How to price your product as an e-commerce company

Pricing your product as an ecommerce store owner can be one of the most difficult tasks you will have to do in this business. Although pricing does not always cause damage to consumers, they usually don't just want to buy the cheapest products, but it is always an important part of this equation.

Essentially, you must find the right balance between the profit per unit and the optimal number of purchases. There are many strategies to price your product and help you do this, but the best way is to mix at least 2 strategies.

Pricing can really determine your e-commerce business, so it's important to spend enough time here to achieve this. Also, don't forget that, depending on your overall strategy, you can add additional strategies to your mix to increase the profit per customer and their lifetime value.

Before we delve into the strategy, let us first understand the facts. Before you develop a pricing strategy or formula, you need to know the following:

1] Product profit margin.

This is easy to do. You calculate the cost per unit of a particular SKU [transfer to your warehouse and any other fees included]. Then you try different prices, you just have to follow this formula:

[price - cost] / price

This simple formula will give you the profit for each product. Under no circumstances should you price a product that causes a negative number.

2] Advertising costs.

Are you planning to promote your product? Most likely you will, maybe most likely online.

You should increase the cost of advertising a specific product for a cost, or just divide it across all SKUs.

For example, if you spend $3,000 a month on Google AdWords to promote your products and e-commerce stores, you should distribute all products evenly.

With these two basics, let's continue to introduce some simple pricing strategies for new and old e-commerce businesses. Remember that you can use either of them or a combination of them ideally. The best for you will depend on your location and market, and don't copy others blindly.

Pricing Strategy 1: Cost-Based Pricing

This is one of the most popular and simple pricing strategies for e-commerce stores and physical retail stores.

It works by simply obtaining the unit cost [including shipping and other variable costs] determined in step 1, and then simply adding the required margin or the simple fixed amount that you think is optimal. The total amount will be the final price of the product.

The two challenges of this approach are that you have to figure out the exact cost of each unit without forgetting any costs, and you must know the cost so that it stays above it during the promotion period.

If the e-commerce business really determines the operational aspects of the business, they can easily take advantage of this approach.

How much you will increase depends on you, but usually employees are excluded.

The second tricky part is how much profit you add. Some of them can track competitors through experience and another part [or the whole part]. Sell ​​the price of the same or similar product.

Too high or too low will weaken your sales. First check your competitors manually, then use the software regularly to check that your competitors can help you master them.

Pricing Strategy 2: Market-Oriented Pricing

Starting with the last part of the previous strategy, this strategy is also known as a competition-based strategy that affects the behavior of competitors and what state the market is in.

For commercial products, this is a good strategy if you can compete on price. Typically, this is paired with another pricing strategy [such as #1, cost-based pricing]. Essentially, it can help you determine when to lower the price to get more sales, but it won't affect your profitability from #1.

Not only that, but when your product is too low, you can also raise the price, keep the cheapest supplier and squeeze extra profits.

Pricing Strategy 3: Consumer-Oriented Pricing

This is also known as value-based pricing and is typically used for non-commercial products. In these cases, the value is usually sold and the price must be reasonable.

For example, new products that may not have direct competitors can follow this pricing strategy while emphasizing their superiority over older products or other competing products.

in conclusion

If you don't have a reliable and profitable pricing strategy, focusing on revenue and sales alone can be catastrophic. By using pricing tools, you can always stay competitive and pair with the right pricing strategy, you can keep your sales and profits up and to the right!

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