How to price your products: a simple method for small businesses, with worked examples

To price your products, add up the full cost of one order, not just what the product cost you: packaging, delivery, payment fees, returns and marketing. Choose the margin you need, work out the price with cost ÷ (1 − margin), then check it against competitors and what customers value. In India, never sell a pre-packed product above its MRP, and show the total price with every charge before checkout.

Pricing is deciding what to charge so that each sale covers its costs, pays you and still feels fair to the customer. This guide gives a step-by-step method, worked examples in rupees and the rules on MRP and price display.

Step 1: Know your full cost per order

A frequent pricing mistake is pricing from the product cost alone. Selling online adds costs at every step.

Here is a worked example of what goes into a ₹499 price for a seller who is not registered for GST:

For a clothing example, see the kurti breakdown in our guide to starting an online clothing business. On paper the "margin" over product cost looks like ₹279. After every cost, ₹142.22 is left, and rent and salaries still come out of that.

Step 2: Understand markup vs margin

These two words are often mixed up, and the mix-up costs money.

• Markup = (price − cost) ÷ cost
• Margin = (price − cost) ÷ price

Shopify's guide uses the same formulas (Shopify). For a product that costs ₹300:

Mistake: Adding 40% to cost and thinking you have a 40% margin. ₹300 plus 40% is ₹420, which is a margin of only about 28.6%.

To hit a target margin, use: selling price = cost ÷ (1 − target margin). For ₹300 and a 40% margin: ₹300 ÷ 0.6 = ₹500. A markup calculator and a profit margin calculator do the arithmetic for you.

Step 3: Choose a pricing method

Cost-plus pricing remains the most widespread pricing method, according to Utpal Dholakia writing in Harvard Business Review (HBR). It is simple and protects you from losses. But pricing only from cost can leave money on the table when customers would happily pay more, which is the case for value-based pricing (HBR).

A practical approach for a small business: use cost-plus to set the floor, then look at competitors and customer value to decide how far above the floor you can go.

Step 4: Check the price against the market

• Look at three to five competitors selling something similar, including delivery charges.
• Note what makes yours different: fresher, handmade, faster delivery, better packaging. Each is a reason to charge more.
• Ask a few regular customers what they would expect to pay.
• If you must be cheaper than everyone, check that the price still covers every cost in Step 1.

Step 5: Use price endings and bundles wisely

Prices ending in 9. In three field experiments, Anderson and Simester found that a price ending in 9 increased demand in all three experiments, and the increase was stronger for new items (Kellogg School). Results vary by product and customer, so test it.

Bundles and sizes. A 500 g and a 1 kg pack, or a "family pack", let customers choose and can raise the average order value. Make sure the larger pack still covers its own costs.

Free delivery thresholds. "Free delivery above ₹499" is a price decision too. Our guide on setting delivery charges shows how to choose the threshold. For discounts, see discount and coupon ideas, which shows how many extra sales a discount needs just to break even.

Step 6: Follow the price rules in India

If you are registered for GST, a GST calculator helps you show tax-inclusive prices correctly.

Step 7: Review prices regularly

Costs change. Review prices:

• Every three months, or when a supplier raises prices.
• When fuel or courier rates change, if delivery is built into the price.
• When a product sells out too fast (you may be too cheap) or barely sells (too expensive, or poorly shown).

A break-even calculator tells you how many orders a month you need to cover fixed costs at a given price.

Mistakes to avoid

Pricing from product cost only. Packaging, delivery, payment fees and returns come out of the same rupee.

Confusing markup and margin. A 40% markup is not a 40% margin.

Copying the cheapest competitor. They may be losing money, or have lower costs than you.

Adding charges at checkout. It drives people away and is named as a dark pattern.

Never raising prices. Review in small steps, so you are never forced into one large jump.

Your pricing checklist

• Full cost per order worked out, including packaging, delivery, payment fee, returns and marketing
• Target margin chosen; price = cost ÷ (1 − margin)
• Price checked against 3 to 5 competitors and what makes yours different
• No pre-packed product priced above MRP
• Total price and every charge shown before checkout
• Price endings and pack sizes tested
• Prices reviewed every three months

How Zepio helps

On Zepio you set prices per product and variant, and per branch if you have several outlets. Delivery charges, free delivery thresholds and other fees such as packaging or handling are shown to the customer before they pay, with cart-value bands you control. The discount engine lets you run offers with usage limits and schedules, so promotions do not quietly eat your margin. Reports show sales by item, so you can see which prices work.

Know your full cost, choose your margin, and check the market. Then price with confidence, and review it every few months.