How to Price a Product for a Target Profit Margin

The target-margin pricing formula

Price = Currency costs ÷ (1 − Fee rate − Target margin rate)

Currency costs are the per-order amounts that do not scale as a percentage of price: product cost, fulfilment, fixed transaction fees, expected CPA and other per-order costs.

Worked example

The example has $50.30 of currency costs, 3% percentage fees and a 20.0% target margin. The required selling price is about $65.32. At that price, the percentage fee is $1.96 and the target profit is $13.06.

Margin vs markup

Markup is measured against cost; margin is measured against revenue. If a product costs $50 and sells for $75, the markup is 50%, but the margin before other costs is only 33.3%. Confusing the two usually underprices the product.

Why percentage fees make pricing circular

A 3% payment fee is not a fixed $3 unless the order is $100. Raise the price and the fee rises too. That is why the pricing equation keeps the fee rate inside the denominator instead of adding a fee once.

What about advertising?

If most first orders come from paid media, an expected CPA belongs in the price test. For organic, email or repeat-purchase orders, set CPA to zero and compare the economics. Then verify the actual price using the Ecommerce Profit Calculator.

Frequently asked questions

Does a higher price always increase profit?

Not necessarily. The calculator only models unit economics. It does not predict how demand or conversion rate will react to a different price.

Should I include VAT in the formula?

Only if VAT is an economic cost to your business rather than a pass-through collected for a tax authority. Tax treatment varies, so model it according to your own accounting treatment.

Can the target margin be impossible?

Yes. If the target margin plus percentage fees reaches 100%, no selling price can leave room for currency costs. The calculator blocks that case instead of returning Infinity.

How to Price a Product for a Target Margin