Most new sellers price by gut feel or by copying competitors, then discover months later that fees and shipping ate their profit. A better way is to start from your costs and the margin you want, and let a formula give you the minimum price. After that you can adjust for the market.
The formula
- Price = (Product cost + Shipping cost + Fixed fees + Ad cost) ÷ (1 − Percentage fees − Target margin)
- Percentage fees are the marketplace and payment percentages, such as 9.5% on Etsy US.
- Fixed fees are the flat per-order charges, such as $0.20 + $0.25 on Etsy or $0.30 on Shopify.
Step 1: Add up your true cost per order
Include everything that leaves your pocket for one sale: materials or wholesale cost, packaging, labels, the shipping label, and your own time at an hourly rate. Handmade sellers often skip labour. If you want a fair hourly figure, the freelance rate calculator gives you one.
Step 2: List the platform's fees
Split fees into percentages and fixed amounts:
| Platform (US) | Percentage fees | Fixed fees per order |
|---|---|---|
| Etsy | 6.5% + 3% = 9.5% (+12–15% Offsite Ads) | $0.20 + $0.25 |
| eBay (most categories) | 13.6% (on total incl. tax) | $0.40 |
| Shopify Basic | 2.9% | $0.30 |
| Amazon FBA | 15% referral | FBA fee (from about $3.44) |
| PayPal Checkout | 3.49% | $0.49 |
Step 3: Choose a target margin
This is the share of each sale you want to keep as profit after every cost. Many small sellers aim for a 20–30% net margin. Products that need heavy advertising need more room.
Step 4: Run the formula
Example 1: Etsy, handmade candle
Materials, labour and packaging cost $12, shipping costs $5 and is built into the price ("free shipping"), and the target is a 30% net margin. There are no ads.
Check: Etsy fees on $28.84 are $3.19. Profit = $28.84 − $3.19 − $17 = $8.65, which is 30.0% of the price. ✔ You can confirm it in the Etsy fee calculator.
Example 2: Shopify, skincare product with ads
The product costs $14, shipping $6.50, packaging and apps $1.20 and ads $12 per order. The store is on the Basic plan and wants a 20% net margin.
Check it in the Shopify profit calculator: net profit is $8.82, a 20.0% net margin.
Step 5: Sanity-check against the market
Search for similar products and note where your price sits. If you are far above, improve photos, branding and descriptions, or find cheaper materials. Do not cut the margin. If you are far below, you are probably leaving money on the table, so raise the price and test.
Common pricing mistakes
- Adding a margin to cost instead of dividing. See margin vs markup.
- Forgetting fees on shipping. Etsy and eBay charge their percentage on shipping too.
- Ignoring ad cost. If ads win most of your orders, they are part of the cost of every sale.
- Pricing below the breakeven in a sale or with a discount code. The Etsy calculator shows your breakeven price.
Frequently asked questions
What is a good profit margin for an online store?
Many small online sellers aim for a 20–30% net margin after all fees, shipping and ads. That usually means a gross margin of 50–70% before those costs. The right number depends on your category and how much you spend on advertising.
Should I include shipping in my price?
Either works, because marketplaces like Etsy and eBay charge their percentage fee on shipping as well. Many buyers prefer free shipping, so a common approach is to build the shipping cost into the item price and use the pricing formula to keep your margin.