How to price your products for profit
Learn cost-plus, value-based and competitive pricing, how to calculate your true cost per order, psychological pricing tactics and when to raise prices.
Pricing is the fastest lever you have on profit. A small price increase on a product with healthy demand can matter more than doubling your traffic. Yet many new store owners copy a competitor’s price and hope. Here’s how to price on purpose.
Step 1: know your true cost per order
Before choosing a price, add up everything an order costs you:
- product cost (or production cost per unit)
- packaging and inserts
- shipping you pay (including any free-shipping subsidy)
- payment processing (percentage plus fixed fee)
- platform or marketplace fees
- average ad or acquisition cost per order
- an allowance for returns and damage
This is your all-in cost. The profit margin calculator adds it up and shows the price needed to hit your target margin.
Step 2: choose a pricing strategy
Cost-plus pricing
Add a markup to your cost. It’s simple and ensures each sale covers costs, but it ignores what customers are actually willing to pay. Good as a floor, not a ceiling.
Value-based pricing
Price according to the value your product delivers and how customers perceive it. A handmade, premium or problem-solving product can often command far more than cost-plus suggests. This requires understanding your customer, which is time well spent.
Competitive pricing
Position against similar products: below (value), at (parity) or above (premium). Use competitors as context, not as the decision. They may have different costs, volume or goals, and may not even be profitable.
Most good prices sit where these three meet: above your cost floor, aligned with perceived value and positioned deliberately against alternatives.
Margin vs markup
These get confused constantly:
- Markup = (price − cost) ÷ cost
- Margin = (price − cost) ÷ price
A $10 item sold for $20 has a 100% markup but a 50% margin. Always plan with margin. It tells you what share of every dollar you keep.
Psychological pricing tactics
- Charm pricing: $29 instead of $30 often feels meaningfully cheaper.
- Round pricing for premium: $200 can feel more luxurious than $199.
- Anchoring: showing a premium option first makes the mid-tier feel reasonable.
- Bundles: “3 for $50” raises average order value and moves more units.
- Free-shipping thresholds: set them a bit above your current average order value to nudge bigger baskets.
Use these honestly. Fake reference prices or false scarcity damage trust and can break consumer-protection laws.
Plan for ads and discounts
If you’ll use paid ads, your margin must absorb the cost of acquiring customers. Work out your break-even ROAS (return on ad spend) with the break-even calculator. If you plan regular promotions, build that discount room into the standard price, rather than discounting from a price that’s already thin.
When and how to raise prices
Signs you’re underpriced:
- you sell out quickly or have a waitlist
- customers rarely mention price as an objection
- your margin can’t fund marketing
Raise prices gradually, add visible value (better packaging, a guarantee, faster shipping), and test on new products or variants first. Existing loyal customers can be thanked with an early-access window at the old price.
A quick pricing checklist
- All-in cost per order calculated
- Target net margin decided (many small stores aim for 20–40% after ads)
- Price tested against value and competitors
- Discount and ad budget built in
- Revisited every quarter as costs change
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This guide is general information, not legal, tax or financial advice. Platform features and pricing change, so check the provider's official pages before deciding. See our Disclaimer and editorial policy.