How to price a product: margin, cost, VAT and gateway fees
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Wrong pricing kills businesses fastest. Sales volume cannot save a price that leaves less margin than real cost. This guide walks unit cost → final customer price including VAT, gateway fees and shipping.
Open margin calculator →1. List direct costs
- Materials, direct labor, packaging.
- Digital costs: per-sale licenses, prorated server cost, file hosting.
- Logistics: shipping, insurance, expected returns (% of total).
- Gateway fee: 3–6% typically.
- Direct taxes: ICE Ecuador, IEPS Mexico, where applicable.
2. Prorate indirect costs
Rent, admin salaries, accounting, software, average marketing. Estimate monthly units and divide fixed costs by those units.
3. Target margin by industry
- Retail: 30–50% gross.
- Software: 70–90%.
- Pro services: 40–60%.
- Food service: 60–70% over raw material (30–40% food cost).
4. Price before VAT
price = cost / (1 − margin%). Cost USD 60, margin 40% → USD 100.
5. Add VAT
Multiply by (1 + rate). Use the VAT calculator.
6. Compensate for gateway fees
billed = (target + fixed) / (1 − fee%). USD 116 target at 5.4% + 0.30 → USD 122.95.
7. Strategic rounding
Ending in 9 or 5 lifts conversion up to 15% per pricing studies.
8. Margin vs markup
- Markup: profit over cost. 50% markup on USD 60 = USD 90.
- Margin: profit over price. 50% margin on USD 60 cost = USD 120.