The standard advice is "cost × 2.5" or "cost × 3", and it is wrong for online selling in India. Those multiples come from retail, where the shop does not pay ₹78 to hand the customer a box, and does not eat two shipping legs when the parcel comes back.
Here is a formula that includes the things that actually happen to an online order.
Step 1: work out true landed cost
For one unit of the product, add up everything it costs to get it into a customer's hands.
| Component | Example (a 480 g ceramic mug) |
|---|---|
| Material or purchase cost | ₹240 |
| Your labour, if you make it | ₹40 |
| Packaging (box, wrap, tape, card) | ₹28 |
| Shipping you absorb | ₹52 (of a ₹78 slab; customer pays ₹26) |
| Payment fee (2% + GST, blended) | ₹17 |
| Returns/damage allowance (4%) | ₹32 |
| RTO allowance (6% of COD orders × two legs) | ₹9 |
| Landed cost | ₹418 |
Notice that material cost is ₹240 and landed cost is ₹418 — a 74% difference. A "cost × 2.5" price of ₹600 looks like a 60% margin and is actually 30%.
Step 2: pick a target contribution margin
Contribution margin is what is left after landed cost, before your fixed costs (software, your salary, ads).
| Category | Workable contribution margin | Why |
|---|---|---|
| Handmade, low volume | 55–70% | You have no scale; the margin is the business |
| Apparel | 55–65% | Returns are high and sizing costs you |
| Home and kitchen | 45–60% | Bulky, so shipping bites |
| Food and consumables | 40–55% | Repeat purchase compensates |
| Electronics accessories | 30–45% | Price-compared to death |
For the mug, at a 60% target: ₹418 ÷ (1 − 0.60) = ₹1,045. Round to ₹1,049 or ₹999 depending on how the rest of your range reads.
Step 3: build in the discount you will eventually run
Everyone runs a sale. Diwali, a slow month, a launch offer. If your published price is the price you need, then every discount comes straight out of your margin.
Decide your deepest realistic discount
For most stores this is 20%. Festival-heavy categories, 30%.
Divide the target price by (1 − discount)
₹1,045 ÷ 0.80 = ₹1,306. That is your list price if you want 60% margin to survive a 20% sale.
Sanity-check against the market
If comparable mugs sell at ₹700, a ₹1,306 list price needs a reason — material, provenance, design, a name. If you do not have one, fix the cost side or change the product.
Set the everyday price between the two
Many sellers land on a list price of ₹1,299 and a "usual" selling price of ₹1,099, with real sales at ₹999. All three survive.
Step 4: decide the shipping model
Three models, and they behave very differently on conversion.
| Model | Effect on conversion | When to use it |
|---|---|---|
| Customer pays actual shipping | Lowest. Cart abandonment spikes at the shipping line | Heavy or bulky goods where absorbing is impossible |
| Flat ₹49–₹79 shipping | Middling. Predictable, and customers accept it | Most stores, most of the time |
| Free shipping above a threshold | Highest, and raises average order value | Anything where two units fit one box |
The threshold trick is the most underused lever in Indian ecommerce. Set free shipping at roughly 1.6× your average order value. For a ₹900 AOV, "free shipping above ₹1,400" pushes a meaningful share of single-item carts into two-item carts — and two items in one box cost you almost nothing extra to ship.
Step 5: test the price, don't agonise over it
Pricing is not a decision you make once in a spreadsheet. It is a small experiment you run four times a year.
Most first-time sellers are underpriced. The reason is emotional rather than analytical — you know what the material cost, so ₹1,049 feels like cheek. The customer does not know and does not care; they are comparing your mug to other mugs, not to your invoice.
A worked example, end to end
Priya makes block-printed cotton napkins in sets of four.
- Fabric and printing: ₹210 per set
- Her time: ₹60
- Packaging: ₹22
- Shipping (400 g, absorbs half of ₹70): ₹35
- Payment fee: ₹14
- Returns allowance (3%, low for textiles that are not sized): ₹21
- RTO allowance: ₹7
- Landed cost: ₹369
Target margin 60% → ₹922. Deepest discount 25% → list at ₹1,229. She launches at ₹1,199 with free shipping above ₹1,800, which nudges people to buy two sets for a gift. Her AOV lands at ₹1,540 rather than ₹1,199, and her shipping cost per order barely moves, because two sets fit in the same box.
That last sentence is the whole point of pricing well.
Frequently asked questions
What is a good profit margin for an online store in India?
Contribution margin — after product, packaging, shipping and payment fees — should be 45–65% for most categories. Net margin after software, ads and your own time typically lands at 15–25% in a healthy small store.
Should I offer free shipping?
Above a threshold, yes, almost always. Unconditional free shipping only works if the price already includes it and your average order value is comfortably above ₹800.
How do I price against cheaper competitors?
Do not match them. Change what is being compared — larger size, better materials, a gift box, faster dispatch, a warranty. Competing on price against someone with more volume is a race you lose by winning.
Should prices end in 9?
It reliably helps a little in price-sensitive categories and does nothing in premium ones. ₹999 outperforms ₹1,000 for a mass-market product; ₹1,000 reads better than ₹999 for something handmade and expensive.
When should I raise prices?
When you are stocking out, when material costs move more than 5%, or when you have not raised them in a year. Small annual increases are absorbed; one large one gets noticed.