Product Pricing Formula
A useful product pricing formula starts with cost, but it should also account for overhead, selling fees, shipping, planned discounts, and target margin.
Use order economics, not cost alone
Cost-only pricing is easy to calculate but can hide real selling expenses. For a product sold online or through a marketplace, the usable formula should include unit cost, packaging, overhead, shipping or fulfillment, platform fees, payment fees, and fixed transaction fees.
Formula
Required Revenue = Costs / (1 - Fee Percent - Target Margin)
Selling Price = (Required Revenue - Shipping Charged) / (1 - Planned Discount)Worked example
Suppose a product has $18 unit cost, $4 overhead, $6 shipping cost, and a $0.30 fixed fee. If selling fees are 7.9% and target margin is 35%, the regular price needs to leave enough revenue after those fees and costs.
When to use markup instead
Markup is useful for a quick draft price, especially when fees are simple. Target-margin pricing is better when you need a price that protects a specific profit margin after fees and planned discounts.
Use the calculators
Use the Product Pricing Calculator to set a target price, the Markup Calculator for a quick markup price, and the Discount Margin Calculator to test promotions.
FAQ
What is the basic product pricing formula?
A simple formula is price equals cost plus profit, but practical pricing also needs overhead, fees, shipping, discounts, and target margin.
Should platform fees be included in product price?
Yes. Platform and payment fees reduce the amount you keep from each order, so they should be included before setting the final price.
Should I price for discounts?
If promotions are planned, include the expected discount before finalizing the regular price.