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

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