Product Pricing for an Online Shop: From Purchase Price to the Sticker

A shop owner doubles the purchase price of her first coat and shaves a little off; three months later, packaging, shipping and ads have eaten half the profit she thought she had. Product pricing that starts from a guess stays a guess until the end of the season; what follows is one formula, one worked example, and the day prices change.

The four numbers you need before you set a price

Purchase price is the number everyone has. Three more turn a guess into the all-in cost of one unit:

• Purchase price per unit, per variant, not an average across sizes.
• Packaging, and any shipping you pay yourself.
• Ad share: last month's ad spend divided by unit sales, so 600 thousand over 40 units is 15 thousand.
• Discount and returns share: DM discounts plus what returns cost, divided by unit sales.

These are the same four costs that come off profit in online shop profit; here you count them before the sale, not after.

The product pricing formula: a target margin, not a rule of thumb

Doubling is a multiplier from nowhere. The real question: of every unit of money a customer pays, what share should stay as profit? That is the target margin:

Selling price = all-in cost divided by (1 minus target margin). For 35 percent of the price as profit, divide the all-in cost by 0.65.

Why divide? Because '35 percent profit' means two things: 35 percent of the selling price is margin, 35 percent on top of cost is markup. Multiply cost by 1.35 and only about 26 percent of each sale is profit.

A full example: from purchase price to the sticker

Take the shop's cream linen coat; the figures are made up to show the formula.

1. 1Purchase price: 280 thousand per unit.
2. 2Packaging 15 plus shipping share 20: 35 thousand.
3. 3Ad share 15 plus discounts and returns 20: another 35 thousand.
4. 4All-in cost: 280 plus 35 plus 35 is 350 thousand.
5. 5Target margin 35 percent: 350 over 0.65 is roughly 538 thousand.
6. 6Round up: 540 thousand on the tag.

Check it backwards: 540 minus 350 is 190 thousand per unit, and 190 over 540 is that same 35 percent; against cost it is 54 percent. Round upward only: the result is a floor, and rounding down cuts the margin you just set.

Three products, one formula: why the target margin differs by category

The formula is the same for everything; the margin is not. On a cheap item, packaging and shipping eat a large share of the price; on an expensive one, a lower margin is still real money.

The third row is largest on the long coat: the expensive item gets more ads and a bigger discount, so a fixed percentage on purchase price always gets one product wrong. At 25 percent the scarf would keep about 30 thousand per unit, which one return wipes out.

Initial pricing for a shop that has just started

In your first month, three of the four numbers do not exist yet. Estimate them instead of doubling: 10 percent of purchase price for ads and discounts, packaging and shipping measured on one real parcel, and a starting margin higher than feels comfortable; lowering a price is easier than raising one.

The rest of the first month is in setting up an online shop; where the real numbers come from after it is what online shop accounting covers: cleanly recorded orders show discounts, returns and sales per product.

When every size has its own price: price the variant, not the product

The supplier charges 20 thousand more for sizes 44 and 46, and one price on the product means explaining the difference in every DM until you forget once.

The price belongs on the variant: each size and colour carries its own purchase and selling price, and the formula runs per variant. Size 46 costing 20 thousand more to buy sells for about 30 thousand more at a 35 percent margin, not 20.

Stock per variant is the same idea, covered in online shop inventory: price and stock on one variant means one source for whether size 46 is available and what it costs. And a wrong price in the DM shows how far a price quoted from memory travels; that one is a typo, not strategy.

The day prices change: everything at once, from one source

Prices go up 15 percent next week. No guide covers this day, yet it is when most mistakes happen: a new price in the catalogue, the old one in a highlight. One rule: the price lives in one place and everything else reads from it.

1. 1Enter the new purchase price on each variant.
2. 2Run the formula per variant with the same margin, and round.
3. 3Change the selling price in the catalogue; invoices and DM replies read from there.
4. 4Update the outside surfaces: price highlight, pinned post, any price list you send.
5. 5Orders placed before the change keep the old price; an issued invoice is issued.

If an assistant answers DMs from the catalogue, step three is nearly everything: from that moment anyone asking hears the new number. What a good answer looks like is in automatic Instagram DM replies.

Where to start tomorrow morning

Three products are enough: one cheap, one expensive, the one you sell most. Write the four numbers, pick a margin, run the formula, and compare with the price on the product now; the gap is what you have not been seeing.

ProMall stores purchase and selling price per variant, answers DMs and builds invoices from that catalogue, and reports profit per product from the purchase price you entered, so the margin you targeted is the one you see at month end. Discounts are codes, not price cuts typed into a DM.