Start From the Margin You Need
Set the margin you need before choosing a shelf price. Start with the unit cost you intend to recover and solve backward: price = cost ÷ (1 − target gross margin). If a pair costs $40 and your target gross margin is 60%, the price is $40 ÷ 0.40 = $100. A lower price may improve conversion, but it also changes the economics you must fund with every sale. You can test the arithmetic in the product pricing calculator.
Do not treat gross margin, contribution margin and markup as interchangeable. Gross margin tells you how much remains after product cost; use it to set the initial price architecture and assess product economics. Contribution margin subtracts additional variable selling costs, such as advertising, from revenue; use it to decide whether a product, collection or campaign is worth scaling. Markup compares profit with cost, not with selling price: $40 cost and a $100 price produces $60 profit, or 150% markup, but 60% gross margin.
The right measure depends on the decision. Use gross margin to protect the merchandise model, contribution margin to judge cash generated per order after variable costs, and markup to communicate how far price sits above cost. A product can have an attractive markup while its contribution is weak after acquisition costs, discounts or other variable charges.
| Measure | Formula | Use it to answer |
|---|---|---|
| Gross margin | (Revenue − product cost) ÷ revenue | Does the price support the required product margin? |
| Contribution margin | (Revenue − variable costs) ÷ revenue | Does each sale contribute enough after selling costs? |
| Markup | (Price − product cost) ÷ product cost | How much is price above the product cost? |
Build the Cost Base Before Setting Price
Build a per-unit cost base before choosing a US footwear price. Separate costs that move with an order from overhead such as rent, salaries, software and general administration. Those overheads do not belong in gross margin unless you are deliberately calculating a broader contribution margin.
Use the same assumptions for every channel and record whether each amount is per pair, per order or a percentage of revenue. Duty is included where the product’s classification and origin make it applicable. For a practical starting point, use the product pricing calculator, then replace estimates with your own invoices, carrier charges, payment reports and return data. The result should reflect expected realized revenue, not merely the advertised price.
| Item | What to include | Measurement |
|---|---|---|
| Product cost | Factory, wholesale or purchase cost of the pair | Cost per pair |
| Freight | Inbound transport, insurance and applicable handling | Allocated per pair |
| Duty | Import duty where applicable | Rate or charge per pair |
| Payment fees | Processor percentage and fixed transaction charge | Per order or % of revenue |
| Fulfilment | Pick, pack, packaging and outbound shipping paid by the merchant | Per order or pair |
| Returns | Expected return shipping, processing and non-recoverable refund costs | Return rate × cost per return |
| Expected markdowns | Planned reduction from ticket price to likely realized selling price | Markdown rate × ticket price |
Worked example with sample numbers
This example is illustrative. It uses sample numbers for a footwear store selling in the US. 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% | $36.46 | $5.47 left per order |
| 25.0% | $41.48 | $10.37 left per order |
| 35.0% | $48.12 | $16.84 left per order |
| 45.0% | $57.29 | $25.78 left per order |
Run the same sum with your own numbers in the free calculator, or browse guides for sellers in the US and more footwear 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 Clearly in the US
Keep three numbers separate when pricing footwear for US customers. The displayed product price is the amount shown on the product page, for example, $120 for a pair of shoes. It is the commercial price you set and the starting point for your margin calculation.
Sales tax is a separate checkout charge where required. The applicable state and local treatment depends on the customer’s jurisdiction, the product’s taxability and whether your business has an obligation to collect there. It is not an extra margin component: collect it from the customer and account for it as tax payable, rather than treating it as sales revenue or adding it to product cost. In South Dakota v. Wayfair, decided June 21, 2018, the Supreme Court upheld a law covering sellers that deliver more than $100,000 of goods or services into the state each year or make 200 or more separate transactions, and overruled the physical presence rule (Legal Information Institute, Cornell Law School) (Source: Legal Information Institute, Cornell Law School).
Net revenue is what remains attributable to the sale after discounts and refunds, excluding sales tax; for a delivered $120 order with a $10 discount, it is $110 before any other revenue adjustments. Use the displayed price to set your offer, sales-tax treatment to determine the checkout total and liability, and net revenue to assess realised profitability. ORVX calculates realised revenue from delivered orders only, never counting returned or cancelled orders as revenue, then derives gross profit and margins from your product cost model.
| Measure | What it is for | Use it when |
|---|---|---|
| Displayed product price | Sets the customer-facing offer and starting sales price | Choosing or testing a footwear price |
| Sales tax at checkout | Shows the jurisdiction-specific amount collected for tax where required | Calculating the customer’s payment and tax liability |
| Net revenue | Measures revenue attributable to the completed sale after discounts and refunds, excluding sales tax | Evaluating margin and profitability |
Read the Worked Pricing Example
Read the worked calculation from left to right. First, identify the unit cost being recovered: product cost, inbound freight, duty, packaging, payment fees, and any other costs included in the example. Next, apply the target gross margin to that cost base. The resulting pre-tax price is the amount needed to meet the margin before customer tax is added. If the calculation shows cost divided by one minus the target margin, check that multiplying the result by one minus the margin returns the original cost.
Then trace the tax line separately. Sales tax is collected from the customer, not treated as product revenue or gross profit. The final customer price is the pre-tax selling price plus the applicable tax; if the displayed price is tax-inclusive, the calculation must first back tax out before testing margin. Use the pre-tax figure to decide whether the price meets your margin requirement, and the tax-inclusive figure to confirm what the shopper pays. You can verify the arithmetic with the product pricing calculator, then test the result against realized profitability after delivered orders, returns, and other actual costs.
Showing the price in the US
Use a consistent price-display policy across the store. A tax-exclusive price keeps the product price identical across destinations, while tax-inclusive pricing gives the customer a closer checkout total but can make comparisons harder when rates differ. Whichever format you use, keep collected sales tax outside revenue and margin reporting. For illustration only, if a customer pays $120 plus $9.60 tax, the $9.60 is not product revenue.
Decide separately how to show delivery. A $120 shoe with $8 shipping communicates a different offer from a $128 shoe with free shipping, even if the checkout total is identical. Treat the shipping policy as part of the commercial offer: compare its effect on contribution after fulfilment and payment costs, not just the product’s displayed margin. Use the product pricing calculator to test those alternatives.
Discount labels should also be clear. Show the actual selling price, the reference price only when it is genuine and supportable, and the conditions for any code or bundle. For a price test, act on measured contribution and return behaviour rather than assuming a lower price will create enough demand. ORVX can report where a price experiment is worth running, but it cannot estimate price elasticity or predict how customers will respond.
Sources
- South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018) (Legal Information Institute, Cornell Law School, checked 26 October 2026).
- Fact sheet: suspending the de minimis exemption for commercial shipments globally (The White House, checked 26 October 2026).
- CBP ready to enforce end of de minimis loophole (U.S. Customs and Border Protection, checked 26 October 2026).
- Indefinite suspension of the de minimis exemption for merchandise arriving through all modes other than the international postal network (Federal Register, checked 2 November 2026).
- Adjusting imports of automobiles and automobile parts into the United States (Federal Register, checked 2 November 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.