Setting a selling price means answering three questions: what does your offer cost, what value does it deliver and at what price will customers actually buy it? A margin calculation is not enough. Neither is copying competitors.
This guide explains how to price a product, service or subscription, check profitability, negotiate discounts and adjust prices. Examples use Swiss francs. Unless stated otherwise, economic calculations exclude VAT; prices shown to private customers must then comply with applicable Swiss rules.
At a glance
- Combine costs, market alternatives and the value customers understand.
- A markup on cost and a margin on selling price are different calculations.
- Monitor contribution after discounts and actual sales volume, then test price changes.
Start with three reference points: costs, market and value
Your full cost shows what must be financed to produce and sell. The market reveals customers’ alternatives. Value explains why they might choose your price over another solution.
These approaches complement one another. A service may cost little to deliver but prevent an expensive customer mistake. Conversely, a costly product may not create enough perceived value. In that case, simply adding a margin to cost does not solve the problem.
| Reference point | Practical question | Mistake to avoid |
|---|---|---|
| Costs | What remains after necessary expenditure? | Forgetting non-billable time or after-sales support |
| Market | Which offers does the customer actually compare? | Comparing a basic price with an all-inclusive offer |
| Value | What result or convenience is the customer buying? | Confusing effort spent with perceived value |
Define your objective too: sufficient contribution, filling spare capacity, recurring customers or specialist positioning. A limited introductory offer and a sustainable price address different decisions. Write down the objective so you can assess the test afterwards.
Calculate an economically viable price
Define the cost used in the calculation
Your full cost should cover resources needed for the offer: purchases, manufacturing, labour, packaging, commissions, delivery you pay for, expected returns and allocated shared costs. For services, billable hours must also finance prospecting, administration and periods without assignments.
Check volume assumptions carefully. Allocating CHF 60,000 of annual costs across 2,000 expected sales gives CHF 30 per sale. At 1,000 actual sales, it becomes CHF 60. A price based on the first scenario is conditional, not proof of profitability.
Distinguish markup on cost from margin on price
Take a cost of CHF 80 and selling price of CHF 100. The difference is CHF 20, representing 25% of cost but 20% of selling price. These percentages are not interchangeable.
Avoid ambiguous margin terminology by always stating the calculation base:
- Markup on cost = (price − cost) / cost.
- Margin on selling price = (price − cost) / price.
- Price with a 25% markup = cost × 1.25.
- Price with a 25% margin on price = cost / 0.75.
A CHF 80 cost and target margin of 25% of price therefore require CHF 106.67 before commercial rounding. At CHF 100, the margin on price remains 20%.
This difference is not necessarily net profit. It depends on what “cost” already includes. A margin after purchases must still finance salaries and overheads. Contribution after variable costs must still absorb fixed expenses.
Include fees that depend on the selling price
Some expenses rise with your price: platform commissions, referral fees and payment charges. If cost before commission is CHF 80, commission is 5% of price and the target margin after commission is 20% of price, calculate:
Price = 80 / (1 − 0.05 − 0.20) = CHF 106.67.
Commission is then approximately CHF 5.33 and margin CHF 21.34. Adding 20% to the CHF 80 cost would not produce the same result. Check the actual commission base too: including or excluding VAT and delivery, according to the provider’s contract.
Study competitors without copying their prices
Compare a small set of genuinely comparable offers. Record price, scope, timing, paid options, commitment period and evidence of quality. Include indirect alternatives such as doing it in-house, using software or postponing the decision.
A consultant charging CHF 160 an hour is not necessarily more expensive than one charging CHF 120 if the former completes in eight hours what takes the latter fifteen. For products, shipping, consumables and useful life can change the buyer’s total cost.
Do not assume a competitor’s advertised price is profitable. You do not know its purchase terms, possible subsidies, discounts or expenses. Treat the price as commercial information, not a substitute for your own costing.
Ask customers about a real decision
“How much would you pay?” often produces an abstract answer. Instead, ask how customers solve the problem now, what it costs, who approves spending and which alternatives they compare. Then present a specific offer at a specific price.
An accepted quotation, deposit or paid pilot is stronger evidence than a compliment. Record reasons for refusal too. Someone who does not understand the offer requires a different response from someone who understands it but finds it too expensive.
Choose the right billing unit
A price is more than an amount. It is an amount for something: an item, hour, day, assignment, subscription, user or unit consumed.
| Method | Suitable when… | What to define |
|---|---|---|
| Hourly or daily | Needs may change and work is difficult to bound | Duration, minimum billing, travel and approval of overruns |
| Fixed fee | Deliverables and scope can be described | Outputs, included revisions, assumptions and exclusions |
| Subscription | Value and costs recur | Included services, usage limits, duration and cancellation |
| Usage-based | Consumption reflects the service received | Measured unit, tiers, minimum and any cap |
| Base offer with options | Customers have different needs | Mandatory core and each additional price |
Fixed fees reward efficiency but leave the provider bearing underestimation risk. Subscriptions improve revenue visibility without automatically making an expensive service profitable.
Avoid confusing options. Two or three packages addressing real needs are often easier to sell than countless combinations. Each level should be viable at its own price unless a deliberate, measured commercial decision says otherwise.
Example: pricing a service business
A small consultancy must cover CHF 132,000 of annual costs, including planned remuneration and necessary expenses. It expects to sell 1,200 hours a year, giving an average cost of CHF 110 per billable hour.
For a 20% margin on revenue after those costs, the theoretical rate is 110 / 0.80 = CHF 137.50 per hour excluding VAT. Rounding to CHF 140 produces CHF 168,000 revenue at 1,200 hours and CHF 36,000 profit before any items omitted from the budget.
| Hours sold | Revenue at CHF 140 | Annual costs assumed constant | Balance |
|---|---|---|---|
| 900 hours | CHF 126,000 | CHF 132,000 | −CHF 6,000 |
| 1,000 hours | CHF 140,000 | CHF 132,000 | CHF 8,000 |
| 1,200 hours | CHF 168,000 | CHF 132,000 | CHF 36,000 |
This shows why utilisation belongs in pricing decisions. At CHF 140, the business needs approximately 943 hours to cover CHF 132,000, assuming constant costs and no additional variable expenses.
A planned twenty-hour assignment corresponds to CHF 2,800. If it ultimately takes 28 hours, effective revenue falls to CHF 100 an hour. The problem may be the initial price, unclear scope or project management. Identify the cause before changing the entire price list.
Measure the real cost of a discount
A 10% price discount does not mean a 10% fall in margin. Suppose a product sells for CHF 100 with CHF 60 of variable cost. Its contribution towards fixed costs is CHF 40.
A 10% discount reduces the price to CHF 90 and contribution to CHF 30. You have lost 25% of contribution per sale. To recover CHF 4,000 in contribution, sales must rise from 100 to approximately 134, assuming unchanged unit variable costs and no new fixed expenses.
The formula is: volume needed after discount = original total contribution / new unit contribution. If extra volume requires hiring, overtime or storage, include those costs. Recovering the contribution through volume then becomes harder.
Negotiate something useful in return
A discount may make sense in exchange for a measurable benefit: a larger firm order, advance payment, consolidated delivery or reduced scope. Hoping the customer will return does not finance today’s discount.
Give sales teams a discount limit and approval process. Specify the minimum margin or expected contribution. Comparable customers should not receive very different prices merely because one salesperson concedes faster than another.
Test prices and monitor useful measures
Test a new price on a new offer, a consistent segment or a defined period. Change as few variables as possible. Changing price, product, acquisition channel and terms together makes it difficult to identify what caused the outcome.
Track at least proposals, sales, realised prices after discounts, variable costs, time and returns. For subscriptions, include cancellations, non-payment and service costs throughout the relationship.
A higher conversion rate is not always better
Among 100 comparable prospects, a CHF 1,000 offer produces twenty sales. At CHF 400 variable cost per assignment, total contribution is CHF 12,000. A CHF 1,200 offer produces seventeen sales and CHF 13,600 contribution, with fewer assignments to deliver.
The second price converts fewer prospects but generates more contribution in this example. Retention, commercial risk and fixed costs still matter. The useful measure is contribution relative to resources committed, rather than conversion alone.
A small test does not establish a universal rule. Compare similar customers over several sales. One large contract can distort an average; seasonal demand can create an apparent price effect that actually comes from timing.
VAT, price display and promotions in Switzerland
From economic price to the amount paid
If your business is VAT-registered and the supply is subject to the standard VAT rate of 8.1%, CHF 100 excluding VAT becomes CHF 108.10 including VAT. To recover the VAT-exclusive amount from CHF 108.10, divide by 1.081. Simply subtracting 8.1% from the VAT-inclusive figure is incorrect.
Not every transaction uses the standard rate. Determine the supply’s nature and VAT treatment before setting prices. A non-registered business should not add Swiss VAT as though collecting it for the FTA, although its purchases may include VAT it cannot recover.
Present an understandable offer
The Price Indication Ordinance applies notably to goods offered to consumers, certain services and advertising that quotes prices. For covered offers, show the actual payable price in Swiss francs, including taxes and non-optional supplements. Customers should understand the price at the offer stage rather than discover a compulsory charge at checkout.
Exclusively professional offers fall outside the same consumer scope of the ordinance. They must nevertheless clearly state whether prices include VAT and explain billing terms. On a website also addressing consumers, a small “excluding tax” note does not by itself resolve consumer price-display requirements.
For crossed-out prices, discounts and comparisons, use a supportable reference and follow comparative-price rules. Do not invent an earlier price to create a discount. Keep the history needed to substantiate the comparison.
Prices must also match your general terms and conditions on delivery, renewal, options, payment and cancellation. Clear presentation reduces disputes after ordering.
Raise prices with a plan for customer relationships
Identify the reason first: higher costs, an enhanced offer, demand exceeding capacity or more specialist positioning. Calculate the expected result and the sales volume you could lose while preserving contribution.
New orders can be offered on new terms, subject to rules applicable to your activity. For existing contracts, check the agreement: editing the website does not retrospectively impose a higher price. Follow adjustment clauses, notification periods and cancellation arrangements.
Explain the effective date, new price and what remains included. If customers need a cheaper solution, offer genuinely reduced scope. Quietly giving permanent discounts to everyone who objects eventually makes the new price fictional.
Update quotation templates, invoicing software, website pages, commercial documents and staff guidance. A sound price decision poorly implemented will not deliver the expected result.
A good price rests on a clear offer and monitored results
Start with realistic costs, compare like-for-like alternatives and explain value the customer understands. Choose an appropriate billing unit, test the price and measure actual contribution.
The best price list is not necessarily the most complex. It is one you can explain, apply and refine from sales evidence. Link it to your financial forecast: a price change affects achievable volume, workload and cash flow, not just a revenue line.
Frequently asked questions
What margin should I apply to a product?
No percentage suits every business. Cover expenses, consider volume and test customer acceptance. Always specify whether the percentage relates to purchase cost, full cost or selling price.
How do I calculate a price with a 30% margin on selling price?
Divide the relevant cost by 0.70. A CHF 70 cost gives a CHF 100 price. If proportional commissions are not already included, incorporate them too.
Should I start with a lower price?
Not necessarily. A precise offer, limited paid trial or simpler scope can help initial sales. A very low price with no end date may attract customers you cannot retain at the future price.
How should a self-employed person calculate an hourly rate?
Estimate costs and target remuneration, then divide by genuinely billable hours. Add the profit objective and compare with the market. Do not simply divide by every hour worked in the year.
Can I change the price in an accepted quotation?
An accepted quotation forms part of the contract. A price change needs a contractual basis or agreement to an adjustment, such as approved additional work. A new price list does not automatically replace the agreed amount.
Is a large discount profitable if sales increase?
Only if additional contribution covers the reduction per sale and new costs. Calculate the required volume before discounting; higher revenue alone is insufficient.
Sources and references
- SECO — General information on price indication (French)
- SECO — Before purchase and contract formation (French)
- Federal Tax Administration — Value added tax
Examples are illustrative simulations. Their costs, volumes and margin targets are not market averages.
Romain Prieur is a Swiss-qualified chartered accountant and founder of Entreprendre.ch. With more than ten years of experience in audit and supporting Swiss businesses, he advises entrepreneurs on company formation, accounting and taxation.
