Many small companies set their prices by looking at competitors or by adding "a little" to the cost. It works until the day the company sells a lot and, even so, there is no money left over. Understanding how to calculate a selling price avoids that shock: it is a calculation that brings together direct costs, fixed costs, taxes, commissions and the profit you want to make. To run this calculation with your own numbers in a few minutes, use the Pricing Calculator. In this guide, you will understand each piece of the calculation so you can use the tool with confidence and defend your price in a negotiation.
The pieces that make up the price
Before any formula, separate your expenses into groups. Each group goes into the price in a different way.
- Direct (or variable) cost: what you spend to deliver each unit sold. Raw materials, goods for resale, packaging, hours of a contractor hired for that specific job. If you do not sell, this expense does not happen.
- Fixed cost: what you pay every month, whether you sell or not. Rent, salaries, owner's pay, software, accountant, internet.
- Expenses on sales: what is charged as a percentage of the price. Taxes on revenue, commission for a salesperson or sales representative, card or platform fees.
- Profit: what is left for the company after paying for everything, and what allows it to invest, build reserves and grow.
Forgetting any of these groups leads to a price that looks good but does not add up at the end of the month.
Markup and margin: the most expensive confusion in pricing
The two terms seem to be the same thing, but they measure different things.
- Markup is how much you add on top of the cost. It is calculated in relation to the cost.
- Margin is how much of the selling price is left after taking out the cost. It is calculated in relation to the price.
Here it is with round numbers, created only as an example:
| Example | Cost | Price | Markup | Margin |
|---|---|---|---|---|
| Product A | R$ 50 | R$ 100 | 100% (50 on 50) | 50% (50 on 100) |
| Product B | R$ 50 | R$ 75 | 50% (25 on 50) | about 33% (25 on 75) |
Look at product B. Anyone who thinks they "added 50% to the price" imagines that half of the amount is left over. But the real margin is one third, and taxes, commission and fixed costs still have to come out of it. That is why so many companies apply a percentage that seems generous and, in the end, work almost for free.
Rule of thumb: when someone talks about a profit percentage, ask "on cost or on price?". The answer changes the whole calculation.
Allocating fixed costs: how much each sale needs to carry
Fixed costs do not show up in any specific sale, but they have to be paid by all sales together. Allocating means dividing that cost by the volume you expect to sell, to find out how much each unit needs to carry.
Continuing with example numbers: imagine a company with R$ 10,000 in fixed costs per month that expects to sell 400 units in the month. Each unit needs to carry R$ 25 of fixed costs (10,000 divided by 400).
Two precautions when allocating:
- Use a realistic volume, based on what you sold in recent months. If you use an optimistic volume, the fixed cost per unit becomes too small and the price comes out too low.
- For services, allocate by hour. Add up the month's fixed costs and divide by the hours you can actually bill, not by the hours you work. Meetings, travel and administrative tasks also take up time.
Taxes on sales: the percentage comes from your accountant
Taxes on revenue go into the price as a percentage, just like commission. The problem is that this percentage varies from company to company.
Under the Simples Nacional regime, the rate depends on the annex your activity falls under and on the company's accumulated revenue bracket. That is why the effective rate (the percentage you actually pay on each sale) differs from the nominal rate in the tables, and it can change as revenue grows. Under other tax regimes, the calculation is different.
The safe path is simple: ask your accountant for the effective rate your company pays today and use that number in your pricing. Review it with them whenever revenue reaches a new level or you start selling a different type of product or service. In this article, we use a round percentage only to illustrate the calculation, not as a reference.
The full calculation, step by step
With the pieces separated, the price comes from a single formula: add up the costs per unit and divide by what is left after taking out the percentages on sales.
Price = (direct cost + fixed cost per unit) ÷ (1 minus the sum of the percentages on sales)
A complete example, with fictitious numbers:
| Item (example) | Value |
|---|---|
| Direct cost per unit | R$ 45 |
| Fixed cost per unit (R$ 10,000 ÷ 400) | R$ 25 |
| Total cost per unit | R$ 70 |
| Tax on sales (illustrative percentage) | 10% |
| Commission | 5% |
| Target profit | 15% |
| Sum of percentages | 30% |
| Price (R$ 70 ÷ 0.70) | R$ 100 |
Check that the numbers add up: out of the R$ 100, R$ 10 goes to tax, R$ 5 to commission, R$ 45 to direct cost and R$ 25 to fixed costs. That leaves R$ 15, exactly the target profit.
Why divide instead of adding the percentages to the cost? Because tax, commission and profit are charged on the price, not on the cost. If you take R$ 70 plus 30%, you get R$ 91, and the money does not add up: 30% of R$ 91 is about R$ 27, not the R$ 30 you needed.
Break-even point: how much to sell to avoid a loss
The break-even point is the sales volume at which the company covers all its costs and profit is zero. Below it, a loss. Above it, a profit.
To calculate it, first find the contribution margin: what is left from each sale after taking out everything that is variable (direct cost, tax and commission). This is the amount that "contributes" to paying fixed costs.
In the example: a price of R$ 100, minus R$ 45 of direct cost, minus R$ 10 of tax, minus R$ 5 of commission. The contribution margin is R$ 40 per unit.
Break-even point = fixed costs ÷ contribution margin per unit
R$ 10,000 divided by R$ 40 gives 250 units. This fictitious company needs to sell 250 units a month just to break even. With the 400 units forecast, the 150 above the break-even point generate R$ 6,000 in profit (150 times R$ 40), which corresponds to the planned 15% on revenue of R$ 40,000.
Knowing this number changes the way you plan your sales. You know how many customers, orders or contracts you need to close each month, and you can measure whether your prospecting is generating enough conversations to get there.
Discounts: why they weigh more than they seem
A discount comes entirely out of the contribution margin, because the direct cost does not go down when the price drops. Here is what happens in the example with a 10% discount:
- the price drops from R$ 100 to R$ 90;
- tax and commission drop slightly, to R$ 9 and R$ 4.50;
- the direct cost stays at R$ 45;
- the contribution margin drops from R$ 40 to R$ 31.50.
A 10% discount on the price took away more than a fifth of the contribution margin. To pay the same R$ 10,000 in fixed costs, the break-even point rises from 250 to about 318 units.
How to give a discount without losing money
- Ask for something in return: upfront payment, a longer contract, a larger volume or a referral.
- Set a limit before the negotiation: know how far you can go without falling below the break-even point.
- Reduce the scope rather than the price: deliver fewer items for the lower amount, instead of delivering everything for less.
- Record the discount as an exception: a discount that becomes the rule is, in practice, a new and lower price.
Common mistakes when setting prices
- Copying a competitor's price: their cost is not yours. Use the market as a reference, not as a formula.
- Confusing markup with margin: the percentage "added" to the cost is not what is left in the price.
- Forgetting fixed costs: a price that only covers the direct cost leaves rent and salaries with no one to pay them.
- Using the rate from the tax tables: the right tax is the effective rate your accountant gives you.
- Leaving out your own salary: the owner's pay is a fixed cost and has to be in the allocation.
- Never reviewing prices: costs change throughout the year. Review your prices whenever an important input goes up.
The right price also helps you sell
Anyone who knows where every real in the price comes from negotiates with more confidence. Instead of giving in to the first discount request, you explain what is included, offer alternatives and know exactly where the limit is. This applies to a proposal sent by email and also to a short meeting with a company you have just met, like those in a business round, where price tends to come up early.
Summary
Separate direct costs, fixed costs, percentages on sales and profit. Allocate fixed costs over a realistic volume, use the effective tax rate your accountant gives you and calculate the price by dividing the total cost by 1 minus the sum of the percentages. Then calculate the break-even point and treat every discount as a decision that moves it.
With a well-calculated price, the next step is to put your offer in front of companies looking for what you sell. Your company's first online business round is on us: all you need is an active CNPJ, once per CNPJ, and contact details are only shared when both sides mark interest. See the upcoming business rounds and bring your proposal ready.