Price too low and every sale loses money once fees and ads are paid. Price too high and nobody buys. Many new sellers pick a number that feels right, or copy a competitor. There are better ways. Here are five pricing methods, what each one is good for, and the numbers behind them.
Fees in the examples are assumed for illustration. Payment, marketplace and fulfilment fees depend on your channel, plan, country and category. Use your current rate card.
Before you start: know your costs
Every method needs two things:
- Landed cost per unit: product, packaging, freight, duty and delivery to your warehouse. See how to calculate landed cost.
- Selling costs per order: channel and payment fees, fulfilment, postage, returns and ad cost. Our Shopify profit margin guide lists them all.
Some selling costs are a fixed amount per order, like postage. Others are a percentage of the price, like payment fees, marketplace commission, and ads if you budget them as a share of sales. Keep them in two separate lists. Method 2 needs them.
Method 1: Cost-plus pricing
Take your landed cost and add a markup.
Price = landed cost × (1 + markup)
It's quick, and it guarantees a gap between cost and price. The problem is that the gap is gross margin, not profit. And markup is not the same as margin:
| Markup on a $10.00 cost | Price | Gross margin |
|---|---|---|
| 50% | $15.00 | 33% |
| 100% | $20.00 | 50% |
| 150% | $25.00 | 60% |
| 200% | $30.00 | 67% |
A 100% markup sounds generous. But fees, postage and ads can easily take most of the 50% gross margin it leaves. Use cost-plus as a first check, not a final answer.
Method 2: Target-margin pricing
Work back from the margin you want, including every selling cost.
Price = fixed costs per unit ÷ (1 − percentage costs − target margin)
Here is an example for a US Shopify product. All costs are assumed for illustration.
- Fixed costs per unit: landed cost $8.00 + fulfilment and postage $5.00 + payment fee of $0.30 per order = $13.30
- Percentage costs: payment fee 3% + ad budget of 20% of sales = 23%
- Target net margin: 15%
Price = $13.30 ÷ (1 − 0.23 − 0.15) = $13.30 ÷ 0.62 = $21.45. Round up to a price point such as $21.99, then check it:
| Line | Amount |
|---|---|
| Price | $21.99 |
| Landed cost | $8.00 |
| Fulfilment and postage | $5.00 |
| Payment fee (assumed 3% + $0.30) | $0.96 |
| Ad budget (20% of price) | $4.40 |
| Profit per order | $3.63 |
| Net margin | 16.5% |
The same formula gives you a floor price. Set the target margin to zero: $13.30 ÷ (1 − 0.23) = $17.27. Below that, every sale loses money at this ad budget.
In the UK and Germany, run the formula on the price excluding VAT, then add VAT: multiply by 1.20 in the UK or 1.19 in Germany. Some fees, such as Amazon's referral fee, are charged on the VAT-inclusive price, which makes them larger than the formula assumes. Check the final price in a full profit calculation.
Method 3: Competitor-based pricing
Look at what customers already pay for similar products. Note each one's price, rating and review count, and how well it seems to sell. On Amazon, Best Seller Rank history shows whether a price point actually moves units. Then decide where you fit:
- Below the market only works if your costs are lower, or if you accept a thinner margin to win early sales.
- At the market works when your product and listing are as good as the leaders'.
- Above the market needs a visible reason: better materials, a bundle, a bigger size, or stronger photos and reviews.
One warning: a competitor's price tells you nothing about their costs. If your target-margin price is well above what the market pays, the product doesn't work for you at that cost. That is a useful finding, not a reason to cut your margin to zero.
Method 4: Value-based pricing
Price on what the product is worth to the buyer, not on what it cost you. Ask what problem it solves, and what the buyer would otherwise pay to solve it. A product that saves time, looks better or comes as a complete set can carry a higher price than its parts.
Ways to add value without adding much cost:
- Bundles and multipacks. A two-pack raises the order value, while fulfilment and postage often cost little more than for one unit.
- Complete kits. Include the accessory buyers would otherwise buy separately.
- Better presentation. Clear photos, packaging and instructions change what a price feels like.
Value-based pricing needs evidence. Read reviews of similar products to see what buyers praise and what they complain about. Then test.
Method 5: Price testing
A price is a guess until customers react to it. Test two prices and compare profit per visitor, not conversion rate. A higher price can convert a little worse and still earn more.
| Price A | Price B | |
|---|---|---|
| Price | $19.99 | $22.99 |
| Conversion rate | 3.0% | 2.5% |
| Orders per 1,000 visitors | 30 | 25 |
| Profit per order (assumed) | $3.00 | $5.80 |
| Profit per 1,000 visitors | $90.00 | $145.00 |
Price B sells fewer units and makes more money. A few practical rules:
- Change one thing at a time, and run each price long enough to collect a meaningful number of orders.
- On your own store, test with a price-testing app or by changing the price for set periods. On marketplaces, change prices with care, because conversion rate can affect how your listing ranks.
- Watch return rates and reviews. A price that attracts the wrong buyers can cost you later.
Pricing details that matter
- VAT-inclusive prices. UK and EU shoppers see prices including VAT. A £19.99 price in the UK leaves £16.66 before any other cost.
- Room for promotions. If you plan to run discounts, check your margin at the discounted price too.
- Room for ads. Your price sets how much you can spend on ads per sale. A low price leaves a small ad budget.
- Price endings. Prices ending in .99 are common online. Whatever ending you choose, use it consistently.
Which method should you use?
Use them together. Start with target-margin pricing to find your floor and your target. Check the market with competitor research. Use value to justify a higher price, and testing to find the best one. If the market price sits below your floor, change the product or the cost, or move on to another idea.
Where Ecomtoro fits
Ecomtoro shows profit per unit, net margin, ROI and break-even ROAS for a product at the price you enter, on Amazon FBA, Shopify and TikTok Shop in the US, UK and Germany, with VAT, duty and channel fees included. Try a few prices and see which ones still pay after fees and ads. Its research tools also pull Google Shopping results and Amazon sales-rank history, so you can see what the market pays and what actually sells.
Frequently asked questions
What is the difference between markup and margin?
Markup is profit as a share of cost; margin is profit as a share of price. A product that costs $10 and sells for $20 has a 100% markup and a 50% gross margin.
What is the simplest reliable way to price a product?
Use target-margin pricing: divide your fixed costs per unit by one minus your percentage fees and your target margin. Then check the result against what similar products sell for.
Should I price lower than my competitors?
Only if your costs allow it. A lower price shrinks your margin and your ad budget, and competitors can follow you down. Compete on the product, the bundle or the listing where you can.
How long should a price test run?
Long enough to collect a meaningful number of orders at each price, and across the same days of the week. Stores with little traffic may need several weeks.
