How to price products for your online shop

To price products for an online shop, add up every cost of getting one order to a customer (product, packaging, postage, payment fees and marketing), add the profit you need on top, then check the result against what shoppers expect to pay. If the number doesn’t work, change the product, the costs or the offer, not just the price.

Most pricing mistakes come from forgetting a cost, not from picking the wrong number. Here’s a method that catches them.

Step 1: list every cost per order

Write down what one typical order really costs you. Include:

• Product cost. What you pay for it, or materials plus your time if you make it.
• Packaging. Box or mailer, filler, tape, label, any insert or thank-you card.
• Postage. What you actually pay the carrier, even if delivery is “free” for the customer.
• Payment fees. Usually a percentage plus a small fixed fee per transaction.
• Platform costs. Spread your monthly fee across your expected orders, plus any per-sale fees.
• Marketing. What you spend on ads, divided by the orders they bring in.
• Returns and breakages. A small allowance for the orders that come back or arrive damaged.
• VAT, if you’re registered. Prices to consumers must include it.

Step 2: understand margin vs markup

These two words get mixed up all the time, and the difference matters.

Markup

How much you add on top of cost, as a percentage of cost. Buy at £10, sell at £15: a 50% markup.

Margin

How much of the selling price is profit, as a percentage of price. Sell at £15 with £10 costs: a 33% margin.

Margin is the more useful number, because it tells you how much of every pound you take is yours to keep.

Step 3: work it through with an example

Here’s a made-up example for a product that costs £8 to buy. Use your own figures; these are only to show the method.

• Product: £8.00
• Packaging: £0.60
• Postage: £3.20
• Payment fee (say 3% plus 20p on a £29.95 price): about £1.10
• Platform cost spread per order: £0.80
• Advertising per order: £6.00
• Returns allowance: £0.50
• Total cost per order: about £20.20

At £29.95 that leaves roughly £9.75 profit before tax, a margin of about 33%. Drop the price to £24.95 and profit falls to around £4.90. Now you’re working twice as hard for each pound.

Step 4: check what shoppers expect

Your costs set the floor. The market sets the ceiling.

• Search for your product on Google and marketplaces and note what similar items sell for, including delivery.
• Compare like with like: quality, size, warranty, delivery speed and returns.
• Notice the price bands. Shoppers often have a rough figure in mind for a product type.

You don’t need to be the cheapest. Plenty of shops sell at a higher price because they’re clearer, faster, better reviewed or more specialist. You do need to explain why you’re worth it, on the product page.

How to price products for an online shop when you make them yourself

If you’re a maker, pay yourself. Work out an hourly rate you’d be happy with and include your time in the product cost. If the resulting price is too high for the market, look at faster ways of making, cheaper materials, or a simpler version, rather than working for nothing.

Delivery: free, flat or threshold?

Shoppers like free delivery, but it’s never free to you. Common approaches:

• Free delivery built into the price. Simple and appealing. Works best when postage is a small part of the price.
• Flat-rate delivery. Keeps product prices lower but adds a cost at checkout, where some shoppers drop out.
• Free over a set spend. Encourages bigger baskets. Set the threshold a little above your typical order.
• Paid faster options. Offer next-day as an upgrade, priced to cover its cost.

Sale prices and was-prices: play fair

Showing a was-price can help shoppers see value, but UK consumer protection law says reference prices must be genuine. A was-price should be a price you really charged for a meaningful period, not one invented to make a discount look bigger.

• Keep a record of when each price applied.
• Don’t run a “sale” so long that the sale price is really the normal price, unless you’re clear about it.
• Make sure any “up to” or percentage claims are true for the items shown.

Check the CMA’s pricing guidance on gov.uk if you plan to use was-prices regularly.

Small pricing touches that help

• Prices ending in 9 or 5 (£24.99, £29.95) are common in UK shops and look familiar.
• Bundles (buy two, save a little) raise order value without cutting your headline price.
• A premium option next to your main product makes the main one look like good value.
• Per-country prices if you sell abroad, rather than converting your UK price, so delivery and taxes are covered.

If you sell in more than one country, Merchella lets you set separate prices and was-prices for each one, so you can price for local costs rather than converting your UK figure.

Review your prices regularly

Costs drift. Postage goes up, suppliers change prices, ads get more expensive. Recheck your sums every few months, and whenever a big cost changes.

1. 1Update your cost-per-order list with current figures.
2. 2Look at your real advertising cost per order from the last month.
3. 3Check competitors’ prices again.
4. 4Test a small price change on one product and watch orders for a few weeks.

In short

Price from the bottom up: every cost per order, then your profit, then a check against what shoppers expect. Use margin, not markup, to judge it. Don’t forget marketing, returns or VAT, and keep any was-prices honest. Then keep checking, because a price that worked last year may not work today.