One of the most common questions when selling a new product is also one of the hardest:
How much should I charge for it?
It can be tempting to look at what competitors are charging, add a little on top of your product cost and call that your selling price.
But a product that costs $10 to make doesn't necessarily become profitable simply because you sell it for $20.
Packaging, shipping, marketplace fees, payment fees, advertising, commissions and other selling costs can all reduce the amount you actually keep.
There isn't one correct pricing method for every business. But understanding the numbers behind your price can help you make a more informed decision.
What should you include when pricing a product?
Start with the costs directly associated with selling the product.
Depending on your business, these could include:
- Product or material cost
- Labour
- Packaging
- Seller-paid shipping
- Marketplace commission
- Payment or transaction fees
- Affiliate commissions
- Advertising
- Other costs associated with each order
Not every business will have all of these costs.
A handmade seller might have significant material and labour costs, while a reseller may have a straightforward unit cost but higher marketplace or advertising fees.
The goal is to identify the costs that actually apply to your product.
Start with your product cost
Your product cost is the amount it costs you to obtain or produce one unit.
If you purchase finished products from a supplier, this may simply be your unit cost.
If you make the product yourself, you may need to calculate the cost of the materials used for each unit.
For example:
Materials: $6
Components: $2
Product packaging: $1
Your direct product cost would be:
$6 + $2 + $1 = $9
But $9 is your cost — not necessarily the price you should charge.
There may still be other costs to account for.
Don't forget labour
Labour can be particularly easy to overlook when you make or prepare products yourself.
Suppose a product takes 30 minutes to produce and you assign a labour rate of $20 per hour.
The labour cost for that product would be:
$20 × 0.5 hours = $10
If the materials cost $8, your cost before considering any other expenses is already:
$8 + $10 = $18
Ignoring your own labour could make a product appear considerably more profitable than it actually is.
How you value labour will depend on your business and circumstances, but including it as a separate cost makes the calculation more transparent.
Include packaging and fulfilment costs
Packaging is another cost that can seem insignificant until you calculate it across many orders.
This might include:
- Mailing boxes or bags
- Product boxes
- Tissue paper
- Labels
- Protective packaging
- Printed materials
- Tape
- Seller-paid delivery or postage
Suppose your product costs $12 and your packaging costs $2.
Before marketplace fees, advertising or shipping, you already need to recover:
$14 per sale
Keeping these costs separate also makes it easier to see where your money is going.
Account for marketplace and payment fees
If you sell through a marketplace, the platform may charge a percentage of the sale, a transaction fee or several different fees.
For example, imagine:
Selling price: $30
Marketplace commission: 10%
Transaction fee: 3%
Together, those percentage-based fees equal:
13%
On a $30 sale:
$30 × 13% = $3.90
If your product, packaging and other fixed costs total $14, your estimated profit becomes:
$30 − $14 − $3.90 = $12.10
This is why simply doubling your product cost doesn't automatically tell you what your profit margin will be.
Percentage-based selling fees change with the price you charge.
How to calculate a selling price from your costs
One simple approach is to start with your total fixed costs and work backwards from the margin you want to examine.
If there are no percentage-based fees, a simplified formula is:
Selling Price = Total Cost ÷ (1 − Target Profit Margin)
For example, suppose your total cost is $15 and you want to see what price corresponds to a 30% profit margin.
$15 ÷ (1 − 0.30) = $21.43
At a selling price of approximately $21.43:
Cost: $15.00
Profit: $6.43
Profit margin: 30%
But online sellers often have percentage-based selling fees as well.
Those need to be included in the calculation.
How to calculate selling price with marketplace fees
Suppose your fixed costs are:
Product: $10
Packaging: $1
Shipping: $2
Total fixed costs:
$13
You also have:
Marketplace fee: 10%
Payment fee: 3%
And you want to examine a target profit margin of 30%.
Your selling price needs to cover both the 13% in percentage-based fees and the 30% margin.
A simplified formula is:
Selling Price = Fixed Costs ÷ (1 − Percentage Fees − Target Margin)
Using our example:
$13 ÷ (1 − 0.13 − 0.30)
$13 ÷ 0.57 = $22.81
At approximately $22.81, the price accounts for your $13 of fixed costs, the percentage-based fees and a 30% profit margin.
This is the type of calculation the Seller Ledger Selling Price Calculator performs automatically.
Profit margin and markup are not the same thing
This is an important distinction when deciding how much to charge for a product.
If something costs $10 and you add a 50% markup:
$10 + 50% = $15 selling price
Your profit is $5.
But your profit margin is:
$5 ÷ $15 × 100 = 33.3%
So a 50% markup does not produce a 50% profit margin.
Markup measures profit relative to cost, while margin measures profit relative to revenue.
Confusing the two can lead to a selling price that produces a different profit margin from the one you expected.
Should you just copy your competitors' prices?
Competitor pricing can provide useful market context, but another seller's price doesn't tell you their costs.
Two businesses selling similar products may have very different:
- Supplier costs
- Order volumes
- Packaging costs
- Labour costs
- Marketplace fee rates
- Advertising costs
- Shipping arrangements
- Business models
A competitor may also intentionally accept a lower margin on one product for reasons that aren't visible from the outside.
So competitor prices can help you understand the market, but they don't tell you whether the same price works for your business.
How much profit margin should you make on a product?
There isn't one profit margin that is appropriate for every product or business.
A workable margin depends on factors such as your cost structure, industry, sales channel, order volume, competition and business model.
Rather than assuming there is a universal “good” profit margin, it can be more useful to compare several pricing scenarios.
For example, you could calculate what your selling price would be at:
20% margin
30% margin
40% margin
Then compare those prices with your costs and the market you sell in.
This doesn't mean one of those margins is necessarily right for your business. It simply lets you see how different targets affect your price.
What about advertising costs?
If you pay to acquire customers, advertising can materially affect your profit per order.
For example:
Selling price: $40
Profit before advertising: $14
Average advertising cost per order: $6
Estimated profit after advertising:
$14 − $6 = $8
If advertising costs are left out of your pricing calculation, you may believe you are making $14 when the economics of that acquired sale are closer to $8.
Advertising costs can vary considerably from order to order, so some sellers use an average cost per order when modelling their pricing.
What happens when you offer a discount?
Your regular selling price may look profitable, but promotions change the calculation.
Imagine a product sells for $40 and you offer a 20% discount.
The discounted price becomes:
$40 × 80% = $32
Your product cost hasn't fallen by 20%.
Neither has your packaging cost.
Some selling fees may decrease because they are percentage-based, while other costs remain unchanged.
That means your profit usually falls faster than your selling price.
Before running a sale, calculate the discounted scenario separately rather than assuming that a 20% discount simply reduces your profit by 20%.
Seller Ledger's Discount Profit Calculator is designed for this type of comparison.
Pricing products on TikTok Shop or Shopee
Marketplace sellers have an additional consideration: the fees associated with the platform.
A TikTok Shop seller may need to account for commission, transaction fees, affiliate commission, seller-funded vouchers and advertising.
A Shopee seller may need to consider commission, transaction fees, programme or service fees, advertising and promotions.
These fees can vary by market, product category, programme and seller.
If you're trying to calculate your profit on a marketplace, use the fee rates that actually apply to your seller account rather than assuming a generic marketplace rate.
Seller Ledger's TikTok Shop Profit Calculator and Shopee Profit Calculator Singapore are designed to help model these costs.
A simple product pricing checklist
Before deciding how much to charge, ask whether you've accounted for:
- Product or material costs
- Labour, where applicable
- Packaging
- Seller-paid shipping
- Marketplace fees
- Payment or transaction fees
- Affiliate commissions
- Advertising
- Discounts or seller-funded vouchers
- Other costs associated with fulfilling the order
Then calculate what remains after those costs.
That gives you a much better starting point for evaluating your price than looking at revenue alone.
The takeaway
There is no single formula that determines the perfect price for every product.
Pricing involves both your numbers and your market.
Your costs tell you what different prices mean financially. Your customers, competitors and sales channel provide the market context for deciding which of those prices makes sense for your business.
The important part is not to confuse selling price with profit.
Know what your product costs, understand the fees associated with selling it, compare different margins and consider what happens when you advertise or discount it.
Then you can make your pricing decision with a clearer picture of what you actually keep from each sale.