The short answer
Good pricing comes down to three steps:
- Know your true cost per order, not just what the product costs you.
- Pick a target margin and turn it into a price with a simple formula.
- Check the market and adjust for your positioning.
Most new sellers underprice because they forget the "invisible" costs: payment fees, packaging, free shipping and the ad money it took to win the sale. Let's fix that.
Step 1: Add up your true cost per order
List everything you spend to get one order to one customer:
- Product cost (COGS): what you pay to make or buy the item, including any inbound shipping from your supplier.
- Packaging: box, mailer, tissue, tape, inserts.
- Shipping you pay: if you offer free shipping, the label cost is yours. See how to set up shipping for a small online store for ways to estimate it.
- Payment processing: for example, Stripe's standard US online card rate is 2.9% + 30¢ per successful charge (Stripe Pricing). Check the current rate for your provider and country.
- Marketing cost per sale: if you spend $100 on ads and get 10 sales, that's $10 per order.
- Returns allowance: a little buffer for refunds and damaged items. Our return and refund policy guide explains why processing fees usually aren't returned when you refund.
- Platform and app subscriptions, spread across your expected monthly orders.
Step 2: Understand markup vs. margin
These two get mixed up all the time:
- Markup is profit as a percentage of cost. A $10 item sold for $20 has a 100% markup.
- Margin is profit as a percentage of price. That same $10 item sold for $20 has a 50% margin.
Margin is the more useful number because it tells you how much of every dollar of sales you keep. To hit a target margin, use:
Price = Total cost per order ÷ (1 − target margin)
Step 3: A worked example in USD
Say you sell a handmade candle:
| Cost item | Per order |
|---|---|
| Wax, wick, jar, fragrance | $6.00 |
| Packaging | $1.50 |
| Shipping label (you offer free shipping) | $5.50 |
| Ads (marketing cost per sale) | $4.00 |
| Subtotal before payment fees | $17.00 |
Payment fees depend on the final price, so include them in the formula. Using 2.9% + 30¢ (Stripe Pricing) and a target margin of 30%:
Price = (17.00 + 0.30) ÷ (1 − 0.30 − 0.029) = 17.30 ÷ 0.671 ≈ $25.78
You might round to $25.99 or $26. At $26, fees are about $1.05, total costs about $18.05, and profit about $7.95, a margin of roughly 31%. These numbers are only an example, so plug in your own.
Step 4: Check the market
Your formula gives you a floor, not the final answer. Look at what similar products sell for and where yours fits. The U.S. Small Business Administration recommends competitive analysis to understand your competitors' strengths and weaknesses and find your edge (SBA).
- If your price is far above the market, look for cheaper packaging or suppliers, raise your perceived value (better photos, clearer product pages, bundles), or rethink free shipping.
- If your price is well below the market, you may be leaving money on the table. Try pricing a bit higher.
Strong product pages make a higher price easier to justify. Our guides on product descriptions that rank and product photos with your phone can help.
Common pricing strategies for beginners
- Cost-plus: the formula above. Simple and safe.
- Competitive: price near similar products, then win on quality, story or service.
- Value-based: price on what the product is worth to the buyer, common for handmade, niche or premium goods.
- Bundles: sell two or three items together to raise order value and spread shipping cost.
- Charm pricing: ending in .99 or .95. It's a common convention; test it rather than assuming it works for your audience.
Be honest with discounts and "compare at" prices
If you show a crossed-out "was" price, it should be real. The Federal Trade Commission's Guides Against Deceptive Pricing say a former-price comparison should be based on a price at which the item was actually offered to the public, in good faith, for a reasonable period of time (FTC Guides, 16 CFR Part 233). Don't invent an inflated "original" price just to make a sale look bigger.
When to change your prices
Revisit your numbers when:
- Supplier, shipping or ad costs go up.
- You're selling out fast (a sign you could charge more).
- You add a new feature, better packaging or a bundle.
Also remember sales tax is usually collected on top of your price, not taken out of it. See sales tax for new online sellers.
Price it, list it, sell it
Once you have a price, put it on a clean product page and start selling. Create your store with Newcomer and you can set prices, compare-at prices and shipping in minutes. New to all this? Start with how to start an online store with no experience.
Questions, answered.
What's a good profit margin for a small online store?
There's no single right number; it depends on your product, competition and ad costs. Work out your true cost per order first, then choose a margin that leaves room for marketing and returns while staying competitive with similar products.
What's the difference between markup and margin?
Markup is profit divided by cost; margin is profit divided by price. Selling a $10 item for $20 is a 100% markup but a 50% margin.
Should I include shipping in my product price?
If you offer free shipping, yes: the label cost comes out of your pocket, so build it into your price. If you charge shipping separately, you can leave it out of the product price.
How do payment processing fees affect my price?
Processors take a percentage plus a fixed fee per charge. For example, Stripe's standard US online card rate is 2.9% plus 30 cents, so include fees in your pricing formula.
Can I show a crossed-out original price?
Only if it's genuine. FTC guidance says a former price should be one you actually offered to the public, in good faith, for a reasonable period.