Pricing from cost alone can lead to margins that are lower than expected. A better approach is to work backward from the profit margin you want to achieve.
Target Margin Pricing Formula
Selling Price = Total Unit Cost / (1 – Selling Fee Rate – Target Margin)
What to Include in Unit Cost
- Product or manufacturing cost
- Packaging
- Shipping or fulfillment
- Allocated labor and overhead
Example
If your total unit cost is $30, selling fees are 5%, and your target margin is 30%, the denominator is 0.65. Divide $30 by 0.65 to estimate the required selling price.
Use the Product Pricing Calculator
The Product Pricing Calculator does this automatically and can also estimate break-even price, profit per unit, markup, and the list price needed before a discount.
Margin vs Markup
Do not substitute markup for margin. A 30% markup on cost produces a lower than 30% margin on the selling price.