How to price your product | 7 key things to consider before you price your product

Pricing your products isn’t just about picking a number that feels right—it’s about finding the perfect balance between covering your costs, earning a profit, and appealing to your customers. 

While it might seem overwhelming, the good news is you don’t need to be a math genius to get it right. With basic math and strategic thinking, you can confidently price your products to set your business up for success.

In this post, we’ll discuss 7 key things to consider before pricing your product. This will help avoid common mistakes and create a pricing strategy that works for you and your customers.

Before we dive in: Download the Free Pricing Calculator here.

Here are the 7 key things you need to consider:

• 1. Cost of the product: 
• 2. One-time costs: 
• 3. Overhead costs: 
• 4. Variable Costs:
• 5. Profit Margins:
• 6. Competition / Selling Price Range:
• 7. Customer Perception of Your Products:
• What’s next: 
• FAQ’s

Let’s dive into them one by one. 

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1. Cost of the product:

This is the cost of the product, including shipping from the source, packing, and branding costs per product. 

Let’s look at what this looks like depending on different types of business models: 

Cost of products for dropshipping business

If you are a retailer selling your products via dropshipping, then this will be the cost of the product from the drop shipper, shipping, and packing costs, which may or may not include drop shipping fees. 

Cost of products for handmade products or In-house produce.

Suppose you are producing your products in-house for businesses such as manufacturing or handmade sellers. This cost would include all the costs to get you a finished product. 

To simplify your calculation, you can first consider all the required raw materials and other costs to help you make the finished product. Now, divide that total cost by the total number of products made. This will give you the cost per product: Total cost / Total products made = Cost of each product. 

Let’s say you invested $500 in all the materials to make your product. In total, you made 50 products. Each product costs $500/50 =$10. Now, this is the most simplified version of the calculation. Remember, we are just considering the cost of the product made. We haven’t added labor yet. 

If you are unsure how to do this, download the Free Pricing Calculator here.

Cost of products for white labeling or private labeling of the product.

White Labeling is the standard business model followed by most e-commerce sellers. In this model, you’re sourcing the products from a wholesaler and selling them on your website. 

Similarly, private labeling is when you source products from the manufacturer and custom-produce them specifically for your brand. 

In both cases, the cost price of the product here would be the total cost of the product to reach you. Not just the cost price from the wholesaler or manufacturer. You need to consider shipping costs, taxes, etc. 

Total Cost per product = (Total cost of inventory + Taxes + Shipping charges) / Total number of products

2. One-time costs:

Certain costs are necessary to operate effectively in a business. These costs are usually a one-time investment and play a key role in setting up the business.

Let’s look at some examples of one-time costs you need to consider. 

• Equipment
• Machinery 
• Office Furniture
• Website Development
• Branding Materials (logos, packaging, etc.)
• License or Permit Fees
• Business Registration Costs
• Software systems

This depends on your business; you may need to add some, or some may not even apply to you. 

Planning for these one-time costs allows you to allocate your resources effectively and ensure your business starts correctly.

3. Overhead costs:

This is the cost that occurs periodically in your business, either monthly or yearly. 

Let’s look at some overhead costs you need to consider: 

• Website Hosting
• Platform Fees
• Software Subscriptions
• Warehouse Rent
• Utility Bills
• Loan Repayments
• Employee salaries or freelancer payments.
• Any other subscriptions

Again, this depends on your business. You may need to add some, or some may not even apply to you. 

4. Variable Costs:

Variable costs are expenses that fluctuate depending on the level of business activity or sales volume. They increase as sales grow and decrease during slower periods.

Let’s look at some examples of variable costs you need to consider. 

• Brand Packaging
• Marketing Expenses
• Shipping Costs
• Transaction Fees
• Raw Materials
• Production Costs
• Commissions (if applicable)
• Taxes (sales or value-added tax)
• Utilities (dependent on usage)
• Customer Support Services

Again, this is not per se. You may need to add some, or some may not even apply to you. 

Understanding your variable costs is key to managing profitability and pricing your products effectively.

5. Profit Margins:

Before you set your selling price, it is essential to include a profit margin. A predetermined profit margin will ensure that your business is sustainable and profitable in the long run. 

Profit margins are generally considered in percentages. They are the percentage of the selling price that remains profitable after deducting all costs. 

Let’s look at how to include profit margins in your pricing. Here’s a step-by-step approach to guide you:

1. Calculate Total Costs:
2. Add up all costs involved in creating and delivering your product, including fixed costs (e.g., rent, software) and variable costs (e.g., materials, packaging, shipping).
3. Determine Your Desired Profit Margin:
4. Decide the percentage of profit you want to make on each sale. For example, if you aim for a 30% profit margin, this means that 30% of the selling price will be profit.

Use the Profit Margin Formula:

To calculate the selling price, use this formula:

Example: If your total costs are $50 and you want a 30% profit margin:

We can round it off to $71.

You can download the Free Profit Margin Formula sheet inside the Pricing Calculator here.

Including a well-thought-out profit margin ensures your prices reflect the actual value of your products while supporting your business’s financial health.

6. Competition / Selling Price Range:

While all the above costs and profit margins are important, it is also crucial to consider your competition. Whether you have direct or indirect competition, consider the price range. 

Understanding what price range similar products are selling in the market gives you an edge on how much to price your products. This way, you are not overpricing or underpricing your products. 

Especially if you are a handmade business owner, they usually underprice or overprice their products based on all the costs. 

Check out the Pricing For Profit Course to learn a strategy for pricing your products strategically while staying profitable.

Research competitors: Start with knowing who your competition is. They may be selling similar or the same products in your niche. 

Analyze the pricing:  Take note of the lowest and highest prices these products are selling for. 

7. Customer Perception of Your Products:

The next thing you must consider while pricing your products is how customers perceive them. Pricing is not just about costs and competition—it’s also about aligning your price with the value customers associate with your offering.

This is highly influenced by how you brand your business. The higher your brand perception, the more your customers will trust your products. So, your customers judge your products based on the benefits they expect to receive compared to their price. 

Pricing is not just a numbers game; it also reflects how customers view your products and brand. Managing and elevating customer perception can justify prices and build long-term customer loyalty.

What’s next:

Pricing your products is a strategic decision and should not be done arbitrarily. If you wish to learn how to price your products strategically, it will help you sell more and ensure you run your business profitably. Check out the Pricing for Profit Course.

FAQ’s