How to Price a Product in 2026 (+ Pricing Calculator)

Pricing your product is one of the most important decisions you’ll make as a small business owner and one of the easiest to overthink. The pricing model you choose affects everything from your margins and growth potential to how customers perceive your value.

Get it wrong, and the impact is immediate: Price too high, and potential customers may go for cheaper alternatives. Price too low, and you might win more sales, but you’ll risk cutting into your profits and struggling to cover costs. 

It’s no wonder so many founders get stuck here, especially when launching something new. But pricing doesn’t have to be a blocker. With the right framework, pricing becomes a tool you actually can use to shape your business.

This guide shows you exactly how to price a product using step-by-step formulas, a free calculator, and five proven pricing strategies. You’ll learn how to calculate your costs, set profitable margins, and choose the right approach for your market positioning.

What is product pricing?

Product pricing is the process of setting sell prices for your products based on production costs, market conditions, and profit goals. The right price covers your expenses, attracts customers, and generates sustainable profit for your business.

Pricing strategies differ based on industry, target customers, and the cost of goods. In ecommerce retail, for example, value-based pricing models are common. In highly competitive markets, competitive pricing often is the way to go.

How should I price my products? 

The easiest way to price a product is to add up all the costs involved in bringing it to market, then add a markup on top. 

If it seems too simple to be effective, you’re half right— here’s why.

Cost + Markup = Selling price

Your markup will depend on your industry, among other factors. Cost-plus pricing guarantees that you earn a gross profit on every item you sell, and it can work well as a short-term solution. However, there’s more to consider.

If your markup is too high and your products are seen as too expensive, potential customers won’t buy them, and you’ll lose market share. If you set your markup too low, you could leave revenue on the table, making it challenging to grow at scale.

While cost-plus pricing works in some situations, your pricing structure also needs to account for consumer trends and market positioning, or how your brand is perceived relative to competitors.

You’ll establish your market positioning by expressing the unique value proposition that encourages customers to buy from you rather than competitors. Once you do this, you might want to move beyond the simple cost-plus pricing strategy.

That’s because different pricing strategies work best for different market positionings. For example, let’s say you have a value-based positioning strategy. This means customers buy your product over competitors’ because of the perceived value it offers them.

Maybe you sell a vacuum that’s quieter than others on the market. Since you’re differentiating based on noise level, you’ll want to estimate the approximate value in dollars your customers put on quietness, and add that to the base price of the vacuum.

If you sell a commodity product, on the other hand, you might use an economy pricing strategy, in which you keep prices low and rely on sales volume to make a sustainable profit. If you sell a luxury product like high-fashion handbags or fine jewelry, you might use a premium pricing strategy, setting higher prices to create the illusion of prestige and exclusivity.

Keep in mind: Pricing is not a decision you make once. As market conditions and your business change, you’ll likely need to revisit your product prices. However, if you’re trying to find the retail price of your product for the first time, cost-plus pricing is a relatively quick and straightforward way to establish a baseline.

How to price your product

1. Add up fixed costs
2. Add up variable costs
3. Consider international costs and tariffs
4. Calculate cost per unit
5. Add a profit margin

To price a product, you’ll first need to determine the product’s cost per unit. This is the amount of money you spend to make and sell each product. Start by adding up your business expenses—both fixed and variable costs.

1. Add up fixed costs

Fixed costs are expenses that do not change regardless of how many products you make. They include overhead costs like rent, business insurance, and salaries.

Here are a few common fixed costs:

• Rent for office, production, or warehouse space
• Salaries
• Business insurance
• Property tax
• Manufacturing equipment
• Software subscriptions, like for an ecommerce platform or accounting tools
• Marketing and advertising costs, like your digital advertising spend

Before you start adding up these expenses, pick a time period to ensure accounting consistency. That could be a month, quarter, or year, for example. You’ll measure each expense for this time period.

2. Add up variable costs

The second step in calculating your cost per unit is to total your variable costs. These are expenses that change based on the number of products you produce, also known as your cost of goods sold. For example, those costs could include:

• Packaging costs
• Shipping costs
• Sales commissions
• Inventory storage costs
• Raw material costs
• Credit card processing fees

Tally these expenses for the same time period you used for your fixed costs.

3. Consider international costs and tariffs 

If you source products internationally or sell to customers abroad, you’ll need to add costs like tariffs, duties, and international shipping to your total variable costs. These expenses can fluctuate significantly due to shifting trade policies.

For businesses that import products, research the specific tariff rates that apply to your product categories. These rates can change with trade policy, so build flexibility into your cost calculations

When calculating your costs, factor in these international import and shipping costs to ensure your profit margins remain sustainable. You may also want to explore strategies like diversifying suppliers or optimizing duties collection to manage these costs effectively.

4. Calculate cost per unit

Now that you’ve added up your fixed and variable costs, it’s time to calculate your cost per unit. You can follow this simple formula:

(Total variable costs + Total fixed costs) / Number of units produced = Cost per unit

Use the same time period you used in your fixed and variable cost calculations to determine the number of units produced, answering the question: How many products did you make during that time?

5. Add a profit margin

Once you’ve calculated your cost per unit, it’s time to build gross profit into your price. At a minimum, your price should let you break even on each sale. 

Typical gross profit margins vary across industries. Here are the average gross profit margins for several major industries, according to New York University:

• General retail: 33.18%
• Furniture and home furnishings: 30.28%
• Electronics: 38.77%
• Apparel: 56.88%
• Food and grocery: 26.31%

Once you’re ready to calculate a price, take your cost per unit and divide it by 1 minus your desired profit margin expressed as a decimal. For example, if your desired profit margin is 20%, you’d divide your cost per unit by 0.8 (since 1 - 0.2 = 0.8).

Here is the pricing formula: 

Target price = (Cost per unit) / (1 - Desired profit margin as a decimal)

If your cost per unit is $14.28 and your desired profit margin is 20%, you would do the following calculation:

$14.28 / (1 - 0.2) = $17.85 (selling price)

Note that gross profit margin and markup are not exactly the same thing, and they’re calculated with slightly different formulas. Markup is the percentage added to your product cost to determine the selling price. Margin is the percentage of the selling price that remains after you subtract the product cost.

Sara Panton, co-founder at Vitruvi, spoke about staying on top of margins on an episode of Shopify Masters. 

“Pricing and bundling is also an important part of Vitruvi’s strategy. I probably talk about margin, like, twice a week with our executive team, because it’s really a moving target—and I think if it isn’t a moving target for you, then you’re not looking at it close enough.” 

Before you lock in your selling price, consider it in light of overall market conditions and competitor prices to make sure your price still falls within the overall “acceptable” price range for your product. If your price is significantly higher than your competitors’ prices for a similar product, it may be difficult to attract buyers.

Using a product pricing calculator

A product pricing calculator can help you find a profitable selling price, which can be incredibly helpful in understanding how different price points may affect your business.

Shopify’s profit margin calculator is a great tool to help figure this out. It uses a cost-plus pricing strategy that takes the total costs to make your product, then adds a percentage markup to determine the final selling price.

To start, simply enter your product cost for each item and what percentage in profit you’d like to make on each sale. For example, if your item costs $20 to produce and you want to apply a 25% markup, the calculator will generate your target selling price automatically.

After inputting your numbers, click “Calculate profit.” The tool will run those numbers through its profit margin formula to find the recommended price you should charge your customers. In the example below, a $25 sale price yields a $5 profit and a 20% gross margin.

Play around with the inputs to find the perfect price point for your customer base and bottom line. If you can charge a higher price, increase your markup. Once you’ve found the right balance, you can confidently set prices and start generating profit from each sale.

You can also look at your average selling price (ASP) to understand how your pricing is performing over time. It’s a simple way to see what customers are actually paying, on average, for your product.

To calculate it, divide your total revenue by the number of units sold:

Average selling price = Total revenue / Number of units sold

So if you sold 200 units last month and brought in $5,000, your average selling price is $25.

Keeping an eye on your ASP helps you spot patterns early. If it starts creeping down, it could be a sign you’re relying too heavily on discounts or selling too many lower-priced products.

6 common pricing strategies

Once you know your costs, choosing a pricing strategy shapes how customers perceive your brand. Here are six approaches, each with different strengths, depending on your market position and goals.

1. Cost-plus pricing

Cost-plus is the simplest way to price something. You find out the total cost to make one item, then you add an extra markup for your profit.

A custom jewelry maker, for example, might calculate the exact cost of their silver, beads, and labor for a necklace. Then, they’d add a 50% markup to arrive at the final retail price. 

Who it’s for: Anyone who wants a fast, no-fuss way to make sure they’re not losing money on each sale.

Pros: 

• Easy to calculate without “deep” research
• You know every sale is profitable from day one
• Updating prices is straightforward when your costs change

Cons: 

• It doesn’t factor in what customers actually want to pay
• It ignores what competitors are charging
• You could end up underpricing (and earning less than you should) or overpricing yourself out of the market

2. Competitive pricing

A competitive pricing strategy factors in your competitors. You look at what they’re charging for similar products and set your own price to be around the same—maybe a little lower, a little higher, or exactly the same.

For example, a streetwear brand might analyze marketplace listings for similar oversized hoodies and ensure its pricing aligns with shoppers’ expectations. 

Who it’s for: Businesses selling into busy, competitive markets where customers shop around and compare prices before deciding.

Pros: 

• Helps you land in a fair price range for buyers
• Lowers the risk of overpricing or underpricing
• Makes sense for products that are hard to differentiate

Cons: 

• Can turn into a race to the bottom if competitors keep undercutting each other
• Your pricing ends up reacting to what others do, not your own strategy
• It doesn’t give customers a strong reason to choose you based on value alone

3. Value-based pricing

With value-based pricing, you charge what your customers believe your product is worth to them. If your product saves them a lot of time or makes them feel great, that value is high—and your price can be too.

A direct-to-consumer skin care brand, for example, might command a higher price point because it produced verified clinical results. 

Who it’s for: Brands that offer unique products and can clearly explain why they’re worth paying more for.

Pros: 

• You’re not limited by your costs, so there’s more room for healthy margins
• Your price supports a premium or high-quality brand image
• Customers feel like the price matches the value they’re getting

Cons: 

• You need real insight into what customers actually value 
• It’s harder to justify if competitors offer similar features at lower prices
• You may need to revisit and tweak pricing as customer expectations and the market change

4. Premium pricing

A premium pricing strategy is straightforward: You price your product high on purpose to make it seem exclusive and high quality. The expensive price tag is part of what makes it desirable.

Designer brands like Rick Owens, Balenciaga, and Yves Saint Laurent use this strategy. They charge a high price point to create a sense of prestige, and, of course, the quality is top notch. 

Who it’s for: Luxury or prestige brands where exclusivity is part of the appeal.

Pros:

• High profit margins on each sale, even at lower volumes
• Reinforces an aspirational, “premium” brand image
• Attracts buyers who see price as a signal of quality

Cons:

• Fewer people can afford your products, which naturally limits your audience
• You need strong branding and marketing to make the price feel justified
• Sales can dip when the economy shifts or customers tighten their spending

5. Penetration pricing

With penetration pricing, you launch a new product with a low price to build a customer base quickly. The goal is to grab a large piece of the market share right away. Once you have a loyal following, you start to raise the price.

Say a supplement brand is launching a new collagen product. It launches an introductory discount to build up five-star reviews, then gradually increases the price once that social proof is established.

Who it’s for: New companies trying to break into a competitive market and build a customer base.

Pros: 

• Helps you win customers quickly and build momentum early on
• Makes it easier to collect reviews, testimonials, and social proof
• Puts pressure on competitors who can’t afford to match your pricing

Cons: 

• Margins are slim (or nonexistent) at the start
• You may attract customers who care more about the price than your brand
• Customers get used to paying less, and raising prices later can be difficult

6. Price skimming

Price skimming is the opposite of penetration pricing. Instead of starting low, you launch at a higher price and gradually lower it over time. The idea is to earn the most from customers who are excited to buy first and are happy to pay a premium, then open the door to more price-sensitive buyers later.

You see this a lot with technology products. Early adopters pay full price to get their hands on the newest model, while more budget-conscious customers wait for the price to drop or choose a previous generation.

Who it’s for: Brands launching innovative products with clear advantages and little direct competition at the start.

Pros: 

• Maximizes revenue from customers who value being first
• Helps you recoup research and development (R&D) and launch costs faster
• Sets a strong “premium” tone from day one

Cons:

• High prices can invite competitors to swoop in with cheaper alternatives
• Early customers may feel frustrated when prices drop later
• Only works if your product is truly unique and innovative

Best practices for product pricing

• Identify your target audience
• Analyze competitors
• Define your unique value proposition
• Determine your market positioning
• Experiment with discount and psychological pricing
• Avoid common pricing mistakes

Use these tips as you start setting product prices.

Identify your target audience

Identifying your target audience is a crucial first step in everything from product development to marketing. It’s just as essential when you’re pricing a product.

For example, let’s say you’re selling rugs. If your target audience is professional city dwellers who own homes, you’ll likely be able to charge more for your product than if your target audience is college students looking for dorm décor, because homeowners generally have more disposable income.

Analyze competitors

You might sell an amazing product—but if customers can get a similar product at a lower price point, you’ll likely miss out on sales. Before you set your prices, conduct thorough market research and analyze your competitors’ prices by conducting a competitive analysis.

A thorough competitive analysis involves examining more than prices, and you’ll also learn about your competitors’ marketing strategies, refund and shipping policies, and more. This helps you position your price within the market while also ensuring your customer experience holds up against the competition.

Pay attention to price floor and ceiling signals in your market. If all competitors cluster between $25 and $35 for similar products, that range likely reflects what customers expect to pay. If you’re pricing significantly outside that range, you’ll need to justify with clear product differentiation.

Define your unique value proposition

Your unique value proposition (UVP) is why consumers choose your product over others on the market. This will ultimately impact your market positioning, and therefore your optimal pricing strategy.

For example, let’s say you sell flour. You’re able to source low-cost wheat and have a factory that can churn out large quantities of flour with low labor costs and little overhead. In this case, your value proposition might be affordability, and you’ll want to price your products low.

Conversely, let’s say you source organic wheat from local farmers and make proprietary flour blends in small batches. Your value proposition might be product quality, and you can likely set higher prices.

Determine your market positioning

Now that you’ve established your UVP, it’s time to define your market positioning. There are a number of market positioning strategies:

• Price point positioning. Focusing on where your product sits on the pricing spectrum, whether as an affordable option or a high-end, premium offering.
• Quality positioning. Emphasizing product quality as the core differentiator.
• Competitor positioning. Framing your product as better than a direct competitor—for example, comparing favorably to a well-known rival.
• Usage positioning. Highlighting your product’s specific use case, emphasizing functionality, performance, or technical features.
• Availability positioning. Focusing on convenience—for instance, offering same-day shipping on air conditioners to become the go-to option during heat waves.
• Novelty positioning. Centering on innovation, such as technologies or products competitors don’t yet have.

Once you’ve found the right positioning for your brand, choose a pricing strategy that aligns with it. For example, availability positioning might align with a dynamic pricing model (think Uber surge pricing), which adjusts pricing based on demand in real time. Competitor positioning might mean pricing your products just slightly below your biggest rival.

Experiment with discount and psychological pricing

You can combine discount and psychological pricing with other pricing strategies to find the perfect prices for your product.

Psychological pricing, also called charm pricing, uses consumer psychology to influence purchases. Classic tactics include ending prices in .99 or using odd numbers to make prices feel lower.

Discount pricing, or placing your products on sale, can encourage purchases because shoppers feel like they’re getting a good deal. This can also help clear out older inventory. Just be careful not to overdo it: Discounting too many products can make you look like a bargain retailer, undermining your brand reputation if you position your products as premium or high quality.

Avoid common pricing mistakes

Even seasoned sellers get pricing wrong sometimes. Watch out for these common mistakes:

• Underpricing out of fear. New sellers often play it safe and price too low because they’re worried customers won’t buy otherwise. But if you do this, you end up earning less than you should, and a bargain-basement price can make your product feel lower quality. “We were actually priced, I think, too cheap initially that people didn’t associate the product as being high quality,” says Laura Thompson, co-founder at Three Ships Beauty. 

• Forgetting to watch competitors. Setting your prices once and never revisiting them makes it easy for competitors to quietly undercut you. To avoid this, add a quarterly pricing check to your calendar, or use price-tracking tools so you can spot changes before they impact your sales.
• Mixing up margin and markup. A 30% markup is not the same as a 30% margin, and using the wrong one can significantly lower your profit per sale. Always double-check which metric you’re using before locking in prices.
• Failing to account for rising costs. Your margins will shrinkif your costs go up by 10% but your prices stay the same. Make it a habit to review your costs every few months and adjust pricing when needed.

Test different pricing strategies

Don’t let fear of choosing the “wrong” price hold you back from launching your store. Pricing decisions can evolve with your business, and as long as your price covers your expenses and includes a profit, you can test and adjust as you go to find the ideal price.

To get started, you might use a cost-plus pricing model and run a price comparison to make sure your products are priced appropriately relative to competitors. Later on, you might try another pricing strategy. 

You don’t have to change the price of your entire catalog at once. Pick a group of SKUs and try a 5% to 10% increase. Pay attention to how sales volume responds to the price changes. If a slight price increase barely hurts your sales volume but lifts your profit, you could be underpricing. 

Pay attention to how demand responds to price changes—this is called price elasticity. Some products have “elastic” demand, where customers are highly price-sensitive and small increases cause noticeable sales drops. Others have inelastic demand, where customers will buy regardless of modest price changes. Luxury goods and necessities tend toward inelastic; while commodity products and items with many substitutes are more elastic. Understanding your products’ elasticity helps you predict how pricing experiments will affect sales. 

Finally, build regular price reviews into your business operations. Quarterly reviews help you catch cost changes, competitor movements, and demand shifts before they erode margins.