Costing vs Pricing: Are You Charging Enough to Stay Profitable?
Many businesses focus heavily on what the market will bear when setting prices — but fail to fully account for their own costs. Over time, this disconnect between costing and pricing can quietly erode profit margins, even in seemingly successful businesses. At Hurley Accountancy we believe that understanding the difference — and the relationship — between the two is essential if you want to stay competitive and profitable.
What’s the Difference?
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Costing is the process of calculating how much it actually costs to produce your product or service. This includes direct costs (like materials and labour) and indirect costs (such as rent, utilities, equipment depreciation, admin time, and marketing).
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Pricing is what you charge your customers. It should be based not only on market rates and perceived value, but also on your actual costs and desired profit margin.
Too often, businesses set prices based solely on competitor rates, industry norms, or gut feeling — with little analysis of whether those prices are financially viable for them.
Common Costing Pitfalls
Many businesses underestimate the true cost of what they sell. For example:
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Failing to include overheads or admin time
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Ignoring seasonal fluctuations in cost or demand
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Offering discounts without calculating the impact on margins
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Not reviewing supplier pricing or staff costs regularly
These oversights can lead to underpricing — which may boost sales volume in the short term but eat into profitability over time.
How to Align Your Pricing with Your Costs
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Track All Costs Accurately
Use accounting software to track both fixed and variable costs over time. Don’t forget the ‘hidden’ ones like staff training, equipment maintenance, or subscription fees. -
Set a Target Profit Margin
Once your costs are clear, calculate the minimum price you need to charge to hit your desired margin. -
Review Pricing Regularly
Your costs will change — and your pricing should reflect that. Schedule regular pricing reviews, especially during periods of inflation or supplier changes. -
Communicate Value Clearly
If you need to raise prices to stay profitable, explain the value behind what you offer. Clients are more accepting of price changes when they understand the reasoning.
A sustainable pricing strategy starts with accurate costing. If you’re not confident you’re charging enough to stay profitable, speak to your accountant. A small adjustment today could safeguard your margins — and your business — for the future.
If you would like to discuss your business needs. Call Hurley Accountancy on 0238849722 or email imelda@hurleyaccountancy.com
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