How to Price Products for Your Online Store
Pricing is one of the most important decisions in an online store, and one of the most often guessed. A price has to cover your costs, earn a profit, and still look fair to customers. Here's a practical approach.
Start with your true costs
Many small shops forget costs that eat into profit. Include:
- Product cost or materials, and your time if you make items
- Packaging
- Shipping you pay for, net of what you charge
- Payment processing fees and any platform fees. See choosing an ecommerce platform
- Marketplace commissions, if you sell there. See marketplaces vs your own store
- Returns and refunds. See how to reduce ecommerce returns
- Advertising and discounts
- Sales tax or VAT treatment. See sales tax and VAT basics
Your price must cover all of this and leave a margin.
Markup vs margin
These are often confused:
- Markup is profit as a percentage of cost
- Margin is profit as a percentage of the selling price
If something costs $60 to deliver and you want a 40 percent margin, the price is cost divided by one minus the margin: 60 / 0.6 = $100. A 40 percent markup on $60 would only give $84, a margin of about 28.6 percent. Decide which you're using before you calculate.
Common pricing approaches
Cost-plus. Add a fixed margin to your costs. Simple and safe, but ignores what customers are willing to pay.
Value-based. Price according to the value customers see. A product that solves a big problem or has a premium feel can command more than its cost suggests.
Competitor-based. Look at what similar products sell for. Use this as a reference, not a rule. You don't have to be the cheapest, and racing to the bottom is hard for small businesses.
Tiered or bundled. Offer good, better, best options, or bundles that raise the average order.
Think about perception
- Prices that end in .99 or .95 are common, but premium brands often use round numbers
- Clear, honest comparisons build trust, but fake "original" prices are illegal in many places. Only show a previous price if it was a genuine recent selling price. Rules vary, so check yours
- Show shipping costs early, because surprise fees at checkout drive abandonment. See reducing shopping cart abandonment
Account for shipping strategy
Free shipping is attractive, but someone pays for it. Options include building shipping into prices, setting a free-shipping threshold slightly above your average order, or charging transparently. See shipping and returns pages.
Test and adjust
Track sales, margin, and conversion as you change prices. Change one thing at a time, over a period long enough to see a pattern. See A/B testing. Small price increases on in-demand items may cost less in sales than you fear.
Present price well
Put price near the product title and action button, with clear currency and tax information. See product page best practices.
Review regularly
Costs change. Review prices at least once or twice a year, and when supplier or fee costs shift.
The bottom line
Know your real costs, choose a margin on purpose, check the market, and test. Good pricing is a business decision, not a guess.