Pricing

How to Price a Product

Good product pricing starts with cost, but it should also account for margin, discounts, fixed costs, and sales volume.

Product pricing workflow

  1. List the cost per unit, including materials, production, packaging, selling fees, and shipping support if applicable.
  2. Choose an initial markup to create a draft selling price.
  3. Check the profit margin on that selling price.
  4. Test planned discounts and promotions.
  5. Run break-even math if you have fixed costs such as rent, equipment, software, or salaried labor.

Useful formulas

Selling Price = Cost * (1 + Markup / 100)
Profit = Selling Price - Cost
Margin = Profit / Selling Price * 100

Worked example

Suppose a product costs $28 to make and package. A 75% markup creates a selling price of $49. Profit is $21, and margin is about 42.86%.

If you regularly offer a 15% discount, the discounted price becomes $41.65. Profit falls to $13.65, and the margin is about 32.77%. That may still work, but it is a different business decision than looking only at the full price.

Do not price from cost alone

Cost-based pricing is a starting point, not the final answer. A product also needs to fit customer expectations, competitor alternatives, perceived value, and the cash flow needs of the business.

If the market will not accept the price required for a healthy margin, the issue may be cost, positioning, packaging, or product-market fit.

Use the calculators

Use the Markup Calculator to create a draft price, the Profit Margin Calculator to check margin, the Ecommerce Profit Calculator for online selling fees and shipping, the Discount Calculator to test promotions, and the Break Even Calculator to estimate sales volume.

FAQ

What is the simplest way to price a product?

Start with product cost, add a markup, then check margin and break-even volume before finalizing the price.

Should product price include overhead?

Direct product cost is not enough for many businesses. You should also consider overhead, selling fees, shipping, returns, and required profit.

How do discounts affect product pricing?

Discounts reduce margin. If you plan to run discounts often, build the expected discount into the pricing model before launch.