Setting Your First Prices When You Are New in Business

Pricing is one of the hardest decisions for new business owners. Many copy what the neighbour charges. Others pick a number that feels right, or the lowest price in the hope of attracting customers. Unfortunately, these shortcuts often lead to businesses that look busy but earn little. A better approach is to build your price from facts, then check it against the market.

Start with your true costs

You cannot price well if you do not know what it costs to deliver. Include everything:

• Direct costs. Ingredients, fabric, stock bought, packaging.
• Labour. Your time and anyone else's. Your time is not free.
• Overheads. Rent, electricity, water, airtime, transport, tools wearing out.
• Losses. Spoiled food, damaged goods, unpaid credit.

A food vendor in Mwanza who counts only the price of rice and meat but forgets charcoal, transport and her own hours will think she makes a profit when she does not.

Add a fair profit

Profit is not greed. It is what keeps the business alive, pays for repairs and growth, and rewards you for risk. Decide on the margin you need. A simple method is to take your cost per item and add a percentage that covers overheads and profit.

Check the market

After calculating a price from your costs, look outward:

1. What do similar businesses charge?
2. What do customers expect to pay?
3. What makes you better or worse than the others?

If your cost-based price is far higher than the market, you may need to cut costs, find cheaper suppliers, change the size of the product or serve a customer group that values quality. If it is much lower, you might be underpricing and leaving money on the table.

Do not compete only on being cheapest

Being the cheapest is a dangerous strategy for a small business. Bigger competitors can usually beat you on price, and low-price customers easily leave for a lower one. Compete on things such as reliability, friendliness, cleanliness, convenience, quality and trust. Customers often pay slightly more for these.

Think about how people pay

Consider whether to offer different sizes or packages, discounts for regular customers, or a deposit for large orders. Mobile money services like M-Pesa, Tigo Pesa and Airtel Money make it easier for customers to pay quickly, which can reduce disputes and unpaid credit.

Test and adjust

Your first price is a starting point. Watch the reaction. If everyone buys without questions, you may be too cheap. If nobody buys and people say it's too expensive, ask what they compare it to. Change gradually and observe your sales and profit, not only the number of customers.

Tip: Never lower your price without first checking whether you can still make a profit at the new level.

Communicate value

Explain why your price is fair: better materials, careful work, free delivery, a guarantee, quick service. Customers accept higher prices more easily when they understand what they get.

Be careful with discounts

Discounts feel friendly, but they quietly reduce your profit on every sale. Before offering one, work out how many extra items you must sell to make up the lost income. Often it is more than you expect. A small, clearly explained reward for loyal or bulk-buying customers is usually safer than cutting prices for everyone. Also avoid changing prices randomly from customer to customer, because people talk, and unfair pricing damages trust.

Your next step

Choose your three most important products or services. For each, write the full cost, add your desired profit and compare the result with market prices. Adjust where needed, then record your sales for a month to confirm that your prices truly earn a profit.