How to price products for an online store: cost, market and position

Pricing a product for an online store comes down to three numbers: what the product really costs you, what the market charges for it, and what your customers will pay for buying it from you rather than someone else. Most pricing mistakes come from skipping one of the three. This guide works through them in order, with a worked example.

Step 1: work out the true unit cost

The purchase price on the supplier invoice is only the start. The cost that matters is what it takes to get one unit into a customer's hands:

• Landed cost: purchase price plus inbound freight, duties and any import fees, divided across the units in the shipment.
• Payment fees: card and wallet providers usually charge a percentage plus a fixed amount per transaction. Check your own provider's rates.
• Platform fees: marketplace commission or app subscriptions that scale with orders.
• Packaging and fulfilment: boxes, filler, pick and pack time or 3PL charges.
• Shipping you absorb: if you offer free delivery, the average cost per order belongs in the product cost.
• Returns: in categories with high return rates, the expected cost of returns per unit sold is a real cost.

You will not get every figure exactly. An honest estimate is far better than leaving the line out.

Step 2: decide your margin — and know it is not markup

Markup and margin are often confused, and the confusion costs money. Markup is profit as a share of cost. Margin is profit as a share of the selling price.

• Markup = (price − cost) ÷ cost
• Margin = (price − cost) ÷ price

A product that costs €50 and sells for €75 has a 50% markup but a 33% margin. If you set prices by adding "50%" and then plan your business on a 50% margin, you will be short. To reach a target margin directly, divide cost by (1 − margin): a €50 cost at a 40% target margin needs a price of €50 ÷ 0.6 = €83.33. The margin calculator converts between the two.

Your target margin has to cover everything not already in the unit cost: marketing, software, staff, rent, and profit. A margin that looks healthy on one product can still leave the business losing money overall.

Step 3: find out what the market charges

If customers can buy the same product elsewhere, they will compare. Before you settle on a price, look at what the sellers your customers actually consider are charging:

1. Search for the product by name and model number, as a customer would.
2. Note the price, the delivery cost and time, and whether the seller has stock.
3. Ignore sellers your customers would not trust — unknown marketplace accounts, grey imports, listings with no reviews.
4. Work out the median of the credible prices, and the cheapest.

Comparison sites are useful for finding who sells the product, but check the retailer's own page before relying on a price; listings can lag behind. Our competitive price monitoring guide covers how to do this systematically once you have more than a handful of products.

Step 4: choose where you want to sit

Cost tells you the floor. The market tells you the range. Where you sit within that range is a positioning decision, and it should be deliberate:

• Below the median when price is your main reason to be chosen and your costs allow it.
• At the median when you compete on a mix of range, service and price.
• Above the median when you offer something others do not: faster delivery, better advice, easier returns, a bundle.

We go into this in more depth in price positioning: cheapest, middle or premium.

Step 5: products with no direct comparison

Own-brand and unique products have no identical competitor, which gives you more freedom and less guidance. Useful anchors:

• The price of the closest substitutes, adjusted for obvious differences in quality or size.
• Your own range: a new product should sit sensibly against what you already sell.
• Customer feedback and early sales. Launching slightly higher and reducing is usually easier than the reverse.

Step 6: make the price look right

Once you have a number, present it consistently. In mass-market categories, prices ending in 9 or 99 are common; premium products often use whole numbers. There is reasonable evidence that price endings matter in some settings — see psychological pricing — but consistency across your store matters more than any single ending. For consumers in the EU, the price you display must include VAT and all other taxes; the Price Indication Directive defines the selling price that way.

Step 7: decide how delivery is priced

Delivery is part of the price the customer compares, so it belongs in the pricing decision rather than being set separately. There are three common approaches:

• Delivery charged at cost. Product prices stay lower, which helps on comparison sites that list the item price first, but customers see a surprise at checkout.
• Free delivery built into the price. Simple for the customer; the average delivery cost has to be in your unit cost, as in Step 1.
• Free delivery above a threshold. Encourages larger baskets. Set the threshold a little above your typical order value, and check that orders just above it still make money once delivery is paid.

Whichever you choose, compare your delivered price — item plus delivery — with competitors' delivered prices, not item price with item price.

Step 8: review, don't set and forget

Costs change, suppliers raise prices, competitors come and go. A price that was right at launch drifts out of line within months. Build in a review: monthly for most of your range, more often for products where competitors move frequently. When you do change a price, record the date and the reason so you can check later whether it worked — see how to measure whether a price change worked.

If you track more products than you can check by hand, a monitoring tool helps. Luska shows each product's price index — 100 is the median of the competitor prices read in the last 48 hours — alongside the gap to the cheapest competitor and your margin, so you can see which prices have drifted.

Common mistakes

• Pricing from the supplier invoice only, leaving out fees, shipping and returns.
• Confusing markup and margin and planning on a margin the business never earns.
• Copying the cheapest competitor without checking whether they have stock or whether your costs allow it.
• Never revisiting prices after launch.

FAQ

What is a good profit margin for an online store?

It depends on category, volume and what your fixed costs are. Work backwards: add up your monthly overheads, estimate volume, and check that your product margins cover both with profit to spare.

Should I always be cheaper than competitors?

No. Being cheapest only works if your costs are lowest. Most small stores do better competing on service, range or expertise at a price close to the market.

How do I price a product nobody else sells?

Start from cost and target margin, compare with the closest substitutes, and adjust based on early sales.