How to Price Your Products for Profitability

In this blog, we’ll walk you through how to price your products for profitability without confusing math or business jargon.

1. Understand Your Costs

Before setting any price, you need to know exactly how much it costs to produce and sell your product. There are two main types of costs:

Fixed Costs

These don’t change no matter how many items you sell.
Examples:

Rent
Salaries
Website hosting
Insurance

Variable Costs

These increase with each product you sell.
Examples:

Materials
Packaging
Shipping
Payment processing fees

Total Cost per Unit = (Fixed Costs ÷ Units Sold) + Variable Cost per Unit

? Example:
If your fixed costs are $1,000 per month, and you plan to sell 100 units:

Fixed cost per unit = $1,000 ÷ 100 = $10
Variable cost = $5 per unit
Total cost = $10 + $5 = $15 per unit

2. Choose a Pricing Strategy

Once you know your costs, choose a strategy based on your business goals:

Cost-Plus Pricing

Add a markup percentage to your cost.

Formula:
Cost + (Cost × Markup Percentage) = Selling Price

? Example: If your total cost is $15 and you want a 50% markup:

$15 + (15 × 0.50) = $22.50

Value-Based Pricing

Price based on the perceived value to your customer, not just the cost.

? Example: If your product solves a big problem or feels premium, you might charge more — even if your costs are low.

Competitive Pricing

Look at what others are charging for similar products and price accordingly.
Don’t just copy — highlight what makes you better (quality, service, brand).

3. Know Your Audience

Your customers' budget and perception matter.

Are they looking for luxury or affordability?
Do they value quality over price?
Are you targeting businesses or individual buyers?

Tip: Use surveys, social media polls, or competitor reviews to understand what your ideal customer expects to pay.

4. Factor in Profit Margin

A healthy profit margin ensures your business can grow, cover unexpected expenses, and reinvest.

Gross Profit = Selling Price – Cost of Goods Sold (COGS)
Gross Margin (%) = (Gross Profit ÷ Selling Price) × 100

? Example:

Selling price = $30
Cost = $15
Gross Profit = $15
Gross Margin = (15 ÷ 30) × 100 = 50%

Most businesses aim for a margin of 40–70%, depending on the industry.

5. Don’t Forget About Discounts Taxes

If you plan to offer discounts or free shipping, make sure your pricing can handle it.
Always account for taxes like GST or VAT in your final price, especially if they aren't added at checkout.

6. Test and Adjust

Pricing isn’t “set and forget.” What works now might not work next year.

Try A/B testing different price points or bundling products to see what drives more sales and profits. Collect feedback and track sales data regularly.

Look at:

Sales volume
Conversion rate
Customer retention
Profit per unit

7. Communicate Your Value

Customers will pay more if they understand why your product is worth it.

Show them the benefits:

What problem does it solve?
How does it make their life easier?
Why is it better than cheaper alternatives?

Use clear product descriptions, visuals, reviews, and comparisons to justify your pricing.

Final Thoughts

Pricing is more than just picking a number — it’s a smart balance of costs, customer expectations, competition, and value. Start by understanding your costs, choose the right strategy, and always aim for profitability, not just sales.