The formula
The top line adds up every cost that comes with one order, plus the profit you want from it. Fees and refunds are a share of the price itself, so they come off the bottom: that is why the total is divided rather than added to.
Worked example
An illustrative product: landed cost $12, shipping and packing $5, you expect ads to cost $15 per order, and you want $8 profit per order. Fees are 3% and you allow 4% for refunds.
So $43 is the floor for this product to make $8 an order. Price below it and the profit comes out of the $8 first, then out of your pocket.
Price calculator
Markup is not margin
| Markup on cost | Margin on price |
|---|---|
| 50% | 33.3% |
| 100% | 50% |
| 200% | 66.7% |
| 300% | 75% |
A "2x markup" sounds generous until ads, shipping and refunds are counted. Price from the formula above instead of a multiplier.
The usual mistakes
- Leaving the ad cost per order out of the price, then wondering why sales do not turn into profit.
- Using the supplier price instead of the landed cost (shipping in, duties, packaging).
- Treating fees and refunds as flat amounts when they grow with the price.
Go further
Profit Recovery Checklist
$9 · 30-day refund
A 10-point audit, an interactive tool and a printable PDF, with a contribution margin calculator, for margin, refund and conversion leaks.
Includes a contribution margin calculator to check every product.
Store Profitability Starter Kit
$47 · 30-day refund
Five profit templates for margin protection, higher order value and repeat purchases, including a post-purchase layer of 7 email touches, 3 SMS templates and 3 refund prevention scripts.
Questions
What is the formula for pricing a product?
Price = (landed cost + shipping and packing + expected ad cost per order + target profit per order) / (1 - fees % - refund allowance %).
Should the price include advertising cost?
Yes, if you pay for traffic. The ad cost to win an order is a cost of that order, just like the product itself.
What is the difference between markup and margin?
Markup is profit as a share of cost; margin is profit as a share of price. A 100% markup is a 50% margin.