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  "description": "This guide breaks down exactly how to calculate your product selling price step by step, with formulas, examples, and more.",
  "path": "/how-to-price-a-product-your-complete-guide/",
  "publishedAt": "2026-02-25T09:09:31.000Z",
  "site": "https://www.gotomarketalliance.com",
  "tags": [
    "customer acquisition costs",
    "AI-driven competition",
    "pricing",
    "value",
    "cost-plus pricing",
    "Competitor pricing",
    "Customer willingness to pay",
    "value proposition",
    "Conversion rates",
    "Customer feedback",
    "Market changes",
    "Feature additions",
    "pricing strategies",
    "differentiate from competitors",
    "Download your free copy",
    "freemium pricing model",
    "adoption",
    "freemium",
    "target audience",
    "positioning and messaging",
    "Cost-plus pricing",
    "Price skimming",
    "Chartered Institute of Management Accountants",
    "geographical location",
    "market needs",
    "e-commerce business",
    "**Silvia Kiely Frucci**",
    "qualitative insights",
    "customer segmentation",
    "customer engagement",
    "SaaS",
    "How to Price for Growth and Profitability",
    "**Yannick Kpodar**",
    "Phill Agnew, former Senior Product Marketing Manager at**Hotjar**",
    "**Thibault Oberlin**",
    "OKR (Objectives and Key Results)",
    "OKRs",
    "Pricing win/loss analysis"
  ],
  "textContent": "Pricing a product isn’t about picking a number that “feels right.” In 2026, successful product teams calculate pricing using cost data, customer value, market benchmarks, and continuous testing.\n\nWhether you’re launching a new product, adjusting pricing due to rising costs, or trying to improve margins, this guide breaks down **exactly how to calculate your product selling price step by step** — with formulas, examples, and practical guidance for SaaS, B2B, and B2C products.\n\nBy the end, you’ll know how to price your product confidently, competitively, and profitably.\n\n## What is a product selling price?\n\nA product selling price is how much a customer pays for a product/service. Prices vary depending on how much customers are prepared to pay, the amount of money the seller is prepared to accept, and how competitive the price is when compared to other businesses.\n\n## Why getting your product price right matters in 2026\n\nRising customer acquisition costs, AI-driven competition, and increased price transparency mean pricing mistakes are more expensive than ever.\n\nIn 2026, product pricing decisions are influenced by:\n\n  * Higher buyer expectations around value\n  * Faster competitor price changes\n  * AI-powered price comparison tools\n  * Pressure to balance growth with profitability\n\n\n\nThat’s why modern pricing isn’t static – it’s calculated, tested, and revisited regularly.\n\n## How to calculate the price of a product (step by step)\n\n### Step 1 – Calculate your total costs\n\nStart by identifying all costs required to deliver your product:\n\n**Direct costs**\n\n  * Manufacturing or development\n  * Hosting or infrastructure\n  * Packaging and distribution\n\n\n\n**Indirect costs**\n\n  * Marketing and sales\n  * Customer support\n  * Product management and overheads\n\n\n\nYour total cost per unit is the foundation of any pricing calculation.\n\n### Step 2 – Define your target margin\n\nNext, decide how much profit you need to make on each sale.\n\nTypical gross margins by product type:\n\n  * SaaS: 70–90%\n  * Digital products: 80–95%\n  * Physical products: 30–60%\n\n\n\nYour margin should reflect your business model, growth stage, and market expectations.\n\n### Step 3 – Apply a pricing formula\n\nThe most common starting point is cost-plus pricing (click here for more formulas):\n\n****Selling Price = Total Cost ÷ (1 − Target Margin)****\n\n**Example:**\nIf your total cost is $40 and your target margin is 60%:\n\n$40 ÷ (1 − 0.6) = **$100 selling price**\n\n### Step 4 – Validate against the market\n\nOnce you calculate a price, compare it against:\n\n  * Competitor pricing\n  * Customer willingness to pay\n  * Perceived value of your product\n\n\n\nIf your price is significantly higher or lower, reassess your value proposition — not just the number.\n\n### Step 5 – Test and adjust over time\n\nPricing is not a one-time decision.\n\nRegularly review pricing based on:\n\n  * Conversion rates\n  * Customer feedback\n  * Market changes\n  * Feature additions\n\n\n\nThe most effective pricing strategies evolve with your product and customers.\n\n## Product pricing formulas (with examples)\n\n### Product selling price formula\n\nThe simplest way to calculate your product selling price is by adding a profit margin to your cost price.\n\n**Formula:**\n\n****Selling price = Cost price + Profit margin****\n\nThe **cost price** is the amount paid to produce or acquire the product.\nThe **profit margin** is the percentage added to ensure profitability.\n\nThis method is often used as a baseline and should be validated against customer value and competitor pricing.\n\n* * *\n\n### How to calculate the average selling price\n\nBefore setting your own price, it’s important to understand the **average selling price (ASP)** of similar products in the market.\n\n**Formula:**\n\n****Average selling price = Total revenue ÷ Number of units sold****\n\n**Example:**\nIf a market generates $5,000,000 in revenue from selling 10,000 units, the average selling price is $500.\n\nIf you’re launching a new game console and want to position it as a premium product, this benchmark can guide your pricing. You may choose to price your product at **$550-$600** to reflect a higher perceived value and differentiate from competitors.\n\n* * *\n\n### How to calculate product selling price by unit\n\nIf your business purchases inventory in bulk, calculating the selling price per unit ensures accuracy and consistency.\n\nTo calculate product selling price by unit:\n\n  1. Calculate the **total cost** of all units purchased\n  2. Divide the total cost by the **number of units** to determine the cost price per unit\n  3. Apply your chosen pricing formula to calculate the final selling price\n\n\n\nThis approach is especially useful for physical products, wholesale businesses, and ecommerce brands.\n\n* * *\n\n****Putting a tag on it: The Product Pricing Playbook****\nTap into the six steps to the perfect pricing strategy.\n👉 Download your free copy\n\n* * *\n\n## How to calculate the perfect product selling price: 5 key pricing models\n\nThere are multiple pricing models you can use depending on your product type, market, and growth goals. Below are the most common pricing models and when to use them.\n\n### Freemium pricing model\n\nThe freemium pricing model offers customers a free version of a product, with the goal of converting them to a paid plan over time.\n\nA common example is Spotify, which provides free access with limitations such as ads and restricted features, encouraging users to upgrade to a paid subscription.\n\nFreemium pricing is designed to reduce friction, increase adoption, and build a large user base.\n\n#### When should a freemium pricing model be used?\n\nFreemium pricing works best for **digital products** targeting large markets. To succeed, you must:\n\n  * Deliver strong value in the free version\n  * Clearly differentiate paid features\n  * Avoid giving away core value for free\n  * Sustain costs until users upgrade\n\n\n\nCareful data analysis is essential to determine which features remain free and which drive conversion.\n\n* * *\n\n### Tiered pricing model\n\nTiered pricing allows customers to choose between multiple pricing options based on their needs.\n\nCommon tiers include:\n\n  * Free or freemium\n  * Individual\n  * Team or family\n  * Student or discounted plans\n\n\n\nThis structure enables customers to self-select the option that best fits their use case and budget.\n\n#### When should a tiered pricing model be used?\n\nTiered pricing is ideal for **digital services** with diverse customer segments. It helps businesses maximise revenue while appealing to different willingness-to-pay levels.\n\n* * *\n\n### Flat-rate subscription pricing\n\nWith flat-rate pricing, customers pay a fixed recurring fee in exchange for a defined set of features or services.\n\nA typical example is a mobile phone plan, where users pay a monthly fee for a specific allowance of data, minutes, and texts.\n\n#### When should flat-rate subscription pricing be used?\n\nFlat-rate pricing works best for:\n\n  * Products with limited feature variation\n  * A clearly defined target audience\n  * Simple value propositions\n\n\n\nIt’s easy to understand but offers less flexibility for upselling.\n\n* * *\n\n### Bulk (volume) pricing model\n\nBulk pricing reduces the unit price as purchase volume increases, incentivising customers to buy more.\n\n**Example:**\nA company may charge $10 for one item, but reduce the price to $8 per unit when five items are purchased, creating clear savings for the buyer.\n\n#### When should bulk pricing be used?\n\nBulk pricing is commonly used in **B2B, wholesale, and manufacturing** , where larger order sizes are standard and cost efficiencies increase with volume.\n\n* * *\n\n### Market-based pricing\n\nMarket pricing sets product prices based on supply, demand, and competitor pricing rather than internal cost structures.\n\nThis model is often used by industries with high competition, such as:\n\n  * Consumer electronics\n  * Automotive\n  * Streaming services\n\n\n\n#### When should market pricing be used?\n\nMarket pricing is effective when your product closely resembles competitors’. To succeed, strong positioning and messaging are essential to justify your price within the market.\n\n* * *\n\n## Types of pricing strategies\n\nProduct marketers use different pricing strategies depending on their market, product maturity, and competitive landscape. Below are the most common pricing strategies and how they work in practice.\n\nCommon pricing strategies include:\n\n  * Competitor-based pricing\n  * Cost-plus pricing\n  * Value-based pricing\n  * Dynamic pricing\n  * Penetration pricing\n  * Price skimming\n  * Target costing\n\n\n\nWhile cost-plus pricing is one of the simplest methods, **target costing** is often used when pricing decisions are heavily influenced by the market.\n\n### What is target costing?\n\nTarget costing is a pricing method where the **market price determines the maximum cost** a business can afford to produce a product.\n\nThe Chartered Institute of Management Accountants defines target costing as:\n\n> _“A product cost estimate derived from a competitive market price.”_\n\nWith target costing, pricing decisions are influenced by factors such as:\n\n  * Market competition\n  * Product similarity\n  * Customer switching costs\n  * Price sensitivity\n\n\n\nRather than adding a margin on top of costs, businesses work backwards from the price customers are willing to pay.\n\n* * *\n\n### Example: How to price a product using target costing\n\nImagine you sell customised football jerseys and the average market price is $200.\n\n  * Average market price: $200\n  * Target margin: 50%\n  * **Target cost: $100**\n\n\n\nThis means the maximum cost to produce each jersey is $100. Any cost above this reduces your margin or makes the price uncompetitive.\n\n* * *\n\n### How to determine an appropriate margin\n\nThere’s no single “correct” margin for every product, but many businesses aim for a **40–50% margin** as a baseline.\n\nAnother simple approach is the **price multiplier method** :\n\n  * Multiply total costs by **2** for a 50% margin\n  * Multiply total costs by **3** for a 67% margin\n\n\n\nIf your product is highly differentiated or delivers unique value, higher margins may be achievable.\n\n* * *\n\n### What is cost-plus pricing?\n\nCost-plus pricing calculates a selling price by adding a fixed profit margin to total costs.\n\n**Example:**\nIf a product costs $60 to produce and the target margin is 30%, the selling price would be $78, generating an $18 profit.\n\nThis pricing strategy is most commonly used for **physical products** , where material and production costs are easier to quantify.\n\nFor SaaS products, cost-plus pricing often relies on estimated inputs such as salaries, development time, and infrastructure, which can make accuracy more difficult.\n\n* * *\n\n### Pros and cons of cost-plus pricing\n\n**Pros**\n\n  * Simple to calculate\n  * Ensures profitability if costs are controlled\n\n\n\n**Cons**\n\n  * Ignores competitor pricing\n  * Doesn’t account for customer willingness to pay\n  * Encourages cost inefficiencies\n  * Makes frequent price increases more likely as costs rise\n\n\n\nBecause this model is inward-looking, it can lead to overpricing or missed revenue opportunities if used in isolation.\n\n* * *\n\n### Differences between cost-plus pricing and target costing\n\nThe key difference between cost-plus pricing and target costing is **where pricing decisions begin**.\n\n  * **Cost-plus pricing** starts with internal costs and adds a margin\n  * **Target costing** starts with the market price and works backwards\n\n\n\nTarget costing is especially useful in competitive markets where customers have many alternatives and pricing flexibility is limited.\n\nIn contrast, cost-plus pricing may work better in niche markets or where costs are stable and competition is low.\n\n* * *\n\n## How to calculate gross profit margin\n\nTo calculate your company's gross profit margin percentage, subtract the cost of goods sold (COGS) from the net sales (gross revenues minus returns, allowances, and discounts).\n\nThen, divide this figure by net sales, and this will calculate the gross profit margin as a percentage.\n\n### Why is profit margin important to investors?\n\nInvestors are interested in your net profit margin because this allows them to assess if your company is generating enough profit from your sales.\n\nWhen you’re calculating your net profit margin, it’s important to consider overhead costs and fixed costs. These cover raw materials, salaries, insurance, utilities, etc. have been factored into the equation.\n\nBusiness owners need to take into account that irrespective of whether you’re a small business/startup or an established enterprise corporation, the net profit margin is one of the key cogs in your overall financial well-being.\n\n* * *\n\n## Things to consider when pricing your product\n\nMultiple factors will influence the pricing model you choose to apply when deciding on the selling price of a product.\n\nFor example, if you’re holding an end-of-season sale to clear stock, you’ll likely use a discount price model to introduce a lower price.\n\nSimilarly, factors such as sales volume and labor costs will also influence your product’s price, and different prices are often used depending on geographical location.\n\nTaxes, cost structures, market needs, and exchange rates are likely to have a say in the price of your product in international markets. This often means the exact same product will have a higher price in location A than in location B.\n\nWhether you’re a solo entrepreneur, an e-commerce business, or part of a large-scale company, you need a pricing strategy that’ll give you the right price for your product.\n\nDon’t forget to factor in variable costs when deciding on the price of your product; it’s a simple way to ensure you don’t alienate some segments of your audience.\n\nIf you’re unsure whether you’re priced excessively when compared to similar products, don’t be afraid to use a pricing calculator.\n\nPricing calculators are a great resource for helping business owners establish if their sales price is fair and meets the expectations of the clientele.\n\n**Silvia Kiely Frucci****, Product Marketer of the International Segment of Wolters Kluwer** , shared five lessons she’s learned when pricing products during her career:\n\n### 1. Follow the process, but don’t be bound to it\n\nPricing is a complex matter, and it cannot be driven just by qualitative insights. Creating a framework around the various pricing work streams is essential to getting things done.\n\nFor the past two years, I have used the model below as a guideline:\n\nEven if it looks like a linear process, milestones, and decisions are not always linked to the stage that the process suggests they should be dealt with.\n\nFor example:\n\n  * Relevant competitor information can be found after price testing with customers.\n  * The initial customer segmentation must be re-evaluated when new qualitative insights have emerged during a pricing workshop.\n\n\n\nIt’s important to always keep an open mind during the process to make sure your pricing output reflects the market needs.\n\n### 2. Pricing is a team effort\n\nProduct marketers are often responsible for pricing, but the process doesn’t have to be a single-handed decision.\n\nPricing workshops are the perfect ground to involve all the key influencers to discuss around the table. Product, sales, marketing, customer engagement, project management, and Business Unit Directors are all stakeholders in the success of the pricing strategy: they all hold a unique perspective on products, customers, and markets, and they all have very different KPIs around success.\n\nCreating an open dialogue is the best way to hear everyone’s point of view and find a common strategy.\n\n### 3. The perfect pricing structure is a myth\n\nIn the past, I have built different pricing models: some were cost-plus only, others heavily relied on competitor pricing insights, and some were value-based.\n\nThere is no doubt to me that value-based pricing is the most successful way to price products, both in the physical and SaaS space.\n\nValue-based pricing best practices often show a 3-tier option with tick boxes for product features/benefits. Although this output is very clear and simple for customers it cannot be applied to every product: some products are so complex and/or so customizable they cannot be easily deconstructed to create different versions.\n\nIt is more the case of displaying value to the customers using a complementary pricing model where the final price is built by attributing a monetary rate to each customer-recognized value.\n\nThis model could be used as a guideline for discounting by asking the simple question to your customers: “Which value do you want to drop for a cheaper price?”\n\n### 4. Negative price testing is the best ground to re-evaluate your product value proposition\n\nI find price testing one of the most complicated processes to plan. Is it best just to live test and look for customers’ behavior in response? How about creating customer panels before roll-out? Will you test on renewals or new business? The questions are infinite.\n\nWhichever strategy you select for the product you are selling, make sure you create a clear way to capture customer feedback: define 1-3 items that will help you define customer product perception in response to your pricing and align it with your product value proposition.\n\nGreat pricing means the customers have understood your product the way you and your company see it.\n\n### 5. Pricing is not just a number\n\nMaking plans to roll out the price to the rest of the company is as important as deciding the price itself.\n\nOne of the never-to-be-missed actions from the pricing workshop is agreeing on a clear strategy around sales enablement: In my experience, partnering with your marketing team at this stage is paramount; they will help you shape the message internally and to the customer.\n\n* * *\n\n## How to generate profit\n\nCompanies have one thing in common: they all want to achieve their desired profit - without introducing a low price!\n\nThere’s no doubt a suitable product selling price plays a crucial role in helping them achieve these objectives.\n\nIn his presentation, How to Price for Growth and Profitability, **Yannick Kpodar****, former Global Director of Product Marketing at PayFit** , outlined his step-by-step process to identify the best pricing strategy for company growth and profitability.\n\nUltimately, there’s no definitive answer on how to price a product, and as Phill Agnew, former Senior Product Marketing Manager at**Hotjar****** suggests, it’s a complex area where many companies make mistakes.\n\nYou need to utilize a pricing strategy to drive cash flow. To do so, you’ve got to be clear on:\n\n  * The cost of producing your product\n  * The value of your services to your clients\n  * How much your customers have and want to spend\n  * The overall running costs of your business\n  * What critical costs need to be covered short-term (e.g. loan repayments)\n  * How your competitors price their products\n\n\n\nPricing needs to take every one of these principles into account to drive optimum profit. You may have to go through your business plan with a fine-tooth comb and consider factors such as brand development, team restructuring, etc. before you can draw a definitive conclusion.\n\nRemember, your pricing strategies and product selling price are by no means definitive. You should continually assess your plan and make changes whenever something isn’t working as you anticipate. Your decision-making process can be dictated by simple metrics such as sales figures and churn rates.\n\n* * *\n\n## How to measure the impact and ROI of pricing strategies\n\nImplementing a new pricing strategy without proper measurement is like sailing without a compass. **Thibault Oberlin****, Senior Director of Product Marketing at PayFit (formerly at Google)** , advocates using the OKR (Objectives and Key Results) framework to track pricing effectiveness systematically.\n\n### Setting pricing objectives\n\nOKRs combine qualitative objectives with quantitative key results. \"Setting a qualitative objective or goal... that's the what. And then you're going to tie to these key results, usually from two to four or five, which are all the actions that combine together to help you accomplish this objective,\" Oberlin explains.\n\nFor pricing strategies, effective objectives might include:\n\n  * Improve pricing competitiveness in mid-market segment\n  * Increase average revenue per customer through value-based pricing\n  * Reduce pricing-related churn by 25%\n\n\n\n### Defining measurable key results\n\nEach pricing objective needs 2-5 specific, measurable key results. Examples include:\n\n_For competitive pricing:_\n\n  * Win rate against main competitor increases from 35% to 50%\n  * Price positioning analysis shows movement from premium to competitive quadrant\n  * Sales cycle reduces by 15% due to clearer pricing advantage\n\n\n\n _For value-based pricing adoption:_\n\n  * 60% of new deals use value-based pricing calculator\n  * Average deal size increases by 30%\n  * Customer satisfaction with pricing transparency improves to 8/10\n\n\n\n _For reducing pricing churn:_\n\n  * Pricing-related cancellation reasons drop from 40% to 15%\n  * Successful price increase communications achieve 85% retention\n  * Grandfathering policies reduce churn impact by 50%\n\n\n\n### Cross-functional alignment\n\nPricing OKRs must align across teams. Sales needs visibility into pricing performance for coaching, customer success requires churn indicators for intervention, and finance needs revenue impact metrics for forecasting.\n\nCreate a pricing dashboard accessible to all stakeholders showing:\n\n  * Real-time progress against key results\n  * Pricing win/loss analysis\n  * Competitive pricing movements\n  * Customer feedback on pricing\n\n\n\n### **Iteration based on data**\n\nReview pricing OKRs monthly, not quarterly. Pricing markets move quickly, and waiting three months to adjust can mean significant lost revenue. Use leading indicators like quote-to-close ratios and pricing objection frequency to predict lagging indicators like revenue and churn.\n\nBy implementing structured measurement through OKRs, companies can move from gut-feel pricing decisions to data-driven optimization that directly impacts revenue growth.",
  "title": "How to price a product:  Your complete guide",
  "updatedAt": "2026-02-25T09:09:31.000Z"
}