To calculate the selling price of a product, add up everything it costs you to make one unit (materials, your time, packaging and its share of your fixed costs) and divide that cost by (1 − the margin you want to earn). The formula is Selling price = Unit cost ÷ (1 − margin). If one unit costs you $6.00 and you want a 40% margin, the price is $6.00 ÷ 0.60 = $10.00. If you also pay a fee to take card payments or you charge ITBMS (Panama's sales tax), you need to adjust it, and I show you how below.
Pricing what you sell is one of the decisions with the biggest impact on your business, and it is often done by gut feeling: looking at competitors or picking whatever "sounds right." The usual result is selling a lot and earning little. Let's do it with numbers instead.
Step 1: work out the real cost of one unit
Unit cost has four parts. Most small business owners only count the first one.
- Materials: what you spend on supplies for a batch, divided by the number of units that batch yields.
- Labor: the hours you spend on the batch multiplied by what your hour is worth, divided by the number of units. Yes, your time counts, even if the business is yours.
- Per-unit costs: packaging, labels and shipping if you include it.
- Fixed costs per unit: what you pay every month no matter what (rent, internet, electricity, payment platform, advertising), divided by the number of units you sell each month.
Example: a box of decorated cookies
A baker in La Chorrera makes batches of 10 boxes of decorated cookies:
- Materials for the batch: $22.00 → $2.20 per box
- Labor: 4 hours × $5.00 an hour = $20.00 → $2.00 per box
- Packaging (box, ribbon and label): $0.80 per box
- Fixed costs: $100.00 a month ÷ 100 boxes a month = $1.00 per box
Unit cost: $2.20 + $2.00 + $0.80 + $1.00 = $6.00.
Step 2: choose your profit margin
Margin is the percentage of the selling price you keep as profit after covering the cost. There is no magic number: it depends on your industry, how much you sell and how you position yourself. What matters is choosing it on purpose, not by accident.
Margin and markup are not the same thing
This is the most expensive mistake of all. Many people calculate "cost + 40%" and believe they are earning 40%:
- Markup (on cost): $6.00 × 1.40 = $8.40. You earn $2.40, which is only 28.6% of the price.
- Margin (on price): $6.00 ÷ 0.60 = $10.00. You earn $4.00, which is 40% of the price.
A 40% margin equals a 66.7% markup ($4.00 ÷ $6.00). If your numbers target a margin, divide; don't multiply.
Step 3: add fees and taxes
If you take payments by card, payment link or through a sales platform, a fee is deducted from every sale. If you don't build that fee into the price, it comes out of your margin. The formula becomes:
Price before tax = Cost ÷ (1 − margin − fee)
With a 3% fee: $6.00 ÷ (1 − 0.40 − 0.03) = $6.00 ÷ 0.57 = $10.53. Let's check: the fee is $0.32 (3% of $10.53), and you keep $10.53 − $6.00 − $0.32 = $4.21 in profit, which is 40% of the price. It adds up.
What about ITBMS?
ITBMS is not your profit: you collect it and hand it over to the government. That is why it goes on top of the price. According to Panama's tax authority, the DGI, the standard rate is 7%, and it is charged by businesses whose annual revenue exceeds B/.36,000; some products, such as food, are exempt from ITBMS. Check with your accountant whether it applies to what you sell.
Picture the same $6.00 cost on a product that does carry ITBMS, such as a scented candle, sold by a business required to charge it. If the card fee is charged on the total including tax, the formula changes slightly: $6.00 ÷ (1 − 0.40 − 0.03 × 1.07) = $6.00 ÷ 0.5679 = $10.57 before tax. You add 7% ($0.74) and the customer pays $11.31. The fee is $0.34 (3% of $11.31) and your profit is $10.57 − $6.00 − $0.34 = $4.23: once again 40% of the pre-tax price.
Step 4: calculate your break-even point
The break-even point tells you how many units you need to sell each month to cover your fixed costs. It is based on the contribution per unit: what each sale leaves you after paying variable costs (materials, labor, packaging) and the fee.
In the example without ITBMS: $10.53 − $5.00 in variable costs − $0.32 fee = $5.21 per box. Fixed costs of $100.00 ÷ $5.21 = 19.2, so she needs to sell 20 boxes a month to avoid a loss. Everything she sells beyond those 20 boxes is profit.
We cover it in depth, with an example of candles made in Panama and four ways to bring the number down, in break-even point: how many sales you need a month. And if you want to see prices already worked out for your type of business, check out how much to charge in Panama (in Spanish).
Step 5: compare with the market and round
Once you have your price, look at what similar businesses charge. If you are well above them, review your costs or find ways to justify the value (presentation, personalization, delivery). If you are well below, you were probably giving money away. Finally, round to a price that is easy to communicate: $10.53 could become $10.75 or $11.00.
What happens when you price by gut feeling?
Say the baker was charging $8.00 because "that's what everyone charges." With a $6.00 cost and a 3% fee ($0.24), she keeps $1.76 per box: a 22% margin, almost half of what she thought. And if she forgot to count her time, she would think her cost was $4.00, calculate a price of $7.02 and actually earn about $0.81 per box.
Common mistakes when calculating a selling price
- Not counting your time. If you don't pay yourself, the business isn't profitable: you are subsidizing it.
- Confusing margin with markup. Multiplying cost by 1.40 does not give you a 40% margin.
- Forgetting packaging, shipping and fees. They are cents per unit that, added up over a month, eat your profit.
- Not spreading fixed costs. Rent and internet are paid out of your sales too.
- Copying competitors' prices. Their costs are not yours.
- Never reviewing your price. When your supplies go up, so does your cost. Recalculate every few months.
Frequently asked questions
Selling price = unit cost ÷ (1 − margin). If you pay a fee on each sale, subtract it too: cost ÷ (1 − margin − fee). Tax, such as ITBMS, is added at the end.
It depends on your industry, your volume and your positioning. Run a few scenarios, compare them with the market and pick one that covers your costs and your time and leaves room to grow.
Margin is profit as a percentage of the selling price; markup is profit as a percentage of cost. A 40% margin equals a 66.7% markup.
Yes. In a service, your main cost is your hours. Use your hours times your hourly rate as labor, add your share of fixed costs and apply the same formula.
Wrapping up
A good price isn't guessed: it's calculated. Count all your costs, including your time, choose a margin on purpose, add fees and taxes, and check how many units you need to sell to avoid a loss. With that number, you can start writing quotes that leave you a profit.
Do it now: open Precio Justo and calculate your product's price for free. With Precio Justo Pro (USD 15 a month) you save unlimited products, see margin scenarios and download your cost sheet.
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