A product can look profitable at a glance and still leave little contribution after delivery, payment fees, promotion and returns. A useful first step is to price one typical order from the customer total back to the costs you can verify. This guide shows how to do that, how VAT changes the calculation, and how to use a small price range without pretending a spreadsheet can predict customer demand.
The free B2C Pricing Lab turns your own figures into a per-order comparison. It separates the customer checkout amount, sales before VAT, listed variable costs and contribution. You can change the inputs and compare a lower, current and higher price.
Start with one product and one real order
Enter the price you are considering, the costs you know and any assumptions you still need to check. The app shows the arithmetic without presenting a result as a market recommendation.
What a product price needs to cover
A customer price has a job beyond covering the item you bought or made. Depending on the business, an order can also create inbound freight, packaging, fulfilment, payment and platform fees, promotion costs, refunds, replacements and support work. If you count only the product cost, the apparent margin can be misleading.
Start by choosing a consistent order unit. If customers normally buy two units together, use a realistic average number of units per order and enter per-unit costs separately from per-order costs. Avoid mixing a per-unit delivery figure with an order-level payment fee. Write down what each number includes, the source and the date you checked it.
| Cost group | Example to check | Common basis |
|---|---|---|
| Product and inbound | Supplier price, freight, duty where relevant | Per unit received |
| Packing and fulfilment | Packaging, pick-and-pack, postage you cover | Per customer order |
| Selling fees | Payment provider and marketplace or platform charges | Fixed amount and/or percentage |
| Promotion and service | Acquisition spend, returns, replacements and other variable support | A supported average per order |
Calculate contribution before calling it profit
For a simple order-level check, subtract the listed variable costs and relevant selling fees from sales before VAT. The amount left is contribution in this model. It can help you compare an order with your assumptions, but it is not net profit. Fixed overheads, your time, income tax, demand, stock risk and costs you have not entered remain outside the result.
Suppose one item sells for £24.99 and is not VAT registered in this example. If the entered costs add up to £17.90, the modelled contribution is £7.09 before fixed overheads and tax. That does not mean every order will cost £17.90: a changed delivery zone, refund, discount or payment method could alter the result. Use your own invoices and terms in place of sample figures.
Percentage fees need a clear base. A provider may calculate its fee on the checkout amount, another basis or a combination of percentage and fixed charge. The app applies the percentages to the customer amount including VAT where VAT is selected. Check the current provider terms and change this assumption if the actual fee basis differs.
Keep the VAT basis explicit
VAT can make the customer total different from sales before VAT. If a VAT-registered seller charges £24 including an illustrative 20% standard rate, the sales value before VAT is £20 and the VAT component is £4. For that inclusive example, the net amount is found by dividing £24 by 1.2. The standard rate is not right for every product or transaction: UK rates and product treatment vary, so verify the rule that applies to your offer using GOV.UK VAT rates and GOV.UK guidance on charging and recording VAT.
The app lets you model a price that includes VAT or a price before VAT and enter a rate. It does not determine whether you need to register, decide which rate applies, or check the legal requirements for how a customer price must be shown. If you are registered, enter costs net of VAT you can reclaim; if you are not, use the amounts you actually pay. Where the treatment is uncertain, check with HMRC or a qualified adviser before relying on the comparison.
Keep the two prices distinct: a VAT-inclusive customer total, a pre-VAT price and a modelled contribution are different figures. Label the basis whenever you compare or share them.
Use a price floor as a cost check, not a recommendation
A price floor in the app is the lowest entered product price at which the modelled contribution reaches zero after the listed variable costs and percentage fees. It excludes fixed overheads and any costs omitted from the form. A target price adds the contribution margin percentage you choose. Neither figure tells you what customers will accept or what competitors charge.
When the result looks unrealistic, audit the inputs before changing the price. Confirm units per order, supplier and freight costs, delivery subsidies, fee calculations, discounts and return allowances. Make a note beside each estimate that still needs evidence. A mathematically precise output can still be based on weak assumptions.
Compare a small range on the same cost basis
Use the app’s lower, current and higher scenarios to see how listed contribution changes. Then test customer response separately with a clear offer and an affordable limit.
Turn a price comparison into a small test
A calculator describes the result of the assumptions you give it. It cannot show whether a buyer understands the product, trusts the delivery promise or accepts the price. If you change price, offer, audience and shipping at the same time, it becomes harder to learn what influenced the outcome.
- Choose one offer. Keep the product, options, delivery terms and customer promise specific.
- Check your evidence. Record real supplier, fulfilment and fee sources, along with dates and remaining unknowns.
- Set a limit. Decide in advance how much time and promotion spend you can afford for the test.
- Choose an observable signal. Note buyer questions, completed orders, cancellations, refunds and support work, not just page visits.
- Review before expanding. Replace estimates with actuals, then decide whether to repeat, adjust or stop.
For a broader plan, see the B2C Ecommerce Mini Course. To connect a price assumption with store and order scenarios, use the B2C Ecommerce Simulator. If the product itself is still uncertain, the Product Viability Assessment can help structure an earlier evidence check.
Common pricing mistakes to avoid
- Using revenue as a substitute for contribution. Revenue does not account for costs that happen to make and deliver an order.
- Counting a cost twice. Decide whether a value is per item, per order or already included in another line.
- Ignoring the fee basis. Confirm whether a percentage fee applies to the product price, delivery, VAT or the whole checkout.
- Treating a target margin as a benchmark. Enter a target for your own planning and explain where it comes from.
- Assuming price changes predict demand. A higher modelled contribution per order does not establish that more or fewer people will buy.
- Calling contribution profit. Add fixed costs, time and tax considerations in a wider business review.
Frequently asked questions
What is a good contribution margin for an online product?
There is no single target that fits every product, channel or business. Choose a planning target that reflects your actual overheads, service model, risk and evidence. The app calculates the target you enter; it does not supply an industry standard.
Should I include delivery in my product price?
Model the amount the customer pays and the amount you pay the carrier or fulfilment provider. If you subsidise delivery, include the part you cover as an order cost. If the customer pays a separate delivery charge, include it in the customer total only when your fee and VAT basis requires it, and document the assumption.
Can this app tell me the price customers will pay?
No. It compares arithmetic using the figures you enter. Customer response needs separate evidence, such as carefully tracked buyer conversations, enquiries and a bounded live offer test.
Is the PDF a business forecast?
No. It is a summary of your inputs, calculated scenarios and next checks. It does not forecast sales, demand, profit or tax due.
Make the next decision evidence-led
Keep a short record of the price basis, VAT treatment, verified costs, provider fees and the customer response you observe. Update the model when those facts change. A clear comparison will not remove uncertainty, but it can show which assumption you need to check next.
Ready to review your product price?
Build a three-point comparison with your own costs, save the result as a PDF, then use your next customer test to replace assumptions with evidence.
Need help deciding how to turn your plan into an online store? Talk with MLFG about the next step that fits your stage.
