How to price products so discounts don't eat your margin

Part 3 of 10 in Starting a Shopify store: the money side.

Most new stores price by looking around: competitors sell at $25, so $24 it is. Then the first sale event arrives, 20% off feels normal, and every order during the busiest week of the year makes almost nothing.

The fix is to price from the bottom up, and to price for the discounts you’ll actually run.

Step 1: Find your floor

The floor is the lowest price where an order still covers its own costs. Take everything that comes with one order:

• Product cost
• Postage you pay (if you offer free shipping) and packaging
• Card fee (about 3% plus 30¢ in the US with Shopify Payments)

For a candle: $7.40 product + $7.90 postage + $1.60 packaging = $16.90, plus the card fee. The floor is around $17.70. Below that, every sale loses money.

Step 2: Add the margin you need

The floor pays for the order. It doesn’t pay for the store, ads, your time or the occasional broken parcel. Decide what share of each sale you want to keep, then:

Price = per-order costs ÷ (1 − share you keep − card fee %)

Keeping 35%: $16.90 ÷ (1 − 0.35 − 0.03) = $27.26, so $28.

Step 3: Price for your deepest discount

Here’s the step almost everyone skips. Write down the biggest discount you’ll realistically run this year (for most stores, a Black Friday sale) and check the price still works at that discount.

Worked with the candle’s costs above: $7.40 product, $7.90 postage, $1.60 packing, 2.9% + 30¢ card fee.

At $24, the 25% off sale leaves 28 cents a candle: a week of packing boxes for nothing. At $28 it’s thin but positive. At $32 it’s comfortable. If the market will bear $32, that’s the price that lets you run promotions without dreading them.

Step 4: Check against the market

Now look at competitors, with a specific question: is there a reason someone would pay my price? Handmade, a better scent, a refill program, faster delivery, a story. If your floor-plus-margin is well above what everyone else charges and you can’t answer that question, the problem is the product cost or the order size, not the price.

Discounts that cost less than they look

Not every discount costs what it says. If you want to reward customers without giving away the margin:

• Quantity breaks (“Buy 2, save 10%”) give a discount only when the order gets bigger, and the second item shares the postage. Often you keep more per order than at full price on one item.
• A free gift worth $14 to the customer might cost you $4.
• Free shipping over an amount instead of always-free shipping pushes orders up past the point where postage stops hurting.

Volumo by Centubo. Quantity breaks, buy X get Y and free gifts on your product pages, so discounts come with bigger orders. Free during launch.

Install on Shopify →

When to raise prices

Raise them when your costs go up (they will), when you’re selling out regularly, or when nobody has ever said “that’s too expensive”. Raise new products first, then existing ones, a little at a time. Most customers of a small store notice a price rise far less than you expect, as long as the product hasn’t changed.

Next in the series: checkout settings to fix before your first order.