Product Pricing Calculator
How to Use the Product Pricing Calculator
Setting the right price for your product is a critical business decision. This calculator helps you determine the ideal retail price based on your total costs and desired profit margin. Unlike a simple markup, pricing based on margin ensures you actually keep the percentage of revenue you intend to after all costs are paid.
Key Input Definitions
- Material Cost: The direct cost of all physical components required to make one unit.
- Labor Cost: The amount paid to employees or contractors to manufacture, assemble, or create one unit.
- Shipping & Packaging: The cost of the box, protective materials, and the postage required to get the item to the customer.
- Allocated Overhead: Your fixed costs (rent, utilities, software) divided by the number of units you expect to sell in a period.
- Profit Margin: The percentage of the selling price that is profit.
The Math Behind Product Pricing
Many beginners make the mistake of using "Markup" when they mean "Margin." Here is the difference:
If your total cost is $20.00 and you want a 50% margin, you don't just add 50% ($10) to get $30. Using the margin formula: $20 / (1 – 0.50) = $40.00. This ensures that 50% of the final $40 price ($20) is your profit.
Realistic Pricing Example
Imagine you are selling a handcrafted leather wallet:
| Expense Type | Cost |
|---|---|
| Leather & Thread | $12.00 |
| Labor (1 hour) | $20.00 |
| Shipping Box | $3.00 |
| Total Cost | $35.00 |
To achieve a 60% profit margin (common for luxury or handcrafted goods), the calculator uses: $35 / (1 – 0.60) = $87.50. This leaves you with a gross profit of $52.50 per wallet sold.