How to price a product for an online store
Most new stores price by looking at competitors and going a little lower. That tells you what the market will pay. It does not tell you whether you make anything at that price. Do the cost side first, then check it against the market, not the other way round.
Step 1: Find the real cost of one unit
Start with what you pay the supplier, then add everything it takes to get one unit ready to sell:
- the product itself,
- inbound freight and duties, divided by the units in the shipment,
- your own packaging, labels and inserts.
This is the landed cost. People often use the factory price alone and wonder later where the money went.
Step 2: Add the costs of each order
Some costs only happen when an order comes in:
- the shipping label, if shipping is free or you charge less than it costs,
- the box or mailer,
- per-order app charges, if you have any.
These are fixed amounts per order, so treat them like part of the cost.
Step 3: List the costs that are a share of the price
Payment processing and platform fees are a percentage of what the customer pays, usually with a small fixed part. Ads behave the same way if you think of them as a share of revenue: if you spend $1,200 on ads to make $10,000 of sales, ads are 12% of revenue.
Write these down as percentages. They are the reason you cannot just add a markup to cost and stop.
Step 4: Decide the margin you need
This is what is left per sale after everything above. It has to pay for the monthly costs of the store (plan, apps, software, your time) and leave a profit. A break-even calculation shows how many sales a given margin needs to cover those monthly costs.
Step 5: Work out the price
Percentages of the price (fees, ads and your margin) come off the bottom of the formula. Fixed amounts (costs per unit and per order) go on top:
price = fixed costs per unit ÷ (1 − margin − fee % − ad %)
A worked example
A scented candle:
| Cost | Amount |
|---|---|
| Landed cost (wax, jar, wick, fragrance, freight) | $8.40 |
| Box and filler | $0.90 |
| Shipping label (shipping is free for the customer) | $5.20 |
| Card fee fixed part | $0.30 |
| Fixed costs per unit | $14.80 |
| Share of the price | Rate |
|---|---|
| Card fee | 2.9% |
| Ads | 12% |
| Margin wanted after everything | 25% |
| Total | 39.9% |
price = 14.80 ÷ (1 − 0.399) = 14.80 ÷ 0.601 = $24.63
Step 6: Round it, then check it again
Nobody sells a candle at $24.63. Round to a price that looks normal in your market, $24.99 here, and recheck:
| At $24.99 | Working | Amount |
|---|---|---|
| Card fee | 24.99 × 0.029 + 0.30 | $1.02 |
| Ads | 24.99 × 0.12 | $3.00 |
| Costs | 8.40 + 0.90 + 5.20 | $14.50 |
| Profit | 24.99 − 1.02 − 3.00 − 14.50 | $6.47 |
| Margin | 6.47 ÷ 24.99 | 25.9% |
Rounding up gave a little more than the target. If the rounded price had come out lower than the formula’s, the margin would drop below target, so always recheck after rounding.
Step 7: Now look at the market
With a price you know works, compare it with what similar products sell for.
- You are well below competitors. You may be leaving money on the table. A higher price with better photos and descriptions often sells just as well.
- You are about the same. Good. Compete on everything except price.
- You are well above. Either the product needs to look clearly better, or one of the costs has to come down: a cheaper shipping method, a different supplier, less ad spend per sale. Cutting the price below your number means paying customers to take your products.
Mistakes to avoid
- Free shipping not in the cost. If you offer it, the label is a cost of every order. Leaving it out is the most common way a “40% margin” store loses money.
- Ads not in the price. If most sales come from ads, ad cost per sale belongs in the formula. Otherwise the price only works for the few customers who find you for free.
- Setting it once. Supplier, carrier and platform prices change. Recheck every price when one of them does.
The markup calculator runs Step 5 for you with fees included, and the profit margin calculator is the quick way to do Step 6.