The most common way to set a price is cost times a multiplier. It is quick, and it ignores the costs that grow with the price itself, such as payment fees, and the costs that sit outside the product, such as shipping and advertising. The result is a price that looks fine on a spreadsheet and leaves less margin than expected.
This guide explains a product pricing formula that keeps the margin you set, the one behind the free ORVX Product Pricing Calculator.
Every example and amount on this page is illustrative. It shows the method and is not a benchmark, a quote or advice.
Start from the margin, not the markup
A target margin is the share of the selling price you want left after every cost of the sale. Because it is a share of the price, the price has to be solved for, not multiplied up. The calculator uses this formula:
Price = (unit cost + shipping + fixed fee + ad cost) / (1 - fee % - target margin %)
The top line is every cost that does not depend on the price. The bottom line removes the two percentages that do: the payment fee, charged on the price, and the margin you want to keep. That is why the fee percentage plus the target margin must stay below 100%: past that point no price works.
What to enter
- Unit cost: the landed cost of one unit, including inbound freight and duty if you pay them.
- Shipping: what one order of this product costs to send, if you do not charge it to the customer.
- Payment fee % and fixed fee: your processor's rate.
- Ad cost per unit: what it costs on average to win one sale of this product with paid ads.
- Target margin %: the share of the price you want to keep after all of the above.
Getting the unit cost right matters more than anything else on the list. Ecommerce COGS: What Belongs in Cost of Goods covers what to include.
Worked example
As an illustration only, suppose a product costs $18 to buy and land, shipping is $5, the payment processor charges 2.9% plus $0.30, the ad cost per unit is $8, and the target is a 25% margin. The costs that do not depend on price add up to $18 + $5 + $0.30 + $8 = $31.30. The denominator is 1 - 0.029 - 0.25 = 0.721. So the price is $31.30 / 0.721 = $43.41.
At that price the payment fee is $43.41 x 2.9% + $0.30, so the total cost per unit sold is $32.56 and the profit per unit is $43.41 - $32.56 = $10.85, which is 25% of the price. The markup on unit cost is ($43.41 - $18) / $18 = 141.18%. The calculator also shows the price at other margins:
| Target margin | Price needed |
|---|---|
| 20% | $40.60 |
| 25% | $43.41 |
| 30% | $46.65 |
| 40% | $54.82 |
| 50% | $66.45 |
| 60% | $84.37 |
Look at the gaps between rows. Going from 20% to 30% adds about $6 to the price, while going from 50% to 60% adds almost $18. Each extra point of margin costs more price than the last, because the denominator is shrinking. That table is often the most useful output: it shows where a price lands in a range the market will accept.
How to use it for real decisions
- Pricing a new product. Enter the landed cost and your usual shipping and ad cost, read the price at two or three margins, and compare with what similar products sell for.
- Checking a current price. Enter your current numbers and see which margin your present price corresponds to. If it is lower than you thought, the Profit Margin Calculator shows the profit per order in detail.
- Planning a cost increase. When a supplier raises prices, enter the new cost and see the price that keeps your margin.
- Testing free shipping. Move shipping into the cost line and see how much the price has to rise to absorb it.
Common mistakes
- Treating markup and margin as one number. If a unit costs $20 and sells for $30, the markup is $10 / $20 = 50%, while the gross margin is $10 / $30, about 33%.
- Forgetting the fee is on the price. Adding the fee to cost at the old price understates it after the price goes up.
- Pricing every product with one multiplier. Products with different shipping and ad costs need different prices for the same margin.
- Setting the price and never checking it. Costs change. Prices set a year ago may now sit on a much thinner margin.
What the calculator does not know
It does not know your market. A price that hits your margin may still be too high to sell, and the calculator cannot predict demand at any price. It also ignores discounts: if you regularly sell at 20% off, price for the discounted figure. Fixed costs such as salaries and rent are outside the formula, so the margin it targets is the margin per sale, not the margin of the business. It runs in your browser and stores nothing.
Once a price is set, stock planning follows. The Inventory Reorder Calculator helps decide when to reorder and how much.
Seeing which prices really work
Pricing one product is a calculation. Knowing which products actually make money at the prices you set, after refunds and ad spend, needs every order. ORVX Core reads your Shopify orders and product costs and reports profit and margin per order, product and collection.
The $1.9M Commerce Initiative gives 10,000 eligible Shopify stores 12 months of ORVX Core free, with no credit card. Afterwards Core is the standard $19 per month or $190 per year, and only if you approve it. More free tools are in the ORVX tools hub.
Frequently asked questions
What is the difference between pricing for margin and pricing for markup?
Markup adds a percentage on top of cost. Pricing for margin starts from the share of the price you want to keep, which is why it divides instead of multiplies. A 50% markup keeps a third of the price as gross profit, not half.
Why does the payment fee change the price?
A percentage fee is charged on the price itself, so every increase in price also increases the fee. The formula accounts for that by taking the fee percentage out of the denominator.
Should I include ad cost per unit?
If you pay to acquire most orders, yes. Leaving it out gives a price that looks profitable until the ad bill arrives.
Can the calculator tell me what customers will pay?
No. It tells you the price your costs require. Whether the market accepts that price is a separate question, which competitor research and testing can help answer.
Does it store my numbers?
No. Everything is calculated in your browser.
Sources
- The $1.9M Commerce Initiative: terms and FAQ (ORVX, checked 26 October 2026)
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.