Cost price is what one item truly costs your business to get ready to sell. Selling price is what the customer pays. The gap between them has to cover more than the item itself: it needs to contribute to the running costs of the business and leave a profit. If you only copy a competitor's price or add a percentage to the supplier's invoice, you can sell quickly and still be too thin.
For a product business, start with the full cost of one sellable unit, then choose a price you can defend in your market. Check the result as both a naira amount and a margin percentage. That turns price-setting from a guess into a decision you can review.
Cost price vs selling price: the simple difference
Cost price is the amount you spend to buy or make one item, plus the direct costs needed to put that item in a customer's hands. Selling price is the amount shown to the customer. The difference is the gross profit on that item before wider business overheads.
Gross profit per item = Selling price − Cost price
A positive gap is necessary, but it is not automatically your final business profit. Rent, staff, data, marketing, delivery losses and other overheads still have to be paid from the money your products leave behind.
What belongs in your cost price?
Use the real cost of getting one unit ready to sell. For a trader, that can be more than the supplier's quoted price. For someone who makes products, it can be more than the raw materials.
- Supplier or production cost
- A fair share of transport, clearing or delivery charges
Avoid guessing. If ₦12,000 delivery covers 20 identical items, the delivery allocation is ₦600 per item. Write that down with the purchase cost, so the next price review has a clear starting point.
How to set a selling price that targets a margin
If you know the margin you want, do not simply add that percentage to cost. Margin is measured against selling price, while markup is measured against cost. They are related, but they are not the same number.
Selling price for a target margin = Cost price ÷ (1 − target margin as a decimal)
For example, if your unit cost is ₦20,000 and you want a 35% margin:
₦20,000 ÷ (1 − 0.35) = ₦30,769. Round that to a sensible selling price, such as ₦30,770, after checking what customers will realistically pay.
At ₦30,770, the gross profit per item is ₦10,770. That is about a 35% margin and a 53.9% markup on cost. If you instead add 35% directly to ₦20,000, you charge ₦27,000. The gross profit is ₦7,000 and the margin is only about 25.9%.
Use WadMaster's free profit margin and markup calculator to check a price, margin or target selling price before you change your price list.
A worked example for a small product business
A retailer buys a set of products for ₦18,000 each. Delivery works out to ₦1,200 per unit and packaging costs ₦800 per unit.
Unit cost = ₦18,000 + ₦1,200 + ₦800 = ₦20,000
The retailer wants each item to contribute a 35% margin before shop rent and other overheads. The target price is ₦30,770. Before printing that price tag, the retailer compares it with similar products, the quality of the offer and what customers are willing to pay. If the market will not support the price, the answer may be to reduce direct cost, change the offer or accept a different margin—not to pretend the cost is lower.
Three checks before you settle on a price
1. Your direct cost is current
Supplier, transport and packaging prices move. Update the cost price when you restock, not months later when the old price has already eaten into your margin.
2. The price works in the market
A cost-based price is a starting point, not a command. Compare alternatives available to your customer and be clear about what makes your product worth its price: quality, convenience, warranty, service, delivery or availability.
3. The item still helps pay for the business
A product can have a healthy-looking gross margin and still fail to cover its share of overheads. Review product pricing alongside your total sales, expenses and stock movement. This is where a high sales figure can hide a weak result.
Common pricing mistakes that quietly reduce profit
- Using only the supplier's price. Transport, packaging and preparation can turn an apparent profit into a much smaller one.
- Confusing markup with margin. A 30% markup is not a 30% margin.
Keep the numbers where you can use them
A notebook can help at the start, but your pricing gets easier to review when stock, cost and sales stay connected. WadMaster's inventory management workflow lets you record what you sell and what it costs, then see profit per product alongside stock and invoices.
Choose one fast-moving item today. Write down its full unit cost, calculate a target selling price and compare the margin with the price you currently charge. That one check will show you whether your price is carrying the business—or quietly working against it.
