It’s a question every business owner has to ask himself at some point: what price do I sell my product at? Truth be told, pricing is tricky even for the most seasoned entrepreneurs.
Price your product low and you might receive a lot of sales but less profit. Price too high and you will end up attracting a niche audience that expects top quality.
It’s a fine balance, really and determined by the product you’re trying to sell.
How to Price Ecommerce Products
Depending on your situation, you may at times want to mark-up your products lower or higher. A simple formula may come handy to help you calculate your retail selling price.
Retail Price = [(cost of item) ÷ (100 – markup percentage)] x 100
To give an example, if you want to price a product that costs you $20 at a 45% markup, this is how you’d calculate your retail price.
Retail Price = [(20.00) ÷ (100 – 45)] x 100
Retail Price = [(20.00 ÷ 55)] x 100 = $36
Ecommerce Pricing Strategies for Small Businesses
Keystone Pricing
This is the most common pricing strategy used by most businesses. It’s when a business owner simply doubles the wholesale cost he paid for the product to decide the price.
There are many different situations when keystone pricing may be too low, too high, or just right for you.
For example, if you are selling products that have a slow inventory turnover, have considerable shipping and handling costs, and are scarce in some sense then keystone pricing may help you get away with a higher markup. If, however, you sell products that are highly commoditized and easily accessible then this pricing could be harder to pull off.
Discount Pricing
Businesses use discounts to draw customers. By the same measure, discount pricing can help you increase footfalls and offload unsold inventory.
If you choose this type of pricing too often, however, you may end up with a reputation of being a bargain retailer.
Psychological Pricing
Customers perceive pricing in various ways, and many retailers take advantage of that. Here’s an example, researchers at MIT and the University of Chicago conducted an experiment on a standard women’s clothing item with these prices: $34, $39 and $44.
Interestingly, the item priced at $39 outsold its cheaper counterpart.
This example goes onto prove how consumers’ psychological perception of pricing can be turned into a profitable business strategy.
Related reading: Pricing Strategies for a Strong Bottom Line
Online Pricing Photo via Shutterstock
Aira Bongco
Interesting way to approach pricing. Psychological pricing can really go high but it all depends on marketing.
Thanks, Shubomita!!
My top tip for pricing your ecommerce product is to analyze your audience (both prospects and customers) and your competitors and find the right balance between both.
Customers always want more value or at least, perceived value from their purchases. On the other hand, your competitors, like you, are looking for as high profit as possible. The perceived value, after all, will be dictated by the market (you and your competitors). For example, if the cheapest product available at the market is $1,000, then the market will perceive $1,000 as valuable. However, things will change when a new competitor enters the market selling the same product for $800.
So, understand how your competitors are pricing their products/services, and understand how your customers perceive value. If you can find the right balance between the two, you are a winner.