A price does not come from your purchase cost plus a percentage. It comes from the full cost — which includes the things most people forget: packaging, the shipping you subsidise, returns, payment fees and advertising.
Price without those and you sell more while earning less.
Want to know whether your prices leave a profit?
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Full cost per product
Build this table for the ten products you sell most. It is the most useful hour of work you will do this year.
| Item | Example |
|---|---|
| Purchase or materials cost | €12.00 |
| Packaging | €0.80 |
| Shipping you absorb | €1.50 |
| Returns provision | €0.60 |
| Payment fee | €0.70 |
| Customer acquisition cost | €3.00 |
| Full cost | €18.60 |
Purchase cost is only 64% of the real cost in this example. Price on that alone and your margin is fiction.
Work out acquisition cost as in digital marketing ROI: total marketing spend divided by new customers.
What margin you need
Indicative gross margins by category, before operating costs:
| Category | Typical gross margin |
|---|---|
| Electronics | 8% – 20% |
| Food and drink | 25% – 40% |
| Clothing | 45% – 65% |
| Handmade | 50% – 70% |
| Cosmetics | 50% – 75% |
Margin is not profit. Out of it you pay hosting, labour, rent and tax.
The practical rule: below 30% gross margin, advertising becomes almost impossible — you need a ROAS above 3.3× simply to break even.
VAT and shipping: the two that confuse
VAT is not your revenue. Retail prices display inclusive of VAT, but in profit calculations you always work with net prices. Rates differ by product category — confirm with your accountant which applies to yours.
Shipping is a pricing decision, not a detail. Three options:
| Policy | Effect |
|---|---|
| Charge it normally | Lower price, more abandonment |
| Always free | It has to be built into the price |
| Free above a threshold | Raises average order value |
The third is the most effective for a small e-shop. Set the threshold roughly 25%–35% above your current average order. Real costs are in shipping and couriers.
Pricing psychology: what actually works
A few things, all simple:
- Anchoring. Show the expensive package first. Everything after it looks reasonable.
- Three options. Most people pick the middle one — put what you want to sell there.
- Cost per use. “€12 a month” rather than “€144 a year”.
- Round prices for premium, charm endings for promotions.
- Honest comparison when discounting: previous and new price, stated truthfully.
And one that is not psychology but matters more: the description justifies the price. The same product with better copy sustains a higher price — see product descriptions.
When to discount (and when not to)
A discount is a tool, not a strategy. Every euro of discount comes straight out of profit.
When it makes sense: to clear stock that is costing you space, to trial a new product, for a new customer’s first purchase, or in a specific period with a reason behind it.
When it destroys: when it becomes permanent. An e-shop permanently at “-30%” simply has an expensive price list nobody believes.
One calculation that surprises people: at a 40% gross margin, a 20% discount requires you to double sales to make the same profit.
Alternatives that cost no margin: free shipping above a threshold, a small gift, a two-product bundle, or priority dispatch.
Want a pricing plan for your catalogue?
Tell us your category and average cost and we will propose a price structure.
How to raise prices without losing customers
Increases hurt less than you fear, done properly:
- Start with the least price-sensitive products — the ones that are hard to compare.
- Small increases, more often. 5% twice a year passes unnoticed; 15% once does not.
- Add something alongside: better packaging, a guarantee, instructions.
- Tell regular customers before the change, respectfully.
- Measure over a month, not a week.
In most small e-shops, a 5% price rise does more for profit than a 10% rise in sales — because it brings no extra cost.
Frequently asked questions
Should I copy competitors’ prices?
As a reference point, yes. As a method, no — you know neither their costs nor whether they are profitable.
What if I am more expensive?
Show why. Delivery time, service, guarantee, local presence. Cheapest is a position the largest player always wins.
Do I have to display prices including VAT?
In retail to consumers, the final price must be clear. Ask your accountant about the display obligations.
How often should I review prices?
Every six months, and immediately when a supplier or shipping cost changes.
How do I price handmade goods?
Materials + an hourly rate + overheads, then a market sanity check. The commonest failure is valuing your own time at zero.
The first step
Take the three products you sell most and fill in the full-cost table.
If even one of the three comes out below a 20% margin, you have found why turnover rises while the bank balance does not. The other profit levers are in increasing sales.
Next step
Book a free 30-minute call with the team at The Dev Alley. We will look at your costing and show you where the margin goes.