How to Price Your Product: 4 Formulas With Worked Examples

How Do You Price a Product?

Price a product in three layers: what one unit really costs you, the fees each sale carries, and the profit you need on top. The cost-plus formula gives you a floor, competitor prices show the range buyers expect, and the value your product delivers tells you where inside that range to sit.

1. Add up your full unit cost: materials or wholesale price, your labor, packaging, and a share of overhead.
2. Choose a target margin and convert it to a price: price = cost ÷ (1 − target margin).
3. Add your sales channel's fees so the margin survives checkout.
4. Compare the result with what similar products sell for.
5. Adjust for value such as quality, reviews and brand, then test and revisit.

The rest of this guide works through each step with one product, a hand-poured candle, so you can watch every number move. All figures in the worked example are our own illustrative arithmetic, not industry averages. Swap in your own costs, or run them through our free profit margin calculator.

What Does One Unit of Your Product Really Cost?

Your unit cost is everything you spend to make or buy one item and get it ready to ship: materials or wholesale price, your labor, packaging, and a fair share of overhead such as tools, software and supplies. Leave a line out and every margin you calculate afterward will be too optimistic.

Cost Line (Worked Example)	One 8 oz Candle
Materials: wax, wick, jar, fragrance	$4.50
Labor: 15 minutes at $20 an hour	$5.00
Packaging: box, label, filler	$1.00
Overhead share: equipment, software, test batches	$1.50
Total unit cost	$12.00

Two lines catch new sellers out. The first is labor: if you make the product yourself, price your time at an hourly rate you would actually accept, or the price only works while you work for free. The second is overhead: divide monthly costs that are not tied to one item, such as software, equipment and test batches, by the units you expect to sell.

Shipping sits outside this table. If you offer free shipping, add your average label cost to the unit cost. Prices in this guide also exclude sales tax, which you collect for the state rather than keep.

What Is the Difference Between Margin and Markup?

Margin is profit as a share of the selling price; markup is profit as a share of cost. Margin = (price − cost) ÷ price. Markup = (price − cost) ÷ cost. Sell a $12 candle for $30 and your profit is $18: that is a 60% margin, but a 150% markup.

Confusing the two is one of the easiest ways to underprice. A seller who wants a 50% margin and adds 50% to cost ends up with a 33.3% margin. To hit a target margin, divide instead of multiplying: price = cost ÷ (1 − target margin). For a 60% margin on a $12 cost, that is $12 ÷ 0.40 = $30. Our markup calculator converts in both directions.

Markup on Cost	Equals Gross Margin	Price on a $12 Cost
25%	20.0%	$15
50%	33.3%	$18
100% (keystone)	50.0%	$24
150%	60.0%	$30
200%	66.7%	$36
300%	75.0%	$48

What Are the Main Ways to Price a Product?

There are four common pricing methods. Cost-plus adds a markup to your cost, keystone doubles the wholesale cost, competitive pricing positions you against similar products, and value-based pricing charges what the product is worth to the buyer. A sound approach uses cost-plus as your floor and value as your target.

Cost-Plus Pricing

Cost-plus pricing takes your unit cost and adds a fixed markup. With the $12 candle and a 100% markup, the price is $12 × 2 = $24, a 50% margin before fees. It is quick, transparent, and guarantees each sale covers its cost. Its weakness is that it ignores the buyer: if similar candles typically sell for around $28, a $24 price leaves money on the table.

Keystone Pricing

Keystone pricing is the retail rule of thumb of doubling what you paid wholesale: a 100% markup, which equals a 50% margin. A mug bought from a supplier at $9 retails at $18. It suits resellers because it is simple to apply across a catalog of bought-in goods. Check it after fees, though. On the $18 mug, Stripe's 2.9% + 30¢ takes $0.82, which cuts the margin to 45.4%.

Competitive Pricing

Competitive pricing starts from what buyers already pay. List five to ten close substitutes and note their prices. Suppose comparable candles sell for $22, $26, $28, $32 and $38: the median is $28. You can price at the median, below it to win on price, or above it with a clear reason. Use this to check your cost-plus result, not to replace it, because a competitor's price tells you nothing about your own costs.

Value-Based Pricing

Value-based pricing sets the price by what the product is worth to the customer: a rare scent, a cleaner burn, gift-ready packaging, or strong reviews. If those put your candle at the top of the range, $34 is defensible. After a Stripe fee of $1.29, that leaves $20.71 in profit, a 60.9% margin, against $11.00 at the $24 cost-plus price. The risk is overestimating value, so test it rather than assume it.

Method	How It Works	Worked Example	Best For
Cost-plus	Cost × (1 + markup)	$12 candle → $24	Stable costs, simple products
Keystone	Wholesale cost × 2	$9 mug → $18	Resellers of bought-in goods
Competitive	Position against similar products	Median of five rivals → $28	Crowded categories
Value-based	Price by what buyers will pay for your differences	Premium candle → $34	Branded or differentiated products

How Do Platform and Payment Fees Change Your Price?

Every sale pays a fee, so a price that hits your margin on paper misses it at checkout. Stripe charges 2.9% + 30¢ per domestic card sale, and Etsy charges 6.5% plus 3% + $0.25 in processing. To keep a 60% margin, our $12 candle needs $33.15 on its own store, or $40.82 on Etsy.

Stripe's standard US rate is 2.9% + 30¢ per successful domestic card transaction, plus 1.5% for international cards and 1% when currency conversion is needed (Stripe pricing, October 2026). Etsy charges a 6.5% transaction fee on the item price, shipping and gift wrap; US payment processing of 3% + $0.25 on the order total, including tax and shipping; and $0.20 per listing. Its Offsite Ads fee adds 15% to orders those ads bring in, or 12% once a shop passes $10,000 in yearly sales and taking part becomes mandatory, capped at $100 per order (Etsy fees policy, updated October 2026).

On your own store, the payment gateway is usually the only per-sale fee. LaunchMyStore, for example, charges 0% platform transaction fees on every plan, so you pay only your gateway's rate (pricing page). Some platforms add their own percentage when you use an outside gateway, so check before you build a price around one.

Worked Example: $30 Candle	Own Store (Stripe)	Etsy
Selling price	$30.00	$30.00
Unit cost	$12.00	$12.00
Fees	$1.17 (2.9% + 30¢)	$3.30 (6.5% + 3% + $0.25 + $0.20 listing)
Profit per sale	$16.83	$14.70
Margin after fees	56.1%	49.0%

To keep a target margin after fees, solve for the price: price = (cost + fixed fees) ÷ (1 − target margin − percentage fees). For the candle on a Stripe-powered store: ($12 + $0.30) ÷ (1 − 0.60 − 0.029) = $33.15. On Etsy, with $0.45 in fixed fees and 9.5% in percentage fees: ($12 + $0.45) ÷ (1 − 0.60 − 0.095) = $40.82. The same candle needs a price $7.67 higher on Etsy to earn the same margin.

Two things stand out. Fees take a bigger bite at low prices, because fixed per-order fees are a larger share of a small sale. And the gap between channels never closes: at every price, the Etsy listing keeps about 7 points less margin. Our Stripe fee calculator and Etsy fee calculator run these numbers for any price.

How Do You Price Handmade Items?

Price handmade items with the full formula: materials plus labor plus overhead equals your cost, and profit goes on top. A common approach is to double cost for a wholesale price, then double again for retail, so both a stockist and you keep a margin. Never leave your own time out of the cost.

For the candle, that gives $12 × 2 = $24 wholesale and $24 × 2 = $48 retail. In our example, $48 sits above every competitor price, which tells you something useful: either the candle needs a stronger value story to command $48, or you sell retail-only at $30 to $34 and hold off on wholesale until larger batches lower your labor per candle.

On Etsy, use the fee-adjusted formula above, since fixed per-order fees hit low-priced handmade goods hardest. Compare marketplaces with your own store in our guide to the best platform to sell handmade products.

How Many Sales Do You Need to Break Even?

Break-even units = monthly fixed costs ÷ profit per unit after variable costs and fees. If your store costs $200 a month to run, covering a subscription, software and a small ad budget, and each $30 candle leaves $16.83 after cost and Stripe fees, you need 12 sales a month before you earn anything.

Run the same math at every price you are considering. In our example, at $24 the profit per candle falls to $11.00 and break-even rises to 19 sales a month; at $34 it is $20.71 and 10 sales. A price that looks competitive can quietly double the volume you need. Our break-even calculator handles fixed costs, unit costs and price in one place, and our breakdown of what it costs to start an online store helps you fill in the fixed-cost line.

How Do Discounts Affect Your Profit?

A discount comes straight out of profit, not revenue, so it costs far more than its headline percentage. In our example, 20% off the $30 candle cuts profit per sale from $16.83 to $11.00, a 35% drop. You would need to sell 53% more candles just to earn the same total profit.

The formula is: extra units needed = (old profit per unit ÷ new profit per unit) − 1. Use discounts where they earn their cost, such as clearing old stock, rewarding repeat customers, or a launch with a clear end date. Our discount calculator shows the sale price and savings; pair it with your profit per unit.

The same math works in reverse. Raising the candle from $30 to $33 lifts profit per sale to $19.74 after Stripe fees, so you could sell about 15% fewer candles and still earn the same total.

Which Psychological Pricing Techniques Are Worth Using?

Psychological pricing changes how a price is perceived, not what it is. The most useful techniques are charm prices ending in 9, a genuine compare-at price, bundles, and good-better-best tiers. Treat them as finishing touches on a price that already covers your costs and fees, and test each one in your own store.

• Charm prices. Peer-reviewed research on the left-digit effect found that "nine-ending prices are perceived to be smaller than a price one cent higher," but only when the leftmost digits differ (Thomas and Morwitz, Journal of Consumer Research, 2005). So $29.99 against $30.00 can matter, while $34.99 against $35.00 is unlikely to.
• Compare-at prices. Show the price a product genuinely sold at before a sale. Under the FTC's Guides Against Deceptive Pricing, a former price is a legitimate comparison only if it was "the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time" (16 CFR 233.1). An inflated "was" price is a false bargain.
• Bundles. Group items people buy together, such as a candle and a wick trimmer, at less than the separate total. Check that the bundle price still clears your margin after fees.
• Good-better-best tiers. Offer three versions, such as an 8 oz candle, a 12 oz candle and a gift set, so buyers compare your options instead of a competitor's.
• Free-shipping thresholds. Set the threshold a little above your typical order so buyers add an item, and include the label cost in your margin math. Show it before checkout; our guide to reducing cart abandonment covers checkout friction.

For more tactics with examples, read our guide to ecommerce pricing psychology.

When Should You Raise Your Prices?

Raise prices when your margin after fees falls below target, when costs rise, when you regularly sell out, or when sales hold steady after a small test increase. Because profit per unit grows faster than price, a modest increase needs only a small drop in sales to pay for itself, as the $30-to-$33 example shows.

Test one product at a time. Raise it by a small step, change nothing else for a few weeks, and compare profit and revenue per visitor rather than conversion rate alone. Recheck your best sellers whenever a supplier, shipping or fee change lands. A strong product page helps a higher price land, so see our guide to product descriptions that sell.

What Pricing Mistakes Should You Avoid?

The costliest pricing mistakes are leaving costs out, confusing markup with margin, ignoring fees, copying the cheapest competitor, and discounting without doing the math. Each is avoidable with the formulas in this guide. Run your numbers once for every product, then again whenever a cost, a fee or a price changes.

• Forgetting your own labor or overhead: the price only works while you work for free.
• Adding a percentage to cost to hit a margin: a 50% markup gives a 33.3% margin, not 50%.
• Pricing before fees: in our example, Etsy's fees turn a 60% plan into 49% at $30.
• Running store-wide discounts by habit: 20% off can demand 53% more sales.

Pro Tip: Keep a one-row pricing sheet for every product: unit cost, fees, price, margin after fees, and break-even units. Re-run it whenever a cost changes. The free profit margin, markup, break-even and discount calculators cover each column. Still setting up? Start with our step-by-step launch guide.