How to Price Products for Your Online Store

Short answer

Start with a cost-plus calculation (total costs × 2–3x for a 50–67% margin), then check where your competitors price, then adjust based on the value your product delivers. Most small eCommerce businesses underprice — test higher prices before assuming you need to match the cheapest option.

Step 1: Calculate your cost floor

Add up everything it costs to get the product to the customer:

Cost of goods (manufacturing or wholesale cost)
Shipping to you (if applicable)
Payment processing fees (typically 2.9% + 30¢ with Stripe or Shopify Payments)
Packaging
Returns allowance (estimate 5–10% for most categories)
A portion of your platform fee (Shopify $39/month spread across your orders)

This total is your cost floor — you can't price below it without losing money.

Step 2: Apply your target margin

For most eCommerce businesses, target a gross margin of 40–70%.

Formula: Price = Cost ÷ (1 – Target Margin)

Example: Cost = $20, target margin = 60% Price = $20 ÷ (1 – 0.60) = $20 ÷ 0.40 = $50

At $50, your gross profit is $30 (60% margin). From this you pay for ads, staff, and overhead.

Step 3: Check competitor pricing

Search your product on Google Shopping, Amazon, and Etsy (if applicable). Where do competitors price?

Don't automatically match the lowest price. Low price is a race to the bottom — someone always has a lower cost structure than you. Instead, identify what makes your product worth more (better photos, faster shipping, premium packaging, better reviews, local sourcing) and price accordingly.

Step 4: Test different price points

Pricing isn't permanent. Run your product at your calculated price for 30 days. Then try 20% higher for 30 days and compare:

Did conversion rate drop?
Did revenue per visitor increase?

Often, a 20% price increase results in a 5–10% conversion drop but a 10–15% revenue lift — net positive. Test before assuming you need to be cheaper.

Pricing psychology

$49 converts better than $50 (charm pricing — the drop below a round number)
Showing a "was $X, now $Y" crossed-out price increases perceived value (only use when the original price was real)
Bundle pricing makes individual item prices feel less prominent