Pricing a First Product, Step by Step

Pricing a first product often starts with a single question: "what did it cost me?" That is necessary but not sufficient. A price built only from your product cost, without accounting for shipping, packaging, selling-platform fees, and your actual target margin, quietly erodes your profit before you notice.

Step 1: calculate your true landed cost

Landed cost is everything it takes to get one unit ready to ship, not just the wholesale or materials cost. For a simple example:

• Product cost: $8.00
• Packaging materials: $1.00
• Inbound shipping or freight, allocated per unit: $0.50

Landed cost: $8.00 + $1.00 + $0.50 = $9.50

Skipping packaging and inbound shipping in this step is one of the most common first-product mistakes. Both are real costs per unit, even though they do not show up on the same invoice as the product itself.

Step 2: decide your target margin, not your target markup

As covered in a companion look at margin versus markup, these two numbers are calculated differently. For this example, assume a 40% target margin (40% of the final sale price should be profit after landed cost, before selling-platform fees, which get handled separately in the next step).

The margin-based pricing formula is:

price before fees = landed cost ÷ (1 - target margin) price before fees = $9.50 ÷ (1 - 0.40) = $9.50 ÷ 0.60 = $15.83

Step 3: add in selling-platform fees

If you sell through a marketplace rather than entirely on your own site, the platform's fees come out of your sale price, not on top of it, so they need to be built into your price rather than treated as a separate afterthought. Etsy's published fee structure, for example, includes a $0.20 listing fee, a 6.5% transaction fee on the order total (item price plus shipping), and a payment processing fee of 3% plus $0.25 for US sellers.

On a $15.83 item with no separate shipping charge to the buyer:

• Listing fee: $0.20
• Transaction fee: $15.83 × 0.065 = $1.03
• Payment processing: $15.83 × 0.03 + $0.25 = $0.72
• Total fees: $1.95

After fees, you would actually net $15.83 - $1.95 = $13.88, not the full $15.83. Your real margin after fees is lower than your 40% target, because the fees were not yet accounted for in your price.

Step 4: solve for the price that actually hits your target after fees

To hit your true 40% margin after both landed cost and platform fees, you need to price higher than Step 2's number. One workable approach is to build an estimated fee percentage into the margin formula itself. Etsy's roughly 9.5% to 10% combined percentage-based fees plus a small flat amount (as shown in Step 3) means a reasonable adjustment is to treat your effective target margin as covering roughly an additional 10 percentage points:

price before fees = landed cost ÷ (1 - (target margin + estimated fee percentage)) price before fees = $9.50 ÷ (1 - 0.50) = $9.50 ÷ 0.50 = $19.00

Checking this: at a $19.00 price, Etsy's fees would be roughly $0.20 + ($19.00 × 0.065) + ($19.00 × 0.03 + $0.25) = $0.20 + $1.24 + $0.82 = $2.26, leaving $16.74 after fees, for a true margin of ($16.74 - $9.50) ÷ $16.74 = 43.2%, comfortably at or above the original 40% target.

Step 5: compare to what the market will actually pay

None of the math above matters if nobody buys the product at that price. The SBA's guidance on market research recommends checking what similar products already sell for, and how much demand exists at different price points, before finalizing a number. If $19.00 is well above comparable products in your category, you have three real options: find a way to reduce landed cost, accept a lower margin on this specific product, or reposition the product with enough differentiation (materials, design, bundling) to justify the higher price to buyers.

A repeatable structure, not a one-time calculation

The value of this five-step process is that it is reusable for every new product, not just the first one. Landed cost changes as suppliers or shipping rates change, platform fees occasionally change too (Etsy's transaction fee, for instance, has changed before), and target margins may shift as you learn more about your actual operating costs. Running through these same five steps each time keeps your pricing consistent instead of guessed at individually per product.

Key takeaways

• Landed cost includes the product itself plus packaging and inbound shipping allocated per unit, not just the base product cost.
• Price using your target margin (profit ÷ selling price), not markup, and solve the formula price = landed cost ÷ (1 - target margin).
• Selling-platform fees come out of your sale price after the sale, so build an estimated fee percentage into your pricing formula rather than treating fees as a surprise deduction later.
• On Etsy specifically, a $0.20 listing fee, a 6.5% transaction fee, and a 3% + $0.25 payment processing fee combine to roughly 9.5% to 10% of the order total in most cases.
• Always compare your calculated price against what similar products actually sell for before finalizing it; a mathematically correct price that is far from market reality still will not sell.

Run the same five steps for every new product. The arithmetic takes a few minutes; skipping it costs considerably more over a full year of sales.