Professional Product Pricing Calculator
Total Production Cost:
$0.00
Labor Cost Total:
$0.00
Gross Profit per Unit:
$0.00
Recommended Selling Price:
$0.00
Understanding Product Pricing Strategy
Setting the right price for your product is a critical balance between covering your costs, remaining competitive in the market, and achieving sustainable profitability. This calculator uses a Value-Based Margin Formula to ensure your business remains healthy and scalable.
Key Components of Product Pricing
- Cost of Goods Sold (COGS): This includes your raw materials and direct labor required to build or provide the service.
- Overhead: These are the hidden costs of running a business, such as rent, software subscriptions, electricity, and marketing. A common practice is to apply an overhead percentage to your production cost.
- Profit Margin: Unlike a simple markup, profit margin is calculated as a percentage of the final selling price. A 50% margin means half of your revenue is profit after all costs are covered.
Example Calculation
If your materials cost $20.00, you spend 2 hours of labor at $25.00/hr, and have 10% overhead, your total production cost is $77.00. To achieve a 30% profit margin, you cannot simply add 30%; you must use the margin formula: Price = Cost / (1 - Margin). In this case, the recommended selling price would be approximately $110.00.
Markup vs. Margin: What's the difference?
Many new entrepreneurs confuse markup with margin. Markup is the percentage added to the cost to get the price. Margin is the percentage of the selling price that is profit. Professional businesses focus on margins because they directly relate to your income statement and cash flow health.