Pricing isn’t guesswork. Follow this five-step method to set a price that covers every cost, hits the margin you need, and still works in the real market.
Most sellers set prices by copying a competitor or adding a rough percentage to what they paid. Both skip the two things that actually determine whether you make money: your true unit cost and the margin you need to keep. Get those right and a defensible price falls out of the maths.
Add up your true unit cost
Total every cost tied to one unit: materials, labour, packaging, shipping, and platform fees. This is your real break-even, not just the supplier price.
Choose a target profit margin
Decide what share of each sale you need to keep, guided by your industry's typical margins and your own overheads.
Back-calculate the sale price
Use the formula sale price = cost ÷ (1 − target margin) to find the price that delivers your chosen margin.
Check it against the market
Compare your price to competitors. If it's too high, cut costs or add value rather than slashing the margin.
Review and adjust
Re-check your pricing whenever costs, fees, or demand change. Margins erode quietly if you never revisit them.
The heart of step 3 is one formula. To find the price that delivers a target margin:
Sale price = Cost ÷ (1 − Target margin)
This is the exact trap the margin vs markup guide covers — and why it’s worth letting a calculator do the division for you.
If you sell on a platform, the fees belong in your unit cost before you apply the margin. A price that gives a healthy 40% margin in isolation can collapse once Etsy, Amazon or eBay take their 10–30% cut. Use the matching calculator to see the real number:
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What Is a Good Profit Margin?
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How to Calculate Break-Even Point
The break-even formula, contribution margin, and how many units you must sell.
Cost of Goods Sold (COGS)
What counts as COGS, what doesn't, and the formula to calculate it.
Gross Profit vs Net Profit
The difference between the two, with a worked income-statement example.
Average Order Value (AOV)
The AOV formula, why it matters, and proven ways to increase it.
How Discounts Affect Profit Margin
Why a small discount cuts profit hard, and the extra volume needed to break even.
Contribution Margin
What contribution margin is, the formula, and how it drives break-even.
Fixed vs Variable Costs
The difference, why it matters for pricing, and how to classify your costs.
Keystone Pricing
The classic 2x markup rule — what it is, the margin it gives, and when to use it.
Retail vs Wholesale Pricing
How to price for both channels without eroding your retail margin.
How to Calculate ROI
The return on investment formula with worked examples for stock and ads.
How to Increase Profit Margin
Ten practical, tested ways to widen your margin without losing sales.
Profit Margin Calculator
Sale price, margin, markup, or cost — four modes for any scenario.
Etsy Profit Calculator
Net profit after Etsy listing, transaction, payment, and Offsite Ads fees.
Amazon FBA Profit Calculator
Net profit, margin and ROI after Amazon referral, fulfillment and storage fees.
eBay Profit Calculator
Net payout after eBay's final value fee, per-order charge and international fees.
Shopify Profit Calculator
Real profit per sale after Shopify payment processing, surcharges and plan share.
Use sale price = cost ÷ (1 − target margin), with the margin as a decimal. To hit a 40% margin on a $12 cost: $12 ÷ (1 − 0.40) = $12 ÷ 0.60 = $20. Note you divide by (1 − margin), not just add the percentage — that's the step most people get wrong.
Every cost attached to a single unit: the product or materials, labour, packaging, inbound and outbound shipping, and any marketplace or payment fees. Leaving out fees and shipping is the fastest way to price yourself into a loss on marketplaces like Etsy or Amazon.
Cost-plus pricing (cost plus a set margin) guarantees you never sell at a loss and is the safest starting point. Value-based pricing sets the price by what the customer will pay. In practice, use cost-plus as your floor and raise toward value-based pricing where your product is differentiated.
Start from your true unit cost and target margin to find your floor price. If competitors are cheaper, protect the margin by lowering costs (better suppliers, cheaper shipping, larger batches) or by adding value that justifies the higher price — don't just discount into an unprofitable margin.
At least quarterly, and immediately whenever a major cost changes — a supplier price rise, a fee increase, or a shift in shipping rates. Small cost creep that goes unaddressed can turn a healthy 35% margin into a thin one within a year.