You bought a product for ₦5,000 and decided to sell it for ₦7,000. That means you have made ₦2,000 profit, right?

Not necessarily.

What about the money you spent transporting the product? The packaging? The transfer charges? And if you run your business from a shop, how do you account for rent, electricity, and other expenses?

These are some of the things business owners need to consider when deciding how much to charge for their products.

Setting the right price matters because you want customers to be able to afford what you sell, but you also need to make enough money to keep your business running.

This guide explains how to calculate a product's selling price in Nigeria, what costs to include, how to work out your profit, and what to consider when pricing products for online sales.

Product pricing is the process of deciding how much customers should pay for a product.

It involves considering what the product costs you, how much you need to earn from selling it, what customers are willing to pay, and what similar products cost in the market.

For example, if you sell clothes, you can’t decide on a selling price based on how much your supplier charged you.

You also need to consider what it costs to bring the clothes to your shop, package orders, receive payments, and run the business.

There is no single pricing method that works for every business.

A supermarket selling provisions may operate with smaller profit margins and sell large quantities. A handmade jewellery business may sell fewer products but charge more because of the materials, time, and skill involved.

The important thing is understanding your numbers before choosing a selling price.

Before deciding how much to sell a product for, calculate how much it actually costs your business.

You can group these expenses into five categories.

This is the amount you spend getting the product ready for sale.

If you buy products from a supplier, it includes the purchase price. If you manufacture or make your own products, it includes materials and production labour.

For example:

For imported goods, you may also need to include freight, customs charges, and other costs of bringing the goods into Nigeria.

Getting a product from your supplier to your business costs money. So does preparing it for delivery to a customer.

You may need to pay for transport, cartons, branded bags, labels, protective wrapping, or delivery materials.

These costs may seem small individually, but they add up.

If you spend ₦5,000 transporting 10 handbags from your supplier, the transport cost is ₦500 per handbag.

You should account for that ₦500 when calculating the cost of each bag.

These are expenses you incur to keep your business running.

They may include:

You do not have to add your entire monthly rent to the price of one product. Instead, you can estimate how much of your operating expenses each product needs to cover.

For example, if your monthly business expenses are ₦30,000 and you expect to sell 50 products, you need to recover about ₦600 per product to cover those expenses.

This is only an estimate. If you sell fewer than 50 products, the amount each sale needs to cover will increase.

If you sell online, you may pay fees every time a customer completes a purchase.

Payment providers such as Paystack and Flutterwave charge transaction fees, while some marketplaces and selling platforms may have their own charges.

For instance, Paystack lists its standard Nigerian local transaction fee as 1.5% plus ₦100, subject to its fee cap and exemptions.

You can confirm the applicable fees on the Paystack pricing page.

These charges matter because the amount a customer pays may not be the same as the amount your business receives.

Depending on your business, you may also need to account for damaged products, expired goods, returns, discounts, and advertising costs.

For example, if you purchase 20 bottles of perfume but two get damaged before you can sell them, the cost of those damaged bottles does not simply disappear.

You may need to recover that cost from the 18 bottles you can actually sell.

Once you understand your costs, you can calculate a more realistic selling price.

Let us use a practical example.

Imagine you run a small handbag business in Lagos.

You recently purchased 10 handbags from a supplier and want to know how much to sell each one for.

Here is what you spent:

Your total cost is ₦95,000.

These are illustrative figures to help explain the calculation.

Start by dividing the total amount you spent by the number of products available for sale.

In this case, you spent ₦95,000 on 10 handbags.

₦95,000 ÷ 10 = ₦9,500

This means each handbag costs you ₦9,500 before accounting for other business expenses.

Now, remember that you also spend money running your business.

Let us assume that after reviewing your monthly expenses, you estimate that each handbag needs to contribute ₦600 towards rent, electricity, internet, and other operating costs.

You also estimate an additional ₦500 per order for handling and related expenses.

So your calculation becomes:

Your total estimated cost per handbag is now ₦10,600, before payment processing fees.

This is the amount you need to recover before you can start earning a profit based on the costs included in this example.

Now that you know your costs, you need to decide how much profit you want to earn.

Suppose you want a 25% profit margin.

A profit margin means the percentage of your selling price that remains after deducting the relevant costs.

To calculate a selling price that gives you a 25% margin, use:

Selling Price = Total Cost ÷ (1 − Target Profit Margin)

You need to express the percentage as a decimal. For example, 25% becomes 0.25.

Using our handbag example:

₦10,600 ÷ (1 − 0.25)

₦10,600 ÷ 0.75 = ₦14,133.33

So, without transaction fees, you would need to sell each handbag for approximately ₦14,134 to achieve a 25% margin.

But what if customers pay online and you are charged a transaction fee?

Let us assume your payment provider charges 1.5% plus ₦100 per transaction.

Because the percentage fee depends on the amount customers pay, you need to include it when calculating your selling price.

The formula is:

Selling Price = (Total Cost + Fixed Transaction Fee) ÷ (1 − Target Margin − Percentage Transaction Fee)

Using our example:

(₦10,600 + ₦100) ÷ (1 − 0.25 − 0.015)

₦10,700 ÷ 0.735 = approximately ₦14,558.

At that selling price, the estimated transaction fee is about ₦318, leaving approximately ₦3,640 after the allocated costs.

This gives you a margin of about 25% under the assumptions used here.

You could choose to charge ₦14,600 or ₦14,900, depending on what similar handbags cost and what your customers are willing to pay.

Remember: A calculated price is a starting point. Your actual business profit will depend on your final expenses, sales volume, applicable taxes, and other costs.

Markup and profit margin are two terms you will come across when calculating product prices.

They sound similar, but they do not mean the same thing.

Markup is the percentage you add to the cost of a product to determine its selling price.

Profit margin is the percentage of your selling price that remains after deducting the relevant costs.

Let us say a product costs ₦10,000.

If you add a 30% markup, you are adding ₦3,000 to the cost.

Your selling price becomes ₦13,000.

However, that ₦3,000 profit is not 30% of the ₦13,000 selling price. It is approximately 23.1%.

Now suppose you want an actual 30% profit margin.

You would calculate:

₦10,000 ÷ (1 − 0.30) = ₦14,285.71

You would need to charge approximately ₦14,286.

So here is the difference:

These examples assume there are no additional expenses beyond the ₦10,000 cost.

Neither method is automatically wrong. What matters is understanding which one you are using.

If you simply add 30% to your cost, do not assume that you are earning a 30% profit margin.

Selling online introduces a few additional expenses that you should consider.

If you use Shopify, WooCommerce, Bumpa, or another selling platform, you need to understand which charges apply to your business.

Here are three things worth checking.

Payment gateways make it possible to accept online payments, but transactions may attract charges.

For example, Paystack has a standard local fee of 1.5% plus ₦100, subject to its exemptions and fee cap.

Flutterwave charges a 2% fee for local collections in Nigeria, with applicable charges subject to VAT.

You can compare their charges through the Paystack pricing page and Flutterwave pricing page.

Fees can change, so always confirm your provider's current rates before including them in your pricing calculations.

We also spoke with five Nigerian fintech developers about how Paystack and Flutterwave perform in real-world e-commerce payments. You can read their experiences in our article on Paystack vs Flutterwave for e-commerce stores.

If you offer free delivery, someone still has to pay the delivery company.

For example, if you sell an item for ₦15,000 and spend ₦2,500 delivering it yourself, that delivery cost reduces the amount available to cover your other costs and profit.

You can choose to charge customers separately for delivery, include expected delivery costs in the product price, or offer free delivery only above a certain order value.

Whichever approach you choose, calculate the cost before announcing your offer.

Discounts are another reason to calculate your prices carefully.

Imagine you sell a product for ₦15,000 and offer a 10% discount.

Your customer pays ₦13,500.

If that product costs you ₦11,000 before transaction fees, you now have ₦2,500 left to cover those fees and contribute to profit.

That is different from the ₦4,000 you would have had before offering the discount.

If you regularly run promotions, calculate the lowest price you can charge without losing money or falling below your minimum acceptable margin.

A discount should be a business decision, not something you offer without knowing how it affects your earnings.

Calculating the selling price of a product is not just about adding a percentage to what you paid your supplier. You need to understand what it actually costs to sell that product, from transportation and packaging to payment charges and other business expenses.

As we have seen, two businesses selling the same product may need to charge different prices because their costs are different.

The best place to start is with one product. Write down what you spend on it, calculate your costs, decide how much profit you want to make, and compare the result with what customers are willing to pay.

But calculating your selling price is only the first step. You also need to keep track of your expenses, monitor your profit, and review your prices as your business grows.

In Part 2, we will look at practical tools you can use to manage product pricing, how to know whether your selling price is right, and common pricing mistakes to avoid.

Start by calculating how much it costs to purchase or produce the product. Include transportation, packaging, and other relevant business expenses.

Next, decide on your target profit margin.

If there are no additional selling fees, you can calculate your selling price using:

Selling Price = Total Cost ÷ (1 − Target Profit Margin)

For example, if your total cost is ₦10,000 and you want a 20% profit margin, your selling price would be ₦12,500.

There is no fixed percentage that works for every business. The amount of profit you target depends on your costs, the type of products you sell, your customers, and what competitors charge. Start by understanding your expenses and deciding how much you need to earn from each sale. Then check whether the resulting price makes sense for your market.

Cost price is the amount spent purchasing or producing a product, while selling price is the amount customers pay to buy it. For example, if you purchase a bag for ₦8,000 and sell it for ₦12,000, the difference is ₦4,000. However, that ₦4,000 is not necessarily your final profit. You may still need to deduct transportation, packaging, payment charges, and other expenses.

It depends on who pays for delivery. If customers pay a separate delivery fee that covers the actual delivery cost, you do not need to include that same cost again in the product price. However, if your business offers free or subsidised delivery, you need to account for the amount your business pays.

If you make products yourself, include the cost of raw materials, packaging, labour, utilities, and other production expenses. For example, if you bake cakes, consider the cost of flour, eggs, butter, gas or electricity, cake boxes, and the time spent making each cake. Once you know the total cost of producing one cake, you can decide on your target profit margin and calculate a suitable selling price.

Till next time,

Team Thrive

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