MAKE THE PRICE EXPLAINABLE
Use the price floor as a decision boundary
A price floor is the minimum pre-VAT selling price that covers the stated direct cost, per-sale overhead, percentage fees and target contribution margin. It is not automatically the price a customer will pay. It gives the team a clear point below which the stated economics no longer hold.
Build a complete per-sale cost
Start with the cost created by one additional sale: stock, materials, direct labour or subcontractor cost. Then add packaging, delivery subsidy, a per-order platform charge, sales commission and any support cost that genuinely rises with each sale. Keep rent, core salaries and other fixed costs out of this worksheet; test those later with a break-even calculation.
Keep percentage fees inside the price calculation
Card fees, marketplace commissions and affiliate payments often move with revenue. Enter the percentage that applies to the expected realised price, not a headline rate that excludes a known surcharge. For the opening example, £42 of direct cost plus £6 of per-sale overhead gives £48 of complete cost. With 3% fees and a 40% target contribution margin, the price floor is £84.21 before VAT.
Test the customer-visible price separately
The worksheet uses a pre-VAT price so the business can compare revenue and recoverable costs consistently. If you sell to consumers, test the amount they will actually see and pay. GOV.UK explains that prices aimed at the general public normally include VAT, while business-only prices do not usually include it. Confirm the VAT treatment that applies to the actual supply before publishing or invoicing a price.
Run a discount and volume check
Do not treat the floor as permission to discount freely. A discount reduces contribution on every affected sale, and a price that remains above the floor can still require more volume to protect total contribution. Compare the normal price and the proposed offer in the Contribution Margin Calculator, then use the Break-even Calculator to test whether expected volume covers fixed costs.
Download a dated decision record
The CSV retains the inputs and outputs shown above. Download the base case, then create a separate copy for a supplier-cost increase, a new payment channel or a discount test. Name each file with the product, customer segment, VAT basis and date. A price without the assumptions that produced it becomes hard to review when costs or fees move.
Common mistakes
- Using a gross customer price with costs recorded net of recoverable VAT.
- Leaving a percentage payment or marketplace fee outside the calculation.
- Including fixed overhead in the per-sale cost and then adding it again in a break-even plan.
- Assuming the minimum price is the right market price without testing demand, contracts and capacity.
Continue the decision
Use the Target Pricing Calculator for a fuller pricing check, the Profit Margin Calculator to compare margin and markup, and the discount-volume guide before approving a promotion. Browse all free downloads in the template library.
Updated 16 September 2026. This worksheet is a planning aid, not tax, legal, accounting or financial advice. VAT treatment and pricing obligations depend on the actual sale and customer.