How to Work out What to Charge

Two Methods:Charging for a productCharging for a service

Any time you offer goods or services for sale, you must know how to charge in order to ensure that your profit outweighs your expenses. Determining the amount to charge is a complex process that involves taking many different factors into consideration. A lot goes in to the final product that the customer receives, and all of these components need to be accounted for if you are to charge a fair price for both you and the customer. Follow these guidelines for how to work out what to charge.

Method 1
Charging for a product

  1. Image titled Work out What to Charge Step 1
    Research the market for your product. Identify the competition, and assess the product availability and range of pricing.
  2. Image titled Work out What to Charge Step 2
    Determine the supply and demand of your product. The smaller the supply and the greater the demand, the more you can afford to charge for your product.
    • The supply is the amount of product on the market, which you can evaluate by identifying your competition. Note the number and size of suppliers in your area. Don't forget to account for Internet suppliers when figuring out how to charge.
    • Demand relates to how much the product is desired by customers, and how much they are willing to pay for it. You can get a good idea of the demand of your product by monitoring your competitions' sales. If prices are going up, then there is likely a high demand for your product. Conversely, if prices are going down and/or you notice a lot of your product on sale or clearance, demand is low for that product.
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    Price your product in accordance with market prices. Gather information about what your competitors are charging for the same or a comparable product in order to determine what to charge. This will give you a range within to price your product.
  4. Image titled Work out What to Charge Step 4
    Fine-tune your price. After trying a few different pricing models (low, medium and high price), you can determine which price will yield you the most return. For example, if you find that by charging $10 per item, you can expect to sell 100 units of that item, then you can estimate your profit to be $1000 minus expenses. In comparison, you may find that you can charge less and make more money, if charging only $8 per item means that you will sell 150 units, totaling $1200 in sales.

Method 2
Charging for a service

  1. Image titled Work out What to Charge Step 5
    Research your competition. You will need both high and low estimates of what your local competition is charging. Call every competitor in your surrounding area and ask for a general charge rate.
  2. Image titled Work out What to Charge Step 6
    Assess your relative value. Take into consideration the amount of experience you have, your level of expertise, the range of service you provide and the demand for your service in your area. Scale yourself as either a high, medium or low-ranking professional, and use this assessment as a means to set your pay rate to your personal value.
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    Calculate an hourly pay rate.
    • Set your annual salary amount. Be sure to account for any money you will spend on overhead, as well as savings and retirement plans and health insurance.
    • Divide your annual salary by the number of hours you plan on working. Account for both direct (physical) labor and indirect (administrative) labor, as well as any paid or unpaid sick, holiday and/or vacation days you would like to include.
    • Make sure that what you charge per hour fits realistically inside the parameters of your competition and your relative value. For example, if the most skilled and reputable accountant in your area charges $50 an hour, then you, as a new accountant, will have to charge less.
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    Decide whether you want to charge by the hour or per project.
    • Charging by the hour. This method is ideal for customers who want to hire you to do work on an irregular, piece-meal basis. You tell customers your per-hour pay rate, and they pay you for the number of hours you work. The advantage is that this method is simple for both you and your customer to understand and calculate. Additionally, charging by the hour prevents you from getting in over your head on bids for undefined jobs. The disadvantage is that some customers may question the length of time it takes you to complete a job.
    • Charging per project. When you accept a job that has clearly defined parameters in regards to timeframe, materials and tasks, you may want to use the charge per project, or contract, method. This allows you to most accurately predict your income, as well as output. Additionally, customers know exactly what they are getting, and for how much. This method makes the most sense for jobs involving creative or intellectual property. For example, if you are hired to write a jingle for a deli, then it doesn't matter how much time you spent writing the jingle, as long as the jingle delivers on what the deli hired you for. To calculate your project rate, multiply the number of hours it will take you to complete the job, from preparation (even brainstorming) to execution, by your hourly rate. Adjust your cost according to any special circumstances (difficulty of work, specialization, research, etc.) required for the job.


  • No matter what you decide in regards to pricing and/or how to charge, it is important that you can aptly justify the cost to customers. As such, it is advisable to learn as much as you can about sales and customer service, so that when the time comes to explain your pricing, you can do so in a way that abates resistance.
  • Consider seasonal price fluctuations when determining what to charge. For example, you may be able to charge more for your gift wrap services during the Christmas season.
  • If you notice that the market is flooded with versions of your product, but that your product carries a strong (well-known) brand, then you can set a price that is at the high end of the price range determined by the market. When assessing the strength of your branding, consider the size of your customer base, the type/scope of your advertising campaigns and your brand's reputation.


  • When determining what to charge, avoid pricing your product or service too low to attract more customers. This could result in you not getting paid what you are worth. Additionally, customers you win due to low prices are likely to leave as soon as they find a lower price elsewhere, and are therefore not reliable for business-building purposes.
  • If your overhead costs (labor, production, materials, etc.) exceed what current market conditions will allow you to price your product at, then you will lose money, and you should reconsider selling that product.

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Categories: Business | Accounting and Regulations