How to Calculate the Right Selling Price to Boost Both Revenue and Profit

How to Calculate the Right Selling Price to Boost Both Revenue and Profit

Have you ever felt that your business revenue keeps rising, but actual profits are being eroded? You're not alone. According to data from the Ministry of Cooperatives and SMEs of the Republic of Indonesia, out of 64.2 million Indonesian SMEs contributing 61.97% to national GDP (2024), 80% go bankrupt within the first 5 years due to financial management problems, especially improper pricing. In practical terms, this means most SME owners run their businesses without a mature pricing strategy—and that's fatal.

This article focuses on practical methods for calculating Break-Even Point (BEP) and determining optimal selling prices for Indonesian SMEs, complete with real calculation examples and an implementation checklist. Think like a financial planner, not just a business owner chasing revenue alone.

Why the Right Selling Price is Critical for Business Sustainability

Selling price is the most influential variable affecting net profit. Research from BNI and DailySocial.id (2023) shows that SMEs implementing digitalization including digital financial systems record average revenue increases of 37% and operational cost efficiency of up to 23%, yet only 18% of SMEs regularly perform break-even analysis. This means the majority of SMEs make pricing decisions based on estimates or following competitors without calculating their own break-even point.

When selling prices are set without accurate BEP calculation, the risks are: you might be selling at high volume but actually losing money per unit, or you set prices too high and lose customers. With average annual inflation of 3.1% causing raw material cost increases of 5-8% per year (Bank Indonesia Data, 2024), SMEs that don't regularly adjust prices based on proper financial calculations will see margins eroded by 10-15% in the long run.

How to Calculate Break-Even Point (BEP) with Practical Examples

Break-Even Point is the point where total revenue equals total costs, so net profit is zero. Calculating BEP is the foundation of healthy pricing. The basic formula:

BEP (in units) = Fixed Costs / (Selling Price per Unit – Variable Cost per Unit)

Case example: A chip manufacturer has:

• Monthly fixed costs: IDR 15,000,000 (rent, electricity, salaries)
• Variable cost per package: IDR 8,000 (raw materials, packaging)
• Selling price per package: IDR 15,000

So contribution margin per unit = IDR 15,000 – IDR 8,000 = IDR 7,000

BEP in units = IDR 15,000,000 / IDR 7,000 = 2,143 packages per month

This means this manufacturer must sell at least 2,143 packages each month to reach break-even. Every sale above 2,143 packages is pure profit. With this understanding, you can determine realistic sales targets and decide whether selling prices need adjustment to achieve more easily attainable volumes.

Selling Price Determination Method Based on Healthy Profit Margins

After knowing BEP, the next step is establishing sustainable profit margins. A case study from GoTo and McKinsey (2023) about food & beverage merchants using digital cashier systems shows those who regularly review COGS (Cost of Goods Sold) every month can increase net profit by 15-20% within 6 months, even though revenue only rose 8-10%. The conclusion: cost efficiency and dynamic pricing have greater impact on profit than simply chasing revenue.

The recommended method: Markup Pricing with margin percentage calculated from total costs:

Selling Price = Total Cost per Unit / (1 – Desired Profit Margin)

Example: If total cost per unit is IDR 10,000 and you want a 20% profit margin:

Selling Price = IDR 10,000 / (1 – 0.20) = IDR 10,000 / 0.80 = IDR 12,500

With this method, you guarantee that every unit sold provides profit exactly according to target, not just multiplying costs by a markup percentage that doesn't account for its impact on sales volume.

Common Pitfalls in Pricing to Avoid

A Katadata survey (2024) of 1,200 SMEs in Java, Sumatra, and Sulawesi found that 72% of respondents set selling prices based on "market price" without calculating actual costs, and only 9% could accurately state profit margin per product. The most common errors:

• Blindly following competitors: Competitor prices may be based on different cost structures or market strategies irrelevant to your business.
• Not accounting for hidden costs: Many SMEs forget to include equipment depreciation, administration costs, and owner time into cost calculations.
• Static prices in dynamic markets: Bank Indonesia data (2024) mentions 58% of SMEs haven't raised selling prices in the past 2 years for fear of losing customers, even though raw material costs rose 5-8% per year. Consequently, margins are eroded 10-15% and the business becomes unsustainable.
• Focusing on revenue, not profit per unit: Selling at high volume but with thin margins or even loss per unit is the road to gradual bankruptcy.

Implementation Checklist: Practical Steps to Start Calculating the Right Selling Price

To transform pricing practices in your business, follow this implementation checklist:

1. Identify all monthly fixed costs: Rent, salaries, electricity, internet, equipment depreciation, routine administration costs. Total everything to get your fixed cost figure.
2. Calculate variable cost per unit: Raw materials, packaging, sales commissions, direct production costs per product unit.
3. Determine temporary selling price: Use the formula Selling Price = Total Cost per Unit / (1 – Desired Profit Margin). Start with 20-30% margin.
4. Calculate BEP in units and currency: How many units must be sold to break even? Is this target realistic?
5. Test price in the market: Compare with market prices, but don't follow blindly. If your price is higher, ensure there's value differentiation (quality, service, brand).
6. Review monthly: As suggested in the GoTo-McKinsey case study, merchants who regularly review COGS every month can increase net profit by 15-20% within 6 months. Schedule monthly price and cost reviews.
7. Adjust for inflation and cost increases: Don't fear raising prices when costs rise. Bank Indonesia data shows SMEs that don't adjust prices for 2 years see significant margin erosion.
8. Implement digital financial systems: BNI-DailySocial research shows SMEs that digitize their financial systems can increase operational cost efficiency by up to 23%. Investing in cashier or accounting software will help you calculate prices accurately.

Conclusion: Think Like a Financial Planner, Not Just a Business Owner

Calculating the right selling price isn't just a mathematical formula—it's a mindset. With data showing 80% of SMEs go bankrupt due to improper pricing, it's clear that business sustainability depends on the owner's ability to think like a financial planner: calculating BEP, understanding per-unit margins, and regularly adjusting pricing strategies based on real data, not assumptions.

This article provides a practical foundation: start calculating your BEP, use markup methods that guarantee margins, and review monthly. If you need help implementing digital financial systems to facilitate calculations and pricing decisions, or want further consultation on pricing strategies for your business, Colabs is ready to assist. Contact us to discuss how technology can support sustainable business growth.

Beyond this article, you may be interested in reading Revenue Up, Profit Thin? This is the Impact of Marketplace Dependency and How to Escape the Trap to understand how marketplace sales strategies affect your profit margins, or When Profit Margins are Eroded, SMEs Need New Digital Strategies for deeper exploration of margin recovery through digital transformation.