How to price products for an Australian ecommerce store

Most stores set prices once, early, under pressure, using a method that sounds sensible and is quietly wrong: take the supplier cost, double it, round to something tidy. That number then survives for years while freight rates, supplier costs, the exchange rate and advertising costs all move underneath it. One day the owner notices that revenue is up and the bank balance is not.

Pricing a physical product is different from pricing a service, where your main input is time. With products, a price has to absorb a long tail of real costs that arrive after the sale: the parcel to Darwin, the dispute, the return that comes back unsellable, the 10% that belongs to the Australian Taxation Office. The discipline is to know what each sale actually leaves you with, and to decide the price deliberately rather than inherit it.

What should a product price actually cover?

A price has three jobs, in order. First, cover the cost of the goods. Second, cover the variable costs of fulfilling that specific order. Third, leave a contribution margin big enough to pay for acquiring the customer, carry your fixed overheads, and still leave a profit.

Most pricing mistakes happen at the second job. Owners know their unit cost and their overheads, but treat payment fees, freight, packaging, picking labour and returns as general business expenses rather than per-order costs. They are per-order costs, and they scale with volume. A product with a healthy-looking 55% gross margin can be a loss-maker once an $11 parcel, a 1.9% payment fee, 70 cents of packaging and a 6% return rate are charged against it.

How do you work out your true landed cost per unit?

Landed cost is what one sellable unit costs to get into your warehouse, not what the supplier invoiced. For imported stock it typically includes the unit price, international freight, insurance, customs duty where it applies, customs brokerage and handling, and any inbound transport to your storage location. If you hold stock for months, there is also a real carrying cost in cash and space.

Two details catch people out. First, exchange rate movement: if you buy in US dollars, your landed cost changes without anyone telling you, so price against a conservative rate rather than the best one you have seen. Second, allocation: a container carrying forty different items needs freight and duty apportioned across them by value or volume, not spread evenly per unit, or your cheap, bulky items will look far more profitable than they are. If you are not sure your landed costs are right, that is worth fixing before anything else, because every downstream decision inherits the error. Getting stock-level numbers clean usually goes hand in hand with better inventory management.

Should your prices include GST?

If you are registered for GST and selling to Australian consumers, the price a shopper sees should be the GST-inclusive total, displayed prominently and consistently through to checkout. Unavoidable fees appearing late in the process is both a conversion problem and an area the ACCC takes an interest in, so build them into the displayed price or disclose them clearly up front. Rules change and your circumstances matter, so confirm your obligations with your accountant or the ATO rather than relying on a general guide.

The commercial decision sits underneath the compliance one. When you become liable for GST, you either add it to your price, in which case a $100 item becomes $110 and you still keep $100, or you absorb it, in which case the $100 sticker price stays and you keep about $90.91. Absorbing GST quietly removes roughly 9% of your revenue on every sale, which for many stores is most of their net profit. If you choose to absorb it, do so as a deliberate, costed decision with a date to revisit it.

Which pricing method should you use?

There are three workable approaches, and the honest answer is that most stores need all three: one to set the floor, one to set the ceiling, one to find the number in between.

Method	How it works	Best used for	Main risk
Cost-plus	Landed cost plus a target markup	Setting your margin floor, commodity and basics lines	Ignores what customers will pay; leaves money on the table on your best products
Market-based	Positioned against comparable competitor offers	Categories where shoppers actively compare	Imports a competitor's cost base and mistakes, and invites a race to the bottom
Value-based	Priced on the outcome and experience delivered	Differentiated, branded or bundled products	Needs real proof: photography, reviews, warranty, service

Use cost-plus to establish the price below which you will not sell. Use market comparison to understand the plausible range. Then use value to decide where in that range you sit, and make the case for it on the product page. A store with genuine differentiation that still prices on cost-plus is leaving margin behind.

How do you handle freight in your pricing?

Australian geography makes this the hardest part. The same parcel can cost a few dollars to a metro address and several times that to a regional or remote one, so a single flat national rate guarantees you either overcharge the majority or lose money on the minority. The underlying issue is that delivery cost is a function of weight, dimensions and zone, and your pricing has to reflect that reality somehow.

Three defensible approaches: zone-based rates that pass real cost through, which is accurate but adds friction; freight built into product price with free shipping offered, which converts best but requires your margins to carry it; or a free-shipping threshold set above your current average order value, which both covers the cost and nudges basket size. Most stores land on the third, paired with deliberate work to lift average order value. Whichever you choose, model it on your actual despatch mix rather than an average, and revisit it when carrier rates change. Reducing the underlying cost helps more than repricing: see our guide to reducing shipping costs.

What margin do you actually need?

There is no universal right margin, only a margin that is sufficient for your acquisition cost. The test is simple: contribution margin per order must comfortably exceed what it costs you to win that order. If a sale leaves you $34 after all variable costs and it takes $40 of advertising to generate it, no amount of volume fixes that.

As an illustrative guide, many Australian stores selling physical goods aim for gross margins above 50%, and those relying heavily on paid advertising often need more, because the ad cost has to fit inside the same gap. Rather than adopting a benchmark, work out your own floor: calculate your break-even price per product using your real numbers, then set a minimum margin you will not discount below. Our guides to break-even analysis and calculating customer acquisition cost give you both halves of that equation. Price and margin are two of the five levers in ecommerce growth, and they are the two that decide whether the other three are worth pulling.

How do you raise prices without losing customers?

Price increases feel riskier than they usually are, because owners imagine losing everyone rather than a few. The practical approach is incremental and specific. Raise on your strongest lines first, where you have differentiation, good reviews or limited direct comparison, and leave your most price-visible items until last. Move in modest steps on a defined date rather than drifting. Give repeat customers advance notice, which reads as respect rather than apology. Where you can, improve something visible at the same time: better packaging, clearer sizing information, a longer warranty.

Then measure properly. Watch units sold and total contribution margin over several weeks, not conversion rate on day one. A 7% price rise that costs you 3% of units is a clear win, and you will only see that in the margin number. Keep promotional claims honest while you do it: a was/now price needs a genuine previous selling price, and manufactured urgency invites both customer distrust and regulatory attention.

What should you review each quarter?

Treat pricing as a standing review, not a one-off project. Each quarter, refresh landed costs for your top products, check freight rates against your actual despatch data, recalculate contribution margin per product, and list anything now below your margin floor. For each of those, decide one of four things: raise the price, reduce the cost, reposition it as a deliberate loss-leader that earns its place, or stop selling it. Doing this consistently is how stores avoid the slow margin erosion that only becomes visible in a bad quarter, and it is one of the simplest habits to build into your e-commerce and data work. If you want a second set of eyes on your product-level margins and where your prices should actually sit, book a consultation and we will work through the numbers with you.