Pricing Basics: Are You Really Making Profit on Every Sale?

Vinu: Manu, my sales are increasing, but I’m still unsure—am I really making money on each sale?

Manu: Good question, Vinu. To know that, you must calculate your contribution per unit.

Vinu: What does that mean in simple terms?

Manu: Selling price minus variable cost.

For example, if you sell one product at ₹1,500 and your variable cost is ₹1,100, your contribution is ₹400 per unit.

Vinu: Is that my profit?

Manu: Not yet. That ₹400 is first used to cover your fixed costs like rent and salaries.

Vinu: Can you show me with numbers?

Manu: Sure.

Your monthly fixed costs are ₹2,00,000.

Your contribution per unit is ₹400.

You must sell 500 units just to break even.

Vinu: So below 500 units, I’m actually losing money?

Manu: Exactly. Only sales after 500 units create real profit.

Vinu: What mistake do most entrepreneurs make in pricing?

Manu: They price only based on competitor rates and ignore their own cost structure.

Vinu: What about discounts?

Manu: Dangerous if you don’t recalculate contribution.

If you reduce the price from ₹1,500 to ₹1,300, your contribution drops from ₹400 to ₹200.

Now you must sell 1,000 units to cover the same ₹2,00,000 fixed cost.

Vinu: What’s the one check I should do before finalising any price?

Manu: Always ask—

“After variable costs, how much do I actually earn per sale, and how many sales are needed to cover my fixed costs?”

Vinu: Final takeaway?

Manu: Revenue looks good on paper.

Contribution decides whether your pricing truly makes money.

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