How to Price for Profit, Not Just Revenue
Revenue is what customers pay. Profit is what the business keeps. Most early-stage founders price for revenue enough to attract customers and beat competitors. The brands that scale sustainably price for profit from the beginning, even when it costs them early customers.
Prince Kumar
Author
A personal care brand grew from ₹15 lakh to ₹1.2 crore monthly revenue over eighteen months. At ₹1.2 crore, the founder discovered that the business was operationally profitable at the gross margin level but structurally unprofitable when all costs were included. The pricing had been set to match the market and beat the nearest competitor. The cost structure had grown in ways the pricing had never accounted for. At ₹15 lakh, the gap between price and true cost was invisible. At ₹1.2 crore, it was existential.
The True Cost Calculation Most Founders Skip
Product pricing should account for: direct material cost, direct labour and manufacturing overhead, primary packaging and secondary packaging, inbound freight, warehousing cost per unit (calculated on space and handling, not just storage), outbound fulfilment cost including first-mile, last-mile, and returns, marketplace fees and payment gateway costs if applicable, returns and damage provisions based on actual category RTO rates, and a contribution to overheads that scales with revenue.Most founders calculate the first two or three items and estimate the rest. The estimate is always optimistic. The actual cost of fulfilment, returns, and marketplace fees is almost always higher than the estimate because these costs scale non-linearly with volume and complexity in ways that are not visible at small scale.
Pricing for Margin Expansion
Sustainable pricing produces margin expansion as revenue grows because fixed costs spread over more units, and because the brand's growing position allows modest price increases over time. Unsustainable pricing produces margin compression as revenue grows because variable costs, particularly fulfilment and marketplace fees, grow proportionally or faster than revenue.The test of whether pricing is sustainable is simple: model what happens to unit economics at three times current revenue. If the contribution margin per unit improves or holds steady, the pricing is sustainable. If it compresses, the business is growing into a problem. Finding this out at three times revenue is expensive. Finding it out in a spreadsheet before reaching that revenue is free.
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