Underpricing is one of the quickest ways to stay busy and still lose money. This guide explains how to price a product for profit by adding up every unit cost, choosing a target margin and allowing for fees and tax before you set the final price.
1. Add up the full unit cost
Include materials, labour, packaging, shipping and any other per-unit cost. Leaving out packaging or delivery is a common reason margins are lower than expected.
2. Choose a target margin, not just a markup
Margin is profit as a share of the selling price. Markup is profit as a share of cost. To reach a 40% margin, price = cost ÷ (1 − 0.40), not cost × 1.40.
Example: unit cost ₹200
| Method | Price (₹) | Actual margin |
|---|---|---|
| 40% markup (cost × 1.4) | 280 | 28.6% |
| 40% margin (cost ÷ 0.6) | 333 | 40% |
| 40% margin + 3% fee (cost ÷ 0.57) | 351 | 40% after fee |
Using markup when you meant margin leaves more than 11 points of margin on the table in this example.
3. Allow for platform and payment fees
Marketplaces and payment gateways take a percentage of the price. Subtract that percentage too: price = cost ÷ (1 − margin − fee %). Then add tax if your prices are shown including tax.
4. Round and compare with the market
Round to a sensible price point and compare with competitors. If the market price is lower than your calculated price, look at costs or positioning rather than simply cutting the margin.
Pricing mistakes
Pricing from competitors only
Their costs are not your costs. Start from your own unit cost, then check the market.
Forgetting discounts and returns
If you regularly discount or accept returns, build that into the margin you target.
FAQs
What is a good profit margin?
It depends on the industry and volume. Track your margin per product and compare it with what your overheads require.
Should I show prices including GST?
Consumer prices in India are usually shown inclusive of tax. Calculate the ex-tax price first, then add tax for display.
How often should I review prices?
Whenever material, shipping or platform costs change, and at least a couple of times a year.
Get the template
The ReadySheets Pricing Calculator adds up five cost lines, applies your margin, fees and tax, rounds the price and compares it with competitors on a dashboard. Pair it with the Break-even Calculator.
Related guides: How to Calculate Break-even Point in Excel · How to Make a Profit and Loss Statement in Excel