How to Price a Product (a step-by-step method)

Updated September 18, 2026

Pricing isn't a guess and it isn't your competitor's number. It's your real cost, the margin your business needs, and a market check — in that order.

Step 1: find your true unit cost

Almost every underpriced product starts here. A complete unit cost includes:

Materials — including the offcuts and wastage, not the idealised amount
Labor — your time at a rate you'd pay someone else, multiplied by how long it really takes
Packaging — box, filler, label, insert, tape
Shipping — the part you absorb, plus returns
Fees — marketplace listing and transaction fees, payment processing
Overhead share — monthly rent, software, and insurance divided by the units you actually sell in a month

Step 2: pick the margin the business needs

Gross margin is the share of the price left after unit cost. It has to cover everything overhead didn't, plus profit. For physical products, 40–50% is a realistic floor; discounting, returns, and fee increases eat into it fast.

Step 3: do the maths

Price = cost ÷ (1 − margin ÷ 100)

A $12 unit cost at a 45% target margin gives $12 ÷ 0.55 = $21.82. Round to $22.

Note that this is not cost × 1.45 — that gives $17.40, a 31% margin, and is the single most common pricing error. Multiplying gives you markup; dividing gives you margin.

Step 4: check it against the market

Now look at comparable products. You're not trying to match them — you're checking that nothing in your cost stack is wildly out of line and that buyers in this category accept this range. If you're 3× the going rate, something is wrong with your process or your product needs to be visibly different.

Step 5: build in room to discount

If you'll ever run a 20% sale, your everyday price must survive it. A $22 price at 45% margin drops to roughly 31% margin at 20% off. If that's too thin, set the everyday price higher rather than skipping sales entirely.

A worked example

Item	Amount
Materials	$6.00
Labor (0.4 hr × $18)	$7.20
Packaging	$1.20
Fees (est.)	$1.60
Overhead share	$2.00
Total unit cost	$18.00
Price at 45% margin	$32.73 → $33

Want the full picture? The Real Profit Pricing Workbook walks you through your time, every fee and each sales channel, step by step.

See the workbook: $19 launch price until December 31, 2026 (then $27) →

30-day money-back guarantee. If it's not for you, email me within 30 days for a full refund, no questions asked. · First edition in English

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Every fee on Etsy, Shopify, Amazon Handmade and at markets, on one page. We'll email it to you too.

Frequently asked

Total every cost per unit (materials, labor, packaging, shipping, fees, a share of overhead), decide the gross margin you need, then divide cost by (1 − margin). Compare the result to the market before committing.

Retail products: 40–50% gross margin is a common floor once fees and returns are accounted for. Handmade and luxury often run 50–60%. Digital products run much higher because there is almost no unit cost.

Use competitor prices as a sanity check, not a target. They have different costs and different volumes. Matching a bigger competitor's price with your cost base is how small businesses lose money on every sale.

Check that your cost figure includes your own labor at a real hourly rate. Most people who feel their price is too high have priced their own time at zero.