When you launch your first offering, knowing how to price a new product can make or break your business. Setting the right price balances covering all costs, obeying UK laws, and appealing to customers. Get it wrong and you are running an expensive hobby, not a business.
Understand All Your Costs Before You Set a Price
One of the most common missteps is underestimating costs. Direct costs include raw materials, manufacturing labour, packaging, labelling, shipping, and payment platform fees. But indirect costs, also called overheads, are just as vital. Overheads include rent, utilities, your salary, insurance, software subscriptions, and marketing. If you don’t allocate a share of these to each unit, your product will eat your profits.
For example, imagine making a candle costs £4 in materials and labour. Say your monthly overheads are £2,000 and you expect to sell 200 candles a month. That adds £10 to each candle. Your total cost per candle is then £14.
Decide on a Profit Margin and Use Markup Correctly
Once you’ve worked out your costs, decide the profit margin you need. UK pricing guidance suggests that many new businesses target gross margins of 40–60% for physical products. If you want a 50% margin on that £14 candle, your selling price before VAT would need to be £28. Margin differs from markup: margin is your profit divided by the selling price; markup is profit divided by the cost. Confusing the two leads to underpricing.
One word of caution we would give any first-time founder: do not price from fear. Women business owners are frequently found to undervalue their own time and expertise, particularly in craft and service-based businesses. If a voice in your head says “no one will pay that”, test it against the maths rather than giving in to it. Price from evidence, not anxiety.
How to Factor in VAT and Thresholds
If your taxable turnover goes over £90,000 in any 12-month period, you must register for VAT. This threshold has applied since 1 April 2024. Below it, you can choose to register voluntarily. Registration is based on your turnover, not your business structure, so it applies whether you operate as a sole trader or a limited company. If you have not decided on a structure yet, our guide to sole trader versus limited company explains how each affects your tax and admin.
If you’re VAT-registered, you must decide whether customers see VAT-inclusive prices or net prices plus VAT. At the standard rate of 20%, a net price of £28 becomes £33.60 including VAT. You need to model carefully how VAT affects both your cash flow and your final margin.
Know UK Labour Costs and Minimum Wage Law
Labour often forms a large chunk of your product cost, especially for handcrafted goods. From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 per hour. For workers aged 18 to 20 the rate is £10.85. Under-18s and apprentices must receive £8.00 per hour. When calculating labour cost per unit, factor in time spent on production, order fulfilment and quality checks. Include preparation and clean-up too.
Compare With Your Market but Don’t Let It Dictate Your Pricing
Research competitors nearby and online. What features do they offer? What price points do customers accept? A high-end store may sell £35 candles with decorative lids while you sell basic glass pots. In that case, your differentiator could be minimal packaging or distinctive scents, not price wars. Use market research to see what your ideal customer values, then choose whether to compete on price, quality, or brand. Competing on price alone is a race to the bottom, and it is one small businesses rarely win against bigger players with deeper pockets.
Check Legal Display Rules and Pricing Transparency
UK law demands transparency in how you present prices. Since April 2025, the Digital Markets, Competition and Consumers Act 2024 has required you to show total prices upfront. That includes VAT and any unavoidable fees. Leaving charges out until checkout is known as drip pricing. It can land you with fines of up to 10% of global turnover or £300,000, whichever is greater. The Price Marking Order 2004 also requires you to show the selling price including taxes. For many goods, you must also show the unit price (for example, per litre or per kilogram).
Set a Pricing Strategy and Sales Projections
Decide early whether you’ll use:
- Cost-plus pricing: your costs plus a set markup. Easy, but it may miss value potential.
- Value-based pricing: set the price based on customer value, not just cost.
- Skimming: a high initial price, reduced later.
- Penetration pricing: a low introductory price to grow volume quickly.
Then estimate how many units you expect to sell in a realistic period (three to 12 months). Your break-even point is where revenue equals all costs. Take the candle numbers: if your variable cost is £4 per candle and you sell at £28 before VAT, each sale contributes £24 towards your £2,000 monthly overheads. You break even at around 84 candles a month. If your market can realistically absorb only 50 in that time, something has to give. Adjust the price, reduce costs, or find a different market before you commit.
Review and Adjust Over Time
Your first product launch won’t be perfect. Track sales volume, customer feedback, and cost changes, especially in labour, materials, packaging, and shipping. UK businesses in 2026 are facing labour cost inflation alongside rising energy and rent costs. If demand is weak at your price, try promotions or small adjustments rather than sudden large changes. And if prices rise, communicate clearly with customers. Most people accept an honest explanation far better than a silent price jump.
If you’re ready to take control of pricing for your new product, see our article on product launch marketing wins to get the word out once you’ve set your price. You can also learn about starting a business in the UK so you understand all the legal and financial groundwork.
