Pricing is one of the most important — and most misunderstood — aspects of running an online business. Most new sellers undercharge because they price based on what they feel comfortable asking, rather than what their product actually costs to deliver.
The Pricing Formula Every Seller Needs
A simple but effective pricing formula: Price = (Total Costs) ÷ (1 – Target Margin). Your total costs must include every cost involved in delivering the product to the customer.
What Goes Into 'Total Costs'?
- Cost of Goods Sold (COGS) — materials, manufacturing, or wholesale cost
- Shipping cost (materials + postage)
- Platform fees (Etsy, Amazon, Shopify transaction fees)
- Payment processing fees (typically 2.9% + $0.30)
- Packaging materials
- Your labour (hourly rate × time to produce/fulfill)
- A portion of fixed costs (subscriptions, tools, software)
- Returns allowance (expect 2–5% of orders to be returned)
Common Pricing Strategies
Cost-Plus Pricing
The most straightforward approach: calculate all your costs, then add your desired profit margin. Simple and safe, but doesn't account for what the market will pay.
Value-Based Pricing
Price based on the value the customer receives, not your costs. A handmade birthday cake might cost $30 to make, but if it solves a real problem beautifully, customers will happily pay $120. This is the most profitable strategy for unique, high-quality products.
Competitive Pricing
Research what competitors charge for similar products and price within that range. Useful as a sanity check, but never set prices solely based on competition — especially if competitors are undercharging and struggling.
What's a Good Profit Margin?
| Business Type | Typical Gross Margin | Target Net Margin |
|---|---|---|
| Handmade / Craft (Etsy) | 50–70% | 30–50% |
| Amazon FBA | 25–45% | 15–30% |
| Dropshipping | 20–40% | 10–25% |
| Print on Demand | 30–50% | 15–30% |
| Digital Products | 70–95% | 60–85% |
Psychological Pricing Tips
- Prices ending in 7 or 9 convert better than round numbers ($27 vs $30)
- Odd-number prices signal value; round numbers signal luxury
- Anchor pricing: show a higher 'was' price to make the current price feel like a deal
- Charm pricing ($19.99 vs $20) still works — never over-think this one
- Bundle pricing increases average order value without feeling expensive
When to Raise Your Prices
You should consider raising prices when: your products sell out too quickly, you receive no price-based objections from customers, your margins feel too thin to be sustainable, or when your costs increase. Most sellers are undercharging and would not lose significant volume from a 10–20% price increase.