Rising Input Costs: Is Your Selling Price Still Protecting Your Profit?

A selling price that worked when you last prepared your cost sheet may no longer deliver the same return. If material, processing, packaging or delivery costs increase while your selling price stays unchanged, the amount left from each sale falls.

The practical question is simple: after paying today’s costs, how much does each product actually contribute to the business? Start by updating the cost sheet, then compare the result with your net selling price.

The same sales can leave less money behind

Consider the fictional example below. All figures are per unit and exclude GST. Sales volume and the allocation of fixed overheads are unchanged. The processing and delivery amounts shown are assumed to vary with output or sales; actual businesses should classify costs according to how they behave.

Contribution is the selling price less variable costs. It is the amount available to cover fixed costs and, after those costs are covered, generate profit.

Here, variable cost rises by ₹10 per unit. Contribution falls from ₹55 to ₹45, while the surplus after the listed costs falls from ₹40 to ₹30—a 25% reduction. At an unchanged volume of 1,000 units, that means ₹10,000 less surplus.

This surplus is not a statement of final net profit: interest, tax and any costs outside the illustration still need to be considered. Fixed overhead per unit can also change when production volume changes.

Five items to check before changing your price

• Purchase cost: use current supplier rates and include applicable inward freight, handling and other acquisition costs. Separate recoverable amounts from costs actually borne by the business.
• Saleable output: compare material input with usable finished output. Wastage, rejects and rework can increase the material cost of each saleable unit.
• Processing: review labour, power, machine time and subcontracting. Separate the costs that vary with output from fixed and mixed costs.
• Packaging and fulfilment: include primary packaging, outer packing, delivery, commissions and payment charges where applicable. Evaluate these at order level when several products travel together.
• Actual realisation: start from the price retained after discounts, rebates and channel deductions. Avoid counting the same deduction again as a separate cost.

Restoring rupee surplus and restoring margin are different

In this example, updated variable cost plus allocated fixed overhead is ₹120 per unit. A price of ₹160 restores the earlier ₹40 surplus, assuming the cost and volume assumptions remain unchanged.

But it does not restore the earlier surplus margin. Previously, ₹40 divided by ₹150 was approximately 26.67% of sales. At ₹160, the same ₹40 represents 25%.

To retain the earlier margin on the listed cost base, the calculation is ₹120 ÷ (1 − 40/150), giving approximately ₹163.64 per unit. These are two different pricing objectives; neither figure is automatically the right market price.

Before deciding, consider customer acceptance, competitor alternatives, existing commitments, expected volumes and the contribution from the overall product mix. A higher unit margin may not improve total profit if sales fall substantially.

Make the review part of your monthly routine

Start with your highest-selling products and products with tight margins. Keep one sheet showing current input rates, actual output, variable cost, fixed-cost assumptions, net realisation and contribution. Record the date and source of each major input.

A monthly review is a practical starting point. Recheck sooner after a significant supplier-rate change, a change in yield, new delivery charges or a planned discount. Test the proposed price and expected volume together before committing.

How the firm can help

Boovaraghavan & Co. supports product costing, SKU pricing, contribution analysis and break-even reviews. The work connects purchase records, production quantities and selling costs to a cost sheet that can be updated as the business changes.

Basis of this illustration

This is an original educational example using fictional data, not a client case study or a report of current inflation. Calculations reviewed on 20 September 2026. No statutory rate, notification or inflation statistic is relied upon.