How to price your products (and why fees change the number)
Pricing is a calculation first and a judgment second. Before you decide what customers will pay, you need to know what each sale costs you, including the fees that are easy to forget. This guide walks through a simple cost-based method with a worked example.
Start with your true cost per item
Add up everything it takes to produce and deliver one unit. Many new sellers count only materials and end up working for free.
- Materials: everything that goes into the product, including the share of bulk items you use.
- Packaging: boxes, tissue, labels, tape, inserts.
- Your time: pay yourself an hourly rate for making, photographing, listing and packing. If you skip this, you have a hobby, not a business model.
- Overhead: tools, workspace, software and a domain, divided across the items you expect to sell.
Our example is a hand-poured candle. Materials cost $5.00, packaging $1.50 and your time $2.50, so the cost is $9.00 per candle.
Decide what you want to keep
Next, choose the profit you want from each sale. Two words get mixed up here. A markup is the profit as a percentage of cost. A margin is the profit as a percentage of the selling price. Selling a $9 item for $18 is a 100% markup and a 50% margin. Margin is the more useful number, because fees are also taken from the selling price.
For the example, we want $10.00 left over from each candle after every cost. That is the target.
Add the fees that come out of each sale
Every online payment has a processing fee. In the US, PayPal Checkout charges 3.49% + $0.49, and a standard card payment through Stripe is 2.9% + $0.30. Cards from outside the US and currency conversion add more. Processors generally work out the percentage on the full amount charged, which can include shipping and tax, so check each company's own page for the details.
Some platforms add their own fee on top. For example, Squarespace's Basic plan has a 2% transaction fee, and Shopify charges a third-party fee of 2% on its Basic plan if you do not use Shopify Payments. Marketplaces such as Etsy charge for listings and sales (6.5% transaction fee and a $0.20 listing fee) in addition to payment processing, in return for bringing shoppers to you.
To keep $10 after a $9 cost, you need the price to cover $19 plus the fee on the sale. Because the fee depends on the price, solve for it: divide the amount you need ($19 plus any fixed fee) by 1 minus the percentage. Here is the result for each case:
| How the customer pays | Fees on the sale | Price needed to keep $10 |
|---|---|---|
| PayPal Checkout, no platform fee | 3.49% + $0.49 | $20.20 |
| Stripe card, no platform fee | 2.9% + $0.30 | $19.88 |
| PayPal Checkout, plus a 2% platform fee | 5.49% + $0.49 | $20.63 |
| Stripe card, plus a 2% platform fee | 4.9% + $0.30 | $20.30 |
The gap between the cheapest and the dearest row is about 75 cents per candle. That looks small, but it repeats on every sale. At 50 candles a month at $20, a 2% platform fee is $20 a month on top of the plan price. On Squarespace Basic that plan costs $19 a month billed yearly or $25 billed monthly, so the platform costs $39 to $45 a month before you pay a processor. On Shopify, the Basic plan is $29 a month billed yearly or $39 billed monthly. If you use Shopify Payments, the card rate is 2.9% + 30 cents, the same as Stripe's standard card rate, so there is no extra platform fee.
Payly charges no monthly fee, no transaction fee and no commission. The only fee on a sale is PayPal's or Stripe's standard processing fee, so the two rows without a platform fee are the ones that apply. Details are in What does Payly cost?, and the processors publish their rates on PayPal's business fees page and Stripe's pricing page.
Handle shipping on purpose
Decide whether shipping is charged separately, built into the price, or free above a certain order value. Each choice has trade-offs:
- Charged separately: clear and fair, but a high shipping line at checkout can put shoppers off.
- Built into the price: "free shipping" looks attractive, but you must raise item prices and the fee grows with them.
- Free over a threshold: encourages larger orders. Set the threshold above your average order so it changes behavior.
Whichever you choose, weigh a real parcel at its packed weight and check the carrier's price for the heaviest case. In Payly you can set flat rate, free shipping or local pickup by zone.
Sanity checks before you publish a price
- Look at comparable products. If you are far above them, make sure the listing explains why. If you are far below, you may be underpricing.
- Test round numbers. $20 may feel simpler than $19.88, and it leaves you with a little more than your target.
- Plan for discounts. If you will run a 15% sale, check the price still leaves a profit afterward.
- Review twice a year. Material and shipping costs move. So do fees.
Questions
Should I price by cost or by what customers will pay?
Use both. Cost sets the lowest price you can accept. What shoppers will pay for similar items sets the highest. Your job is to find a price between the two that you can defend.
Do sales tax and VAT come out of my price?
Rules vary by place. Tax is usually added on top of your price and passed on, not part of your income. Check with your state tax agency or an accountant for what applies to you.
Is a cheaper price the best way to win sales?
Not always. A very low price can signal low quality, and it leaves no room for fees or a sale. Better photos and a clearer description often help more than a lower price.
Prices as published by each company for the US in October 2026. Prices can change; check each company's own pricing page.
