Product pricing calculator: Set profitable prices
Research from McKinsey shows that 80 to 90 percent of mispriced products end up priced too low. Underpricing is common among small sellers, too. Many miss labor, overhead, and a clear markup. They focus on material costs, pick a number that feels right, and move on.
Some make the mistake of ignoring competitor pricing entirely, while others copy it blindly without understanding their own cost structures.
If you're into that kind of position, this guide is for you. Here we're going to discuss everything you need to know about setting a product price that protects your margin and supports your growth.
Ready to find out what your product should really cost? Use our free product pricing calculator. It calculates your true product cost, applies your desired profit margin, and shows you exactly what to charge in seconds.
What is product pricing?
Product pricing is the process of setting a selling price that covers all your costs and delivers the profit you desire. It's a strategic business decision that directly impacts your profitability, competitiveness, and long-term success.
While it might seem as simple as slapping a price tag on your product, effective pricing actually involves calculating multiple cost factors that many sellers overlook. To set the right price, you need to account for:
Raw materials and supplies
Labor costs (your time or employee wages)
Variable costs (expenses that change with production volume)
Overhead costs (rent, utilities, equipment)
Administrative costs (software, bookkeeping, insurance)
Shipping costs (if you're covering delivery)
Sales tax (where applicable)
A solid pricing strategy considers all these factors and uses a pricing model tailored to your specific business needs.
What a product pricing calculator does
A product pricing calculator takes the confusion out of setting prices. Here's what it handles for you:
Calculates per-unit cost. It adds up all your materials, supplies, and direct costs, then divides by the number of units you're making. This gives you the true cost of creating a single product.
Adds labor costs based on hours worked. Your time has value. The calculator multiplies the hours you spend making each product by your hourly rate, so you're actually paying yourself for selling items you create.
Adds markup to reach a profitable retail price. A markup is the percentage applied to your total cost. This calculates your gross profit margin and covers business expenses you might not track per item, such as administrative costs and overhead.
Shows how much profit per unit. You'll see exactly how much money you keep from each sale after covering all costs. This number tells you whether your pricing strategy actually works and helps you determine if you're achieving sustainable revenue.
Product pricing vs markup pricing
Product pricing and markup pricing look similar, but they produce different results. Markup gives you a quick selling price based on item cost, while product pricing includes every expense that affects your profit. This table shows the difference at a glance:
| Topic | Markup pricing | Product pricing |
|---|---|---|
| What it does | Adds a markup percentage to item cost | Calculates total cost and sets a price based on desired profit |
| Costs included | Raw materials only | Raw materials, labor, overhead, shipping, fees, taxes, and listing costs |
| Pricing method | Cost plus approach with a simple final price | Full cost method that reflects real expenses |
| Accuracy | Often ignores key costs that lower profit | Shows the true cost per unit and the real margin percentage |
| Best for | Simple goods with stable costs | Businesses that need clear profit data and a flexible pricing strategy |
| Impact on profit | Profit often drops once fees and taxes appear | Profit is known before the product sells |
| Market alignment | Rarely considers competitor pricing or customer feedback | Adjusts to demand, similar products, and competitors |
How to price a product (step-by-step)
Want to understand the maths behind profitable pricing? Here's a method you can use to price a product manually, and get an idea of what's happening behind the scenes if you use a product pricing calculator moving forward.
Step 1. List material or supply costs
Write down everything used to make one unit. For example, if you are pricing a wooden cutting board, include the wood plank, food-safe finish, sandpaper, and decorative elements. Also consider adding small items such as thread, glue, tape, or fasteners, as these few cents per unit affect your margin. These items form the base of your cost.
Step 2. Calculate cost per unit
If you buy materials in bulk, divide the total cost by the number of units you can make. Example: 50 dollars of fabric that makes 10 scarves equals 5 dollars of material per scarf. This shows your variable costs and how they scale.
Formula: Material Cost Per Unit = Total Material Cost / Number of Units Produced
Step 3. Add labor costs by hourly rate
Track how long it takes to make one product from start to finish. Include prep time, assembly, finishing, and packaging. Multiply those hours by what you want to earn per hour. If a product takes 2 hours and you want to make $20/hour, that's $40 in labor cost. Many sellers skip this step and wonder why they're not making money.
Formula: Direct Labor Cost = Time per unit (hours) x Desired hourly rate
Step 4. Factor in overhead and fees
Add your marketplace listing fee, payment processing fees (usually 2-3% of the selling price), any shipping charges you cover, and a portion of your monthly overhead costs, such as rent, utilities, and equipment. These often-ignored expenses can eat into your profit margin if you don't account for them upfront.
Note: Fee structures vary by payment processor. Some include a flat fee per transaction along with the percentage. Make sure your calculations use the exact fee your platform charges so you protect your margin.
Step 5. Apply a markup using cost-plus pricing
Add your material cost and labor costs together, plus your overhead allocation. This is your total cost per unit. Now multiply by your markup percentage. A 50% markup means you multiply your cost by 1.5. A 100% markup (also called keystone pricing) means you multiply by 2. This pricing model ensures you generate the desired profit on every sale.
Step 6. Set a retail price that protects profit
The number you get after applying markup is your selling price. This covers your costs, pays you for your time, and creates profit to reinvest in your business. Don't forget to calculate sales tax if applicable—this is added to your final selling price and remitted to the government, not included in your revenue.
Here's how it works:
Enter your supply cost, number of items made, hours needed, hourly rate, and markup percentage. The calculator uses these inputs to show your cost per unit, retail price, and profit per product. You can adjust each field to match your workflow and see how every change affects your final numbers.
Use real figures from your production. The tool will provide results that highlight your true cost structure and help you set prices with confidence. This price calculator helps users like you make data-driven decisions instead of guessing.
Use cases: Who needs this calculator?
This tool works for anyone who makes or sells physical products or services. Here's who gets the most value:
Handmade product sellers. You're competing with mass-produced items, but your time and skill have value. A pricing calculator helps you charge what you're worth without feeling guilty. Whether you sell on Etsy, at craft fairs, or through your own website, accurate pricing keeps your creative business sustainable. You'll know exactly how your product sells compared to similar products once you establish the right price.
Small ecommerce shops. You're sourcing products, managing inventory, and handling fulfilment. The calculator accounts for all these costs, so you're not accidentally losing money on "successful" sales. It's especially useful when testing new products or suppliers, given variable costs that change with each order.
Dropshippers who still track costs. Even if you're not making products yourself, you still have costs to cover, such as platform fees, advertising, transaction fees, and shipping. The calculator helps you set prices that cover these expenses plus profit, even when competitor pricing seems impossibly low.
Local makers and artisans. You're selling directly to customers who can see the quality of your work. They'll pay fair prices when you can confidently explain your value. The calculator gives you the numbers to back up your pricing and shows customers the thought behind your price points.
Service providers. From consultants to contractors, anyone selling services needs to account for their time, overhead costs and desired profit. Service pricing often uses cost-plus methods, but some providers set rates based on the value delivered rather than production cost. Use your labor cost and overhead as a baseline, then test rates that match what clients are willing to pay.