Start from the margin you need
Start with the margin your store needs, then work backwards to price. The basic formula is: required price = relevant unit cost ÷ (1 − target margin). For a 60% target, divide the cost by 0.40. Use a price before GST when measuring your economics; Inland Revenue states that GST in New Zealand is charged at 15%. Add GST for the customer-facing price where applicable (Source: Inland Revenue (Te Tari Taake)).
Gross margin is the share left after product cost (COGS): (revenue − COGS) ÷ revenue. It is the right measure for checking product-level sourcing, wholesale cost and the base price needed to make the item commercially viable. Contribution margin goes further, subtracting variable costs required to make and sell the order, such as payment costs, fulfilment, shipping subsidies and advertising. Use it when deciding whether to scale a product, set a promotion or accept an acquisition cost. A product can meet its gross-margin target and still produce weak contribution after selling costs.
| Measure | What it includes | Use it to decide |
|---|---|---|
| Gross margin | Revenue less COGS | Whether the base price and product cost support the store’s product economics |
| Contribution margin | Revenue less COGS and variable selling costs | Whether a price, promotion or paid acquisition decision leaves enough per-order contribution |
Build a comparable cost base
Use one consistent unit cost for every product before comparing prices. Record supplier cost, inbound freight and any duty or import charge per sellable unit, rather than treating the invoice total as product cost. Allocate shared freight by units, weight or value using the method that reflects how the shipment is charged, and document it so the comparison remains consistent.
Keep GST separate from the commercial cost view where your business can recover it. Inland Revenue (Te Tari Taake) states that GST in New Zealand is charged at 15%. Payment fees, pick-and-pack, packaging and expected return-related costs belong in the variable view because they change with each order. Fixed rent, salaries and software subscriptions do not belong in this product margin calculation; use them separately for a store-level break-even view (Source: Inland Revenue (Te Tari Taake)).
| Cost line | What to include | Use it for |
|---|---|---|
| Product cost | Supplier price, manufacturing cost or wholesale purchase cost | Comparing gross product margin |
| Freight and import costs | Inbound freight, insurance, duty and broker or clearance charges allocated per unit | Calculating landed cost |
| Payment fees | Gateway, card or transaction charges, including any per-order component allocated to the item | Calculating contribution after the sale |
| Fulfilment | Pick-and-pack, packaging, labels and delivery cost paid by the store | Comparing order economics by product |
| Other variable costs | Marketplace charges, sale-specific commissions and a documented allowance for returns or damage | Testing the margin that remains after variable selling costs |
Worked example with sample numbers
This example is illustrative. It uses sample numbers for a car care products store selling in New Zealand. They are made up to show the method, they are not a benchmark, and your own figures will differ.
Formula: Net price needed = (variable costs + fixed fee) / (1 - target margin - percentage fee).
| Target margin | Net price needed | Check |
|---|---|---|
| 15.0% | NZ$107.81 | NZ$16.17 left per order |
| 25.0% | NZ$122.77 | NZ$30.69 left per order |
| 35.0% | NZ$142.55 | NZ$49.89 left per order |
| 45.0% | NZ$169.94 | NZ$76.47 left per order |
Run the same sum with your own numbers in the free calculator, or browse guides for sellers in New Zealand and more car care products guides.
General information only: tax, duty and import rules change and depend on your situation, so check with an accountant or the official source before acting.
Eligible Shopify stores can see these numbers for their own store through the Founding 10,000 offer.
Show the price in New Zealand
Show customer-facing prices in New Zealand dollars (NZD). Put the currency beside the product price and keep it visible through cart and checkout, especially if your store also sells into other markets. A price that appears lower because it is displayed in another currency creates a misleading comparison for a New Zealand buyer.
Separate the customer view from the margin view. If you are GST-registered, display the amount the customer pays, including GST, while using the GST-exclusive amount when analysing product margin. Inland Revenue (Te Tari Taake) states that GST in New Zealand is charged at a rate of 15% (GST). So a GST-exclusive price of NZ$100 becomes NZ$115 including GST; a GST-inclusive price of NZ$115 contains NZ$15 of GST and NZ$100 before GST. If your turnover was at least NZ$60,000 in the last 12 months, or is expected to reach that amount in the next 12 months, Inland Revenue says you must register for GST (registering for GST) (Source: Inland Revenue (Te Tari Taake)).
State shipping separately or build it into the product price, but show the treatment consistently. Compare the customer’s delivered total, not just the bottle or kit price. Keep the product amount, shipping charge, GST treatment and total charged together in your tax records so the sale can be reconciled; confirm documentation requirements with Inland Revenue. For overseas sellers, Inland Revenue defines a low-value good as a physical good valued at NZ$1,000 or less, excluding GST, and says some sellers may need to register and collect GST (GST on low-value imported goods) (Source: Inland Revenue (Te Tari Taake)).
| View | Use it for |
|---|---|
| GST-inclusive NZD | The amount a New Zealand customer sees and pays |
| GST-exclusive NZD | Margin analysis and comparison of product economics |
| Delivered total | Comparing the real customer cost after shipping |
Read the worked example correctly
Read the worked example as a sequence, not as a price recommendation. Take its stated relevant unit cost and target margin, then divide the cost by the share of the price left after the margin. For illustration only, a $10 unit cost with a 60% target gives $10 ÷ 0.40 = $25 before any GST treatment. The $15 difference is gross profit, while the $10 cost is 40% of the selling price. Do not confuse this with markup: $15 profit on $10 cost is a 150% markup, but the margin is 60%. Margin is the measure to use when checking whether a selling price funds the store’s economics; markup is only a description of profit relative to cost.
Before accepting the result, check every input: the pack or bottle size, the cost date, freight and import assumptions, whether the cost is per sellable unit, and whether discounts, payment fees or other deductions belong in the calculation. A changed input changes the required price, so replace the example values with your own records.
When a higher price is the wrong move
A higher price is the wrong move when the extra dollars per order are outweighed by lost orders. For illustration only, a product priced at NZ$40 with NZ$12 product cost and NZ$8 advertising contribution leaves NZ$20 per order. At 100 orders, that is NZ$2,000. Raising the price to NZ$44 increases contribution to NZ$24, but if orders fall to 80, total contribution becomes NZ$1,920. The constraint is conversion or demand, not margin ambition.
Compare the price increase with the other available levers. A contribution review shows whether the product still pays for its variable costs and advertising; use it when profitability is unclear. Conversion data shows whether shoppers are resisting the current offer; use it before assuming price is the problem. A bundle can raise order value by combining shampoo, cloths and protectant without making the core item look unaffordable. A larger pack size can reduce packaging and fulfilment cost per millilitre while giving customers a clearer value comparison. Cost reduction is the right response when freight, packaging, supplier terms or product waste are consuming the margin.
Use a price test when the economics look sound but willingness to pay is uncertain. ORVX can report where a price experiment is worth running from your store’s numbers, but it cannot estimate price elasticity or predict how demand will respond. Compare realised revenue, contribution after advertising, conversion and return behaviour after the test rather than judging the result from revenue alone. The product pricing calculator can model the margin trade-off before changing a live price.
| Observed constraint | More suitable action |
|---|---|
| Orders fall sharply at the current offer | Test the offer, bundle or pack size before raising price |
| Contribution is weak despite steady demand | Review price and variable costs |
| Freight, packaging or supplier cost is high | Reduce cost before expecting customers to absorb a higher price |
| Demand appears stable but willingness to pay is uncertain | Run a controlled price experiment |
Sources
- GST (goods and services tax) (Inland Revenue (Te Tari Taake), checked 26 October 2026).
- Registering for GST (Inland Revenue (Te Tari Taake), checked 26 October 2026).
- GST on low-value imported goods (Inland Revenue (Te Tari Taake), checked 26 October 2026).
How this page was made: drafted with AI from a brief, then checked by automated rules for arithmetic, sources and duplication. The sample numbers were calculated, not reported.