How to Set Profitable Prices for Your Product as a Nigerian Business Owner

Imagine pouring your heart into your business, sourcing quality materials, producing an excellent product and delivering with top-notch customer service, only to discover you are barely breaking even. 

Sadly, this is the reality for many business owners in Nigeria. The root cause of this is poor pricing. In Nigeria, where inflation is unpredictable and competition is growing in the market, setting the right price can make or break a business.

This article explains how to price your products not just to make profit but to make sales as well. Whether you sell physical goods or handmade crafts, you’ll learn how to calculate your costs, apply profit margins, and adapt to Nigeria’s unique market conditions. 

Key Insights

1. Learn how to accurately calculate both direct and indirect costs to avoid selling at a loss. 
2. Discover how to apply profit margins that works within your niche and market. 
3. Avoid common pricing mistakes Nigerian business owners often make unknowingly. 
4. Get a step by step formula to price your products confidently irrespective of economic instability.

Understand Your Total Cost Structure

Before setting any price, you must first understand your products total costs. Most small business owners in Nigeria often overlook key expenses, resulting in poor profit margins or even losses. 

There are two important categories of costs to account for: 

1. Direct costs (costs of goods sold): These are materials and expenses directly incurred during the production process. For example , raw materials like shea butter, fabrics, or woods, product packaging like jars, bottles, boxes, and labels and manufacturing fees such as labor, tools and equipment. 
2. Indirect Cost (operating costs): This involves essential costs not tied to one product but important for the business to run efficiently and effectively. These include costs of transportation and delivery, electricity, internet, data, rent, business software, customer service and salaries. 

For example, if you’re producing 100 bottles of liquid soap and the costs you incurred are as follows: 

Raw materials–  ₦18,000

 Bottles –  ₦7000 

Logistics –  ₦5000 

Operating costs(electricity,Instagram Ads) – ₦10,000 

Total cost of production is  ₦40,000 

Cost per bottle =  ₦40,000 /100 =  ₦400 per bottle 

Apply a Strategic Profit Margin 

After calculating your cost per product, you then add your profit. This is where most business owners feel unsure because the are afraid of being seen as too expensive. 

As a business owner you need to remember that you’re in business to make money , not to break even. To set your selling price, add a markup, which is a percentage of the cost price that shows your desired profit.

The basic pricing formula to use is

Selling price = Cost price + (Cost price x Markup Percentage)

For example, if your cost per bottle of liquid soap is ₦400 and you want a 60% profit, this is how you calculate your profit: 400 x 60% = ₦240. So your selling price for your liquid soap per bottle would be ₦400 + ₦240 = ₦640. 

Take note that pricing doesn’t occur in isolation, which is why you need to research your target customer’s budget, competitors’ pricing and your brand’s perceived value. 

Adapt to The Nigerian Market Realities 

Nigeria’s economic landscape can be tricky; from increase in fuel price to fluctuating exchange rates, the cost of running a business can change rapidly. As an entrepreneur, when this happens, you do not panic but adjust. For you to stay ahead in the market, you need to do the following: 

1. Review prices regularly: change in cost of production is inevitable which is why your price should change too. Always reassess your pricing monthly or quarterly so you would continue to make profit. 
2. Offer size variation: make available smaller or more affordable versions of your product to appeal to different budgets(e.g 100ml and 250ml) 
3. Bundle smartly: put together two or more products at a slight discount to increase overall revenue and average order value. 
4. Build perceived value: invest in branding, packaging,customer service and testimonials. People pay more when they trust and admire your brand. 

Avoid Common Pricing Pitfalls

Even with a a great formula it’s easy to fall into avoidable traps. The following are four pricing mistakes Nigerian entrepreneurs make and how to avoid them: 

1. Copying competitors blindly: because another business charges 2,000 naira for a bottle of liquid soap doesn’t mean it’s profitable. You don’t know the business cost structure. As a business owner set prices based on your own expense and goals. 
2. Leaving out hidden expense: hidden expenses such as packaging giveaways, bank transfer fees , returns and delivery complications should not be left out of the total cost structure but factored in over time. They may seem small but they add up. 
3. Letting emotion guide pricing: as a business owner who is in business to make profit never price based on what you think people will pay, always use data and clear cost analysis to guide your pricing. 
4. Ignoring currency and inflation trends: if you import materials or buy in bulk during inflationary periods, make sure your pricing is in line with the exchange rate changes and rising costs. 

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Conclusion

The Nigerian market is dynamic, so it is important for you to stay informed and flexible. With the right systems, irrespective of the change that occurs, you would be able to stay profitable.  As a business owner, you didn’t start your business to work endlessly without reward; the goal is to make profit and be sustainable, which is why smart pricing is very important in running a business effectively in Nigeria.

By understanding your full cost structure, applying the right profit margin, adjusting to local market and avoiding pricing mistakes, you’ll be in full control of your business finances. Pricing isn’t about being the cheapest but about delivering value, sticking to it and getting paid what you deserve.

 

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