If you want to make money in e-commerce, you have to calculate your sell prices properly — not guess them. This guide shows you step by step how a cost price turns into a sustainable sell price: first the simple factor method, then the full 5-step retail calculation with a concrete example.
Why proper pricing matters
A price that is too low eats your margin; one that is too high costs you sales. But there are more costs between buying and selling than many realise: freight and packaging, ongoing handling costs, your profit markup, a buffer for discounts — and finally VAT. Factor these in cleanly and you always know your minimum price and never sell below value.
The simple method: the calculation factor
The fastest approach is a calculation factor. You multiply the cost price by a single number that bundles all markups:
The upside: very fast and consistent across your whole catalog. The downside: the factor is a black box — you can't see which cost drives which share. That's exactly what the 5-step calculation solves.
The 5-step retail calculation
With the retail calculation you build the price in traceable steps. Each step adds a percentage to the previous value. Using a cost price of €15.94 as an example:
+ 7%→
1. Landed cost (+ freight)
Add freight — shipping, duties, packaging — to the plain cost price. This gives you the landed cost: the real price at which the goods sit in your warehouse.
2. Base price (+ handling & profit margin)
On top of the landed cost you add your handling costs (rent, storage, staff, software) and your profit margin. The result is the base price.
3. Net price (+ buffer for discounts)
So that granted discounts don't eat your margin, you build in a buffer. That keeps the price sustainable even after a discount — this is your net price.
4. Gross price (+ VAT)
Finally, VAT is added on top. Net × 1.19 (standard rate) or × 1.07 (reduced) gives the gross price — the price your customers see.
Adding VAT correctly
Apply the tax to the net price: net × (1 + tax rate) = gross. In the example: €19.48 × 1.19 = €23.20. Make sure to use the correct rate (standard or reduced) for each product.
Round prices cleanly
Odd end prices like €23.17 look unprofessional. Round to clean steps — e.g. €0.05, €0.10, or psychological thresholds like x.99. Important: always round after VAT so the gross price is correct.
Common mistakes
- Looking only at the cost price and forgetting freight and handling costs.
- Not accounting for discounts — the margin melts on the first markdown.
- Confusing net and gross prices.
- Setting prices once and not adjusting when cost prices rise.
This calculation — automatically in Shopify
PriceCalc Pro runs exactly these 5 steps for every product variant, writes the price straight to Shopify and backs up your data first. Simple factor or full calculation — you decide.
See PriceCalc Pro →