How to Price a Product for a Healthy Margin

Most DTC founders price by instinct or by multiplying their landed cost by a round number. 3x cost, 4x cost, whatever the category standard feels like. The problem is that cost multiples ignore the full variable cost stack. By the time shipping, platform fees, and ad spend are accounted for, a 3x markup can leave almost no real profit.

Markup vs margin: the distinction that matters

Markup and margin are not the same number, and confusing them causes pricing mistakes.

• Markup is the amount added to cost, expressed as a percentage of cost. A product that costs $25 sold at $75 has a 200% markup.
• Margin is the profit expressed as a percentage of the selling price. That same $25 cost / $75 price has a gross margin of 66.7%.
• A 100% markup = 50% gross margin. A 200% markup = 66.7% gross margin. Many founders think 100% markup means 100% margin. It does not.

For DTC pricing, work in margin percentages, not markup multiples. Margin is directly comparable to your contribution margin target, which is also expressed as a percentage of revenue.

What to include in landed cost

Landed cost is everything it takes to get the product into your warehouse and ready to sell. This is the real cost base, not the supplier invoice.

• Supplier invoice unit cost
• Inbound freight (air or sea, per unit based on carton dimensions and weight)
• Import duty and customs fees (varies by product category and origin country)
• Inbound inspection or quality control costs if applicable
• 3PL inbound receiving fees if using a fulfilment centre

For products sourced from Asia, landed cost is typically 20-35% higher than the supplier invoice. A product quoted at $20 per unit often has a real landed cost of $24-27. Basing your pricing on the $20 invoice and missing the freight and duty is one of the most common DTC margin mistakes.

Building up from landed cost to target price

Once you have a real landed cost, the next step is to decide what contribution margin you need the product to deliver at target ROAS. This is where you work backward from the economics you need.

Example: landed cost is $28. You want a 35% contribution margin after all variable costs including a $22 ad cost per order. Outbound shipping is $9, platform fees are roughly 3% of revenue.

• Let P = selling price
• Contribution margin = P - $28 (COGS) - $9 (shipping) - 0.03P (fees) - $22 (ad cost)
• You want this to be at least 35% of P: 0.35P = P - $28 - $9 - 0.03P - $22
• 0.35P = 0.97P - $59
• 0.62P = $59, so P = $95.16
• Round to $97 or $99 to test price sensitivity with a round number

Testing price against the market

The price that delivers your target margin may be above or below what the market expects. If competitors sell comparable products at $60-70 and your math requires $97, you have a cost structure problem, not a pricing problem. The fix is to reduce landed cost (better supplier terms, cheaper shipping route, lower duty category) or to add value that justifies the premium.

If the market supports $97 and competitors are at $60-70, you might be leaving margin on the table. Price anchoring, packaging, and brand positioning are how you command a premium. Many DTC brands underprice because they are afraid of the market, not because the market demanded it.

Gross margin as a category benchmark

As a rough benchmark by category: apparel and accessories typically run 60-75% gross margin; home and lifestyle 55-70%; supplements and consumables 65-80%; electronics and tech accessories 40-60%; personal care 65-80%. Below-category gross margin is a warning sign that either landed cost is too high or price is too low.

Gross margin is the starting point. Contribution margin is the finish line. Once you know your gross margin, subtract outbound shipping, fees, and a realistic ad cost to see what you actually keep per order.

Use the margin calculator at /margin-calculator to test different price and cost scenarios side by side. For the core concepts, see /learn/gross-margin and /learn/contribution-margin.