A step-by-step way to price a physical or digital product: find your true unit cost, choose cost-plus or keystone pricing, convert between margin and markup, include card fees and shipping, and check the result against the market. Every step has worked arithmetic.
<p class="lead text-xl text-[#3a3a3a] mb-8"> Pricing a product comes down to four numbers: what one unit really costs you, what you need to keep from each sale, what the payment and shipping steps take, and what buyers will pay for something similar. This guide works through each one with a single example product, so you can copy the arithmetic. If you sell your time rather than goods, read <a href="/guides/how-to-price-your-services">how to price your services</a> instead. </p>
<h2>Step 1: Work out the true unit cost</h2> <p>Our example is a fictional hand-poured soy candle (a demonstration, not a real business). Add up everything that goes into one unit:</p> <table> <thead><tr><th>Cost</th><th>Per candle</th></tr></thead> <tbody> <tr><td>Wax, wick, fragrance</td><td>$4.20</td></tr> <tr><td>Jar and lid</td><td>$2.20</td></tr> <tr><td>Label and box</td><td>$1.10</td></tr> <tr><td>Your labour: 6 minutes at $25/hour</td><td>$2.50</td></tr> <tr><td><strong>Unit cost (cost of goods)</strong></td><td><strong>$10.00</strong></td></tr> </tbody> </table> <p>Two things people leave out: <strong>their own time</strong> (if you do not pay yourself in the price, you are subsidising every sale) and <strong>waste</strong> (if one candle in twenty cracks, add 5% to materials).</p>
<h2>Step 2: Understand margin vs markup</h2> <p>These are the two ways to describe the same gap between cost and price, and mixing them up is the most common pricing mistake.</p> <ul> <li><strong>Markup</strong> = profit ÷ cost. A $10 item sold at $15 has a 50% markup.</li> <li><strong>Margin</strong> = profit ÷ price. The same $15 sale has a 33.3% margin ($5 ÷ $15).</li> </ul> <p>To convert: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin).</p> <table> <thead><tr><th>Markup</th><th>Price of a $10 item</th><th>Margin</th></tr></thead> <tbody> <tr><td>25%</td><td>$12.50</td><td>20.0%</td></tr> <tr><td>50%</td><td>$15.00</td><td>33.3%</td></tr> <tr><td>100% (keystone)</td><td>$20.00</td><td>50.0%</td></tr> <tr><td>150%</td><td>$25.00</td><td>60.0%</td></tr> <tr><td>200%</td><td>$30.00</td><td>66.7%</td></tr> </tbody> </table> <p>The <a href="/tools/profit-margin-calculator">profit margin calculator</a> takes your cost and selling price and shows both the margin and the markup, so you can check any row above or your own numbers.</p>
<h2>Step 3: Pick a pricing method</h2> <h3>Cost-plus pricing</h3> <p>Add a fixed percentage markup to cost. At a 60% markup: $10.00 × 1.60 = <strong>$16.00</strong>, a margin of $6 ÷ $16 = 37.5%. It is simple and guarantees you never sell below cost, but it ignores what buyers will pay.</p>
<h3>Keystone pricing</h3> <p>Double the cost: $10.00 × 2 = <strong>$20.00</strong>, a 100% markup and 50% margin. Keystone is a traditional retail rule of thumb. It matters most if you ever sell <em>wholesale</em>: a shop that buys your candle for $20 will usually want to sell it for about $40. If your own online price is $20, you undercut every shop that stocks you, so set your retail price with wholesale in mind from day one.</p>
<h3>Target-margin pricing</h3> <p>Start from the margin you want to keep <em>after</em> fees and solve for the price. This is the most honest method for online sales, and it is step 4.</p>
<h2>Step 4: Include card fees (and shipping)</h2> <p>Stripe's standard US card rate is <strong>2.9% + 30¢</strong> per successful charge, plus 1.5% for international cards (<a href="https://stripe.com/pricing" rel="nofollow noopener" target="_blank">Stripe pricing</a>, September 2026). Check the rate your own processor charges; it varies by provider and country.</p> <p><strong>What keystone really keeps.</strong> At $20.00: fee = $0.58 + $0.30 = $0.88. You receive $19.12. Profit = $19.12 − $10.00 = $9.12, a margin of 45.6%, not 50%.</p> <p><strong>Solving for a true 50% margin.</strong> We want price − fees − cost = 0.5 × price:</p> <pre><code>P - (0.029 × P + 0.30) - 10.00 = 0.50 × P 0.471 × P = 10.30 P = $21.87</code></pre> <p>Check: fee on $21.87 = $0.63 + $0.30 = $0.93. $21.87 − $0.93 − $10.00 = $10.94, which is 50.0% of $21.87. You might round to $22.</p> <p><strong>Free shipping.</strong> If shipping one candle costs you $6 and you want to offer free shipping, it becomes part of the cost: $16.00 unit-plus-shipping cost. The same formula gives P = (16.00 + 0.30) ÷ 0.471 = $34.61. That is a big jump, which is why many shops charge shipping, or set a free-shipping threshold where several items share one postage cost.</p>
<h2>Step 5: Check the market</h2> <p>Your formula price is a floor, not the answer. Look at 10 comparable products (same size, similar materials, similar presentation) and note their prices including shipping. Then decide where you sit:</p> <ul> <li><strong>Below the range:</strong> your costs are unusually low, or you are underpricing. Raise the price before you raise volume.</li> <li><strong>In the range:</strong> compete on photos, story and delivery.</li> <li><strong>Above the range:</strong> you need a visible reason (materials, size, craft, guarantee) on the product page, or you need to cut cost.</li> </ul> <p>If the market price is below your floor, do not sell at a loss hoping volume will fix it; bigger batches can lower material cost, but check that with real supplier quotes.</p>
<h2>Step 6: Check fixed costs and break-even</h2> <p>Unit pricing ignores monthly costs such as your website, packaging stock and tools. Each candle at $21.87 contributes $10.94 after cost and fees. If your fixed costs are $120 a month (for example a $20/month website plan plus $100 of other overheads), you need $120 ÷ $10.94 = 11 candles a month to break even. Everything after that is profit.</p>
<h2>Pricing digital products</h2> <p>A download has almost no unit cost, so markup is meaningless. Price on value and the market, then use the card-fee arithmetic to check small prices: on a $5 download, Stripe's fee is $0.15 + $0.30 = $0.45, or 9% of the sale. The fixed 30¢ hurts cheap items most, which is a reason to bundle.</p>
<h2>Quick formulas</h2> <pre><code>Markup = (price - cost) / cost Margin = (price - cost) / price Price for a target margin M (after 2.9% + 0.30 card fee): P = (cost + 0.30) / (1 - 0.029 - M) Break-even units = monthly fixed costs / (price - cost - fee)</code></pre>
<h2>Selling it online</h2> <p>Once the numbers work, put them in front of buyers. On a paid We.Inc plan (Starter is $20/month) you can build a shop page whose checkout runs through your own Stripe account, with no extra We.Inc transaction fee; the free plan is for template sites on a we.inc address only (<a href="/pricing">pricing</a>). See <a href="/guides/how-to-build-ecommerce-website">how to start an online store</a> and <a href="/guides/how-to-sell-on-instagram">how to sell on Instagram</a>, and draft product copy with the <a href="/tools/product-description-generator">product description generator</a>.</p>
<h2>Sources</h2> <ul> <li><a href="https://stripe.com/pricing" rel="nofollow noopener" target="_blank">Stripe pricing</a> (checked Sept 28, 2026)</li> </ul>
Start with unit cost (materials, packaging, labour, waste). Then price = cost x (1 + markup), or for a target margin after card fees, price = (cost + 0.30) / (1 - 0.029 - margin) at Stripe's standard US rate.
Markup is profit divided by cost; margin is profit divided by price. A $10 item sold for $20 has a 100% markup and a 50% margin.
Doubling the cost to set the price, a 100% markup or 50% margin. It is a retail rule of thumb and a useful floor if you plan to sell wholesale.
Yes. At 2.9% + 30 cents, a $20 keystone price keeps a 45.6% margin, not 50%. Solve for the price after fees.
Include your labour at a real hourly rate, add waste, choose a margin that leaves room for wholesale, include fees and shipping, then check against 10 comparable products.
Products have a unit cost of materials; services are priced mainly on time and value. See our guide on how to price your services.
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