Key takeaways
- Start from landed cost: product price + shipping + payment fees + packaging, per order.
- Margin and markup are different: a 50% margin is a 100% markup. Price = landed cost ÷ (1 − target margin).
- What's left after costs is your contribution — the most you can spend to acquire a customer before you lose money.
- Break-even ROAS = 1 ÷ contribution margin. If ads can't beat it, raise the price, raise order value, or lower costs.
- Build returns and failed deliveries (including refused cash-on-delivery orders) into the price, not into hope.
Most new stores price by looking at competitors and going slightly lower. That ignores the only numbers that decide whether you make money: your own costs. This guide walks through a simple method you can do in a spreadsheet in twenty minutes.
Step 1: Calculate your landed cost
Landed cost is everything it costs you to get one order to a customer:
- Product cost — the supplier's wholesale price.
- Shipping — what you pay to deliver it, whether or not you charge the customer for it.
- Payment fees — your provider's percentage and any fixed fee per transaction. Check your provider's actual rates; they vary by country and method.
- Packaging and inserts, if you pay for them.
Step 2: Know the difference between margin and markup
Markup is profit as a percentage of cost. Margin is profit as a percentage of price. Mixing them up is the most common pricing mistake: adding a ‘50% markup’ only gives a 33% margin.
| Target gross margin | Equivalent markup | Price for a $10 cost |
|---|---|---|
| 25% | 33% | $13.33 |
| 40% | 67% | $16.67 |
| 50% | 100% | $20.00 |
| 60% | 150% | $25.00 |
The formula: price = landed cost ÷ (1 − target margin).
Step 3: Work an example
Say a product costs $8 from the supplier and $3 to ship, for a landed cost of $11 before payment fees. You target a 50% margin:
- Price = $11 ÷ (1 − 0.50) = $22.
- Payment fees at an illustrative 3% of $22 = $0.66.
- Contribution per order = $22 − $11 − $0.66 = $10.34.
That $10.34 is not profit yet. It has to pay for marketing, returns, apps and your time.
Step 4: Find what you can afford to pay for a customer
Your contribution per order is the maximum customer acquisition cost (CAC) for a one-time buyer. In the example, if it costs more than $10.34 in ads to win an order, every sale loses money.
The same idea expressed as ad return: break-even ROAS = 1 ÷ contribution margin. Here the contribution margin is $10.34 ÷ $22 ≈ 47%, so break-even ROAS ≈ 2.1. Ads have to return more than $2.10 in revenue for every $1 spent just to break even on the first order.
Step 5: Price in returns and failed deliveries
Some orders come back, and some never arrive. If 5% of orders are returned and you lose the shipping both ways, that cost belongs in every order's price. In markets where cash on delivery is common — Pakistan is one — refused or undeliverable COD parcels can be a significant cost: you pay shipping out and back and earn nothing. Track your actual rate from the first month and adjust; confirming orders by phone or message before dispatch, or offering a small discount for prepaid orders, can reduce it.
Step 6: Sanity-check against the market
Now look at competitors. If you're far above them, your product, photos, copy and service need to justify the difference — or you need a cheaper supplier. If you're far below, you may be leaving money on the table. Price is part of your positioning: being the cheapest is rarely a sustainable position for a small store.
Quick pricing checklist
- Landed cost includes product, shipping, payment fees and packaging.
- Price is set from a target margin, not a markup.
- Contribution per order is known, and so is break-even CAC and ROAS.
- Returns and failed-delivery costs are built in.
- The final price is checked against the market and your positioning.
On EcomStrait, suppliers set wholesale prices and store owners control their own retail prices and margins; the platform keeps both in sync. Plans for store owners are on the store owners page. Next, read From first sale to scale for the metrics to track once you're selling.