Pricing
How to price a product so you actually hit your target margin
A step-by-step method to price an online product: list per-unit costs, account for percentage fees, and use one formula to reach a target profit margin.
· 2 min read
Many sellers price by looking at competitors or by adding a round number to cost. Both can work, but neither tells you what you will keep after fees. A cost-based method gives you a floor: the lowest price that still reaches the margin you need. Then you can decide whether the market will pay it.
Step 1: List your costs per unit
Split costs into two groups. Fixed costs per unit are amounts that do not change with the price: the product cost, shipping to the customer, packaging and any fixed fee per order. Variable costs are percentages of the selling price, mainly marketplace commission and payment processing.
Step 2: Choose a target margin
Pick the share of the selling price you want to keep as profit, for example 20%. Be realistic: advertising, returns and the time you spend all come out of this number later.
Step 3: Use the pricing formula
Price = Fixed costs per unit / (1 - Fee % - Target margin %)
Fees and margin are both slices of the selling price, so they are subtracted from 100% first. What is left is the share of the price that has to cover your fixed costs.
A worked example
Your product costs $20 and shipping and packaging cost $5, so fixed costs are $25. Fees are 10% of the price and you want a 20% margin.
| Step | Calculation | Result |
|---|---|---|
| Share left for fixed costs | 1 - 0.10 - 0.20 | 0.70 |
| Selling price | $25 / 0.70 | $35.71 |
| Fees | $35.71 x 10% | $3.57 |
| Profit | $35.71 - $25 - $3.57 | $7.14 |
| Profit margin | $7.14 / $35.71 | 20% |
If you round up to a friendlier $35.99, fees become $3.60 and profit rises to $7.39, a margin of about 20.5%. Rounding up is safe. Rounding down below the formula price pushes you under your target.
When the formula breaks
The share left for fixed costs must be above zero. If fees are 60% and your target margin is 40%, nothing is left to pay for the product, and no price will work. In that case the target or the fee structure has to change.
Step 4: Compare with the market
Now look at what similar products sell for. If the formula price is close to or below the market price, you have room. If it is well above, you have four honest options: lower your cost, reduce shipping or packaging cost, accept a smaller margin, or choose a different product. Cutting the price without changing the margin you earn is not one of them.
You can run these numbers in the Product Pricing Calculator, then check the result with the Profit Margin Calculator. If you prefer to think in markup, see Markup vs profit margin.
This guide is general information with simplified examples. It is not financial, tax or legal advice. Your real fees, costs and results will differ, so check them against your own marketplace and carrier statements.