How to Price a Product: 4 Pricing Strategies for Your Ecommerce Business

Mountains of money - representing how to price a product and pricing strategies

By Sarah Peterson, entrepreneur and author of Unsettle.org.

Have you ever felt like pricing was the hardest part about running an ecommerce business?

You worry about whether your pricing is too little or too much. You wonder whether you’re leaving money on the table. You fret over discounting and bundling.

If this sounds like you, you’re not alone.

Finding the right pricing strategy is a huge headache for many online retailers. There are a few solid pricing strategies, however, that can help you not only price your products to optimize sales and profits, but also help alleviate that pricing stress that’s weighing on your mind.

Pricing Strategy #1: Work Backward

One of the best ways to determine pricing when you’re just setting up your online shop is to work backward.

First, decide how much you want to make per month or per hour based on a realistic number.
Say you wanted to start by making $4,000 per month. How many products would you have to sell at each price point to make that amount?

If you priced your products at $200, you’d have to sell 20 products/month. However, if you priced them at $300, you’d only have to sell around 14.

If it’s realistic that you could sell around 40 items, you could price them at $100 and still achieve the minimum amount you’d like to make.

Pricing Strategy #2:  Remember Your Expenses

When you’re pricing your products, understand that you won’t be taking home the entire amount purchased.

That might seem obvious, but many people forget to factor costs and expenses into their pricing.

Be sure to keep in mind that overhead and cost of goods sold will eat into your profits.

For example, if you buy notebooks for $2 and sell them for $10 each, your profit would be $8. That might seem like a good profit, however, if you sell on an online marketplace (like Amazon, Etsy or eBay) and the platform takes, say, 3 percent of your sale, you’re making $8 minus $0.30 – so $7.70 total.

And if you offer free shipping, and shipping costs $3, you’re actually only making $4.70.

Don’t forget to factor in office supplies, labor, and other expenses you might have.

Expenses are part of being an onlinecommerce retailer business, and they are normal and expected, so they should just be factored into your pricing.

Pricing Strategy #3:  Don’t Be Afraid to Experiment

As online retailers, it’s easy for us to assume that customers want the cheapest price possible and that the best way to compete is on price.

But that’s not always the case.

In the book Cashvertising, the author Drew Whitman describes a woman who owned a jewelry shop and was having a hard time selling some turquoise pieces that she thought should have been flying off the shelves.

She asked her sales associate to discount the jewelry so they could clear it out, but the associate misunderstood and increased the price of the pieces instead.

Curiously, the jewelry sold quickly – consumers thought the item more valuable when it was priced higher.

This proves that the perceived value of the item is sometimes more important than the price . There’s such a thing as too low a price if you’re trying to sell a high-end good.

Testing pricing here and there for your products will only provide clarity. You won’t know what the perfect pricing sweet-spot is if you don’t test it out.

Pricing Strategy #4: Consider the Competition – to a Point

Have you ever seen a brand that sells the same items at double the price than their competitors? Chances are, you’d just go with the competitor rather than the expensive brand.

It’s good to know the ballpark of what your competitors charge, however, don’t copy their pricing exactly.

Consider whether there’s anything unique about your products that your competitors don’t have. Maybe the product is hand-made. Maybe you have a rock-solid money-back guarantee. Or maybe you know that your product is of better quality.

If you are pricing far above your competitors, be sure you have a reason for that. Otherwise, you’ll lose customers to the competition.

As an ecommerce business owner, you need to be able to sell the right amount of product at the right price. You don’t want to sell yourself short.

So it’s important to keep in mind that you can (and should) experiment with different pricing structures, work backward based on what you want to earn, factor in expenses and survey your competitor’s pricing.

With these four basic pricing strategies, you can make sure you don’t lose out on profits.

And after you set your prices, you can focus on more important things.

About Our Guest Author:

SSarah Peterson on the topic of how to price a product- shares 4 pricing strategies for ecommerce businesses arah Peterson is the author of Unsettle.org, where she encourages people to never settle for careers they don’t love. Sign up for her free course to find the perfect idea for a lifestyle business so you can gain flexibility and freedom and do work you love.

 

 

Contact Us

278 Castro Street
Mountain View, CA 94041-1204

Phone

650-321-2640
800-576-3279

Fax

650-321-0356

  • This field is for validation purposes and should be left unchanged.