Guide
How to Price a Product You Make or Sell
A price has to do three jobs: cover what the product cost you, pay for the business around it, and leave a profit. Here is a way to set one in five steps.
1. Find the real cost of one unit
Start with what you pay for the product or its materials. Add the freight to get it to you, any duty, and the packaging it leaves in. The total is your landed cost, and it is often a good deal higher than the supplier's price.
If you make the product yourself, include the materials for one unit and a fair rate for the time it takes. Time you do not charge for is a cost you are paying yourself.
2. Choose the margin you need
Your margin has to pay for everything that is not the product: selling fees, postage you cover, advertising, software, rent and your own pay. Add up a normal month of those costs and compare it with a normal month of sales to see what share of each sale they take.
The margin you set must be higher than that share, or the business loses money however many you sell.
3. Work out the price
Divide the landed cost by (1 minus your margin). For a landed cost of $4.20 and a margin of 60%, that is $4.20 divided by 0.4, which gives $10.50.
4. Check it against the market
Look at what similar products sell for. If your price is well above them, you need a clear reason a buyer can see: better materials, a better story, a better photo. If it is well below, you may be leaving money behind.
If the market will not pay the price you need, the answer is to lower the cost or choose a different product, not to sell at a loss.
5. Leave room for wholesale
If you plan to sell to shops, remember that many of them price at about twice what they pay. Your wholesale price has to cover your cost and profit, and the retail price has to be about double that. Set your prices with this in mind from the start, because raising them later is harder.
