every customer is right for your business.
Related reading
- How to validate a business idea
- How to negotiate with confidence
- Fake alerts and fake customers: protect your business from scams
Sources
- Nagle, T. T., & Müller, G. (2017). The Strategy and Tactics of Pricing (6th ed.). Routledge.
Written and fact-checked by the Mindset.ng Editorial Team in line with our Editorial Policy. Last updated: 23 September 2026.
