Pricing Your Products

money256What is the easiest method to use when it comes to pricing your products for your online shop?

That’s a question that a lot of new online shop owners struggle with and many look at pricing their products without considering important factors that simply can’t be ignored.

So let’s look at some of the ways of putting a price on what you want to sell that you can use and some of the important factors that MUST consider.

The simplest way of pricing your products
I guess that the easiest way to put a price on what you’re going to sell in your online shop is to simply wander down to the nearest mall, see what bricks-and-mortar stores are selling the same or similar products for and then charge the same.

It’s a quick way of pricing your products and it and takes little effort to do it but are you missing some important factors here?

Are your costs the same as the store down at the mall? Is that shop buying the product from the supplier at the same price you are or is he buying in bigger numbers than you are and getting a discount on the purchase price?

I have an online store that could stock USB memory sticks but I don’t simply because I can’t compete on price with a nation-wide office supply chain. Their selling price is less than my buy price because they buy tens of thousands at a time while the biggest order I could place with the supplier would be 100.

So when it comes to pricing your products don’t just take the mall’s sticker price as the ultimate guide for what you should charge. If you make a mistake here and don’t think about your costs you could end up going broke … and that’s not the goal of anyone who starts an online store.

The undercutting way to lose money
Another quick and easy method to use for pricing your products … and to go broke … is to look at what the competition is selling the same or similar products for and decide to undercut them by either a percentage or a flat figure.

Now that may seem like a quick and almost fool proof method of arriving at a price point that will get the sales rolling in and it is … but what about your costs? What if it’s costing you more to buy, stock and ship your product than what you’re selling it for?

You can guarantee that if you’re biggest competitor is a large chain of stores they will now to the cent the exact cost of offering each product for sale.

They will know how much it costs them to get that item into each store … how much it costs them to keep that product on the shelf and out in the storeroom … how much it costs to advertise those products … how much it actually costs to sell that product to a customer … what they have to pay in taxes when they sell an item … and what profit they want to make from each item they sell.

And they will have factored all those figures into the price point that you see when you visit their store. So what are your costs and what profit margin works for you?

Think about your price point
So if the big guys … and many of the smaller guys … put a lot of thought into the prices they charge then that’s exactly what you have to do when you’re thinking about pricing your products.

You have to consider all those cost factors that I mentioned a moment ago. You have to think about the cost of buying the product from the supplier or the cost of making it yourself. You need to think about storage costs, office costs, marketing costs and how much profit you want to make and when you add all of those figures together you end up with what could be your selling price.

But how does that price compare to what your competitors are charging?

Sell more for less or less for more?
Don’t be surprised if the price point you arrived at is quite a bit less than what your competitors are charging. Even though you may not be able to buy in bulk, and so save money on the original purchase price, your overheads … warehousing, office costs etc. … may be significantly lower than what your competitors are paying.

If your price point is less then you have to decide whether to increase your prices till they are at a similar level to what your competitors are charging or be content with any benefits that might flow from having a lower price point

There are some advantages in boosting your price point till it is close to what your competitors are charging because you can then offer discounts without cutting your own throat and you have some wiggle room if your competitors start cutting their prices to match yours. Obviously your profit margins are also higher and that gives you more money to reinvest in your business.

On the other hand if your price is too close to what your competitors are charging there’s less incentive for potential buyers to buy from you rather than buying from a more established business so you may sell fewer products if your price point is too close to your competitors.

And remember … if you’re shipping items, and the buyer has to pay shipping costs at the checkout, that extra charge that buyers have to pay may take your price point well over what your competitors are charging and all you will see is abandoned shopping carts when people see the final figure that they have to pay.

If you’re content to sell for less than what your competitors are selling the same product for then you may sell far more products than what they do and of course more sales equals more money in your pocket.

You will also have some room to increase your prices and still remain competitive if you find that your costs are going up.

The bottom line
Whatever you do, when it comes to setting the price for the products you’re selling always remember that you’re not operating in a vacuum. There will always be competitors out there that you have to compete with and you will need to watch them closely.