The short answer

Add every cost required to get one sellable product into the customer's hands, not just the supplier or material price. Include inbound freight, duties when applicable, packaging, production labor, payment and marketplace fees, expected damage and returns, storage or fulfillment, and a share of batch setup costs.

Then test a selling price against gross margin, monthly overhead, marketing, owner compensation, and realistic sales volume. A price is not sustainable merely because it is higher than the item cost.

Build the landed cost first

For a purchased or manufactured item, calculate:

unit purchase or material cost + inbound shipping + duties and brokerage + inspection + labeling or prep + packaging = landed unit cost

Allocate batch costs across the number of sellable units, not the number ordered.

Suppose you order 200 units:

If ten units are damaged and only 190 can be sold:

$2,200 ÷ 190 = $11.58 landed cost per sellable unit

Using 200 as the denominator would understate the cost before you make the first sale.

Add the costs created by each sale

Create a second layer:

• outbound postage or fulfillment.
• payment-processing or marketplace fee.
• listing, pick-and-pack, or transaction fee.
• shipping box, mailer, tape, insert, and label.
• royalty or commission.
• average discount or coupon.
• expected returns, replacements, and nonrecoverable shipping.
• customer-support or customization labor.

Percentage fees must be calculated from the selling price, so use a spreadsheet that updates when the price changes. If a platform charges several types of fees, use its current official fee schedule and verify a real settlement statement. Do not rely on an old screenshot or social post.

Give fixed costs their own line

Rent, software, insurance, accounting, samples, photography, equipment, and product-development work may not occur with every order, but sales still must support them.

Choose a cautious monthly unit forecast and calculate:

monthly fixed product costs ÷ expected monthly units = planning allocation per unit

If fixed product costs are $900 and you reasonably expect 150 sales, allocate $6 per unit for planning. If only 60 sell, the allocation becomes $15. This is why a high-volume forecast can make a weak product look healthy on paper.

The SBA's business-finance overview emphasizes categorizing recurring and nonrecurring costs and weighing costs against benefits. Keep direct unit economics and whole-business expenses visible.

Price from the required margin

If the variable cost per sale is $24 and you want a 40 percent gross margin before fixed overhead:

price = variable cost ÷ (1 − desired margin)

$24 ÷ (1 − 0.40) = $40

Do not multiply $24 by 1.40. That creates a $33.60 price and a gross margin of only 28.6 percent.

Now pressure-test the $40 price. Is it plausible for the customer and market? Can the business sell enough units? Does the remaining $16 per sale cover overhead, marketing, owner compensation, tax obligations, and profit? If not, change the design, sourcing, bundle, channel, price, or product decision.

Include owner labor honestly

Record time for design, purchasing, receiving, inspection, assembly, photography, listing, packing, support, and returns. Separate one-time development from recurring per-order work.

If packing averages eight minutes and your internal labor value is $24 per hour:

8 ÷ 60 × $24 = $3.20 labor per order

Even when you do the work yourself and do not transfer $3.20 from the bank that day, the work consumes capacity. Omitting it can produce a product that looks profitable only because your time is free.

Verify with three real sales

After launch, compare estimates with three complete orders. Reconcile the platform statement, postage, packaging used, labor time, discount, refund exposure, and amount deposited. Update the cost sheet when a supplier, carrier, platform, package, return rate, or production step changes.

Import, tax, product-safety, environmental, labeling, and marketplace rules vary by product and location. Check the current official requirements that apply to your goods and jurisdictions, and use qualified legal, customs, accounting, or compliance help when needed. This page explains costing, not whether a product may legally be sold.

Sources and further reading

• U.S. Small Business Administration: Manage your business and finances

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Helpful WAHMN article

For a worked example and more help with this topic, read How to Build Your Own Quote or Pricing Calculator With AI.

Helpful WAHMN tool

If you want a guided tool for this, the Product Pricing Worksheet can help you add labor, materials, fees, overhead, and a profit buffer before setting a product price.

Related Questions

• When should I raise my prices, and how do I do it without losing good customers?
• What profit margin should I use when planning a small business, and why isn't there one 'good' percentage?
• How do I know whether my business is actually profitable, even if revenue looks good?
• How do I decide how much to pay myself from a small business?

Related WAHMN resource

If you want to test the numbers with your own prices and costs, the calculator gives you a practical place to work them out. See WAHMN Financial Calculator.