Looking for a great product pricing strategy? This article will discuss how to price your product when selling online so that you not only make a decent profit but you remain competitive.
1. Take Your Time.
When pricing your products, taking your time to do things correctly is essential.
If you’ve just started your e-commerce business, you’re probably keen to get started with a few sales and it can be tempting to hurry up and get things going. Try and avoid doing this as if you price your products incorrectly, you could run at a loss.
Remember that your pricing is one of the most important elements to get right and striking the right balance between price and profit can be tricky. Selling your product at too low a price implies to buyers that the quality is inferior (even if it’s not). Pricing your product too high could make it unaffordable for your customers.
Something in between is best and it can take time to figure what the best selling price is.
2. Conduct a Market Survey.
Before even thinking about a selling price, conduct a market survey.
This should include asking yourself questions such as the following:
- Where is my target market geographically located and what prices would they be prepared to pay?
- Which platforms do my target customers use the most? What are the costs involved in listing my products on these sites?
- What are other companies selling the same product doing and what is their pricing like?
- Does my product have any additional features compared with my competitors?
- Do I include free shipping and factor this into the selling price?
Once you have a good idea of what your product typically sells for and what prices your customers expect to pay, you can proceed with the next step.
3. Determine Your Product Costs.
Determining your product costs is the most complex step. It’s never a good idea to just start selling your product without knowing in detail the costs involved in getting it to market.
Your product costs would include the following:
- Your buying price (or, if you’re making the goods yourself, the manufacturing price).
- Packaging materials (these typically include bubble wrap, boxes, shipping labels, etc.).
- Wages (this will only be true of you have employees).
- Office or warehouse rental (many e-commerce sellers, however, don’t have warehouses or offices and work from home so these costs may be irrelevant).
- Shipping costs (how much does it cost you to ship the product to your customer and do you have to pay shipping costs for your own suppliers?)
- Product development costs (if you are selling a unique product that is manufactured from scratch, you would need to factor in product development costs).
- Marketing costs (marketing includes placing ads, promoting posts on Facebook, etc.).
When you have all the information related to your product costs, consider how much you would pay for one batch of your product. A batch, for example, may consist of 500 units, for argument’s sake.
Take the total product costs for the entire batch and then divide it by the number of units in the batch. This will give you an idea of the total cost price per item.
4. Determine Your Pricing Goals.
Now you will need to think about your pricing goals. These could be anything that is true for your business.
For instance, if you have just launched a product, your goal could be to introduce it to the market. You might not be too worried about making a big profit. In this case, pricing wouldn’t be the main consideration and you would be more focused on selling and establishing yourself.
Selling only one product makes things simpler. If you will be selling a range of products, each product in the range would need to be priced in a similar way to attract buyers to buy the whole range.
Some sellers want to out price their competitors by a tiny margin in order to gain entry into the market. If this is your goal, then you’d need to carefully analyse competitor pricing.
This may involve making slightly lower profits but it may be worth it if you sell a large volume of products.
5. Calculate The Best Price To Make A Profit.
A common mistake with new sellers is that they price their products too low to make a reasonable profit.
One of the main goals of your business should be to make a decent profit that allows you to pay for your living expenses and grow your business.
This means calculating the best price that allows you to make a profit while still remaining competitive.
To get started, you need to calculate what percentage of your fixed product costs the profit must cover. These costs should be added together and then divided by the volume amount to determine your break-even figure.
On top of this, you will need to add your profit and the final figure will give you the optimal selling price.
If your prices are slightly higher than that of your competitors but you need to sell at this price in order to earn a living, don’t become too concerned.
In this case, you’d need to focus on providing something that your competitors may not necessarily be able to do. Adding value with excellent customer service, fast shipping or being a local supplier might then be a core part of your marketing strategy.
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