How to set prices for goods in your online store

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

Alina Vashurina, PR-director of the Ecwid online store designer, specially for Lifehacker compiled a list of tips on how to make money on your online store and not scare off customers with set prices. Useful knowledge for those who want to understand the basic subtleties of the psychology of product pricing.

Have you ever seen products with too low prices in stores? Each of us is not averse to saving money, but if a product with a price of 1,000 rubles is sold online for only 100 rubles, then most buyers will think: “What's the catch? It's too good to be true! " Moreover, many will come up with words that can be called a death sentence for small businesses: "Apparently, this is a bad product."

The psychology of pricing is not only a simple cost + profit formula. Set too high a price and you will have competitors. Rate your product too low and customers will lose confidence in your product. Let's imagine that you have just opened your own chain boutique and want to earn as much money from it as possible. Where to start pricing and how not to scare customers away?

Calculate costs

If you want to make a profit, you must have a good understanding of the composition of your operating costs and must include them in the price.

You don't have to pay commissions or royalties to use Ecwid. However, there are costs in online sales, as in any other business.

What are the costs? These can include anything from the cost of the bubble wrap you wrap your goods in so they don't get damaged in transit, to electricity bills that allow you to mold, print, weld, or assemble your products.

Here are a few costs to keep in mind when setting a price for your product:

☞ Fees for using a commercial account

Let's say that every time you sell an item, you have to pay from 2, 2 to 5% per transaction depending on the tariff plan of the company that processes your payments. That is, a maximum of 50 rubles from the price of goods for 1,000 rubles will go towards the account of servicing your Internet business to payment operators.

☞ Advertising costs

Not everyone uses PPC or pay-per-click advertising, but if you choose this promotion option, remember that in some cases it can be quite expensive. Let's say you pay 30 rubles for each click and 100 people click on your ad. Your advertising costs are already 3,000 rubles, and you need to earn at least the same to cover them.

☞ Hosting / domain cost

Consider it, even if it is only 1,000 rubles a year.

☞ Transport

Do you have to travel a lot when choosing materials? Or commute every day to the studio where you create your products? Travel is also a cost item for your business and should be considered when setting a price.

☞ Materials

This category includes the T-shirts that you print on or the metals you use to make jewelry. And don't forget the little things like boxes, tape, or fishing line! Most entrepreneurs do not take these costs seriously, which ultimately affects their bottom line.

☞ Labor costs

Perhaps, until your store is on its feet, you are not paying yourself a salary. However, it is very important to assess the value of your work. Are you getting enough money for your work? If you, for example, sew custom-made dresses, find out how much a typical dressmaker in your area gets paid. Three hundred rubles an hour? Isn't that too little?

If you are a designer, office manager, janitor, CEO and CFO of your business at the same time (as you usually do in small companies), make sure that every job you do is charged a fair price.

Calculate and distribute costs across all items

Analyze your overhead costs, such as the fees you pay to your payment system. Add them together and divide by the number of items you plan to sell.

For example, if your operating costs are 15,000 per month and you are going to start selling two products a day (2 × 31 days = 62 products), then to cover the costs you will need to add 242.9 rubles to the price of each product. Add to this the cost of materials (if you did not take it into account earlier) and the cost of your labor.

Some pricing models use this formula:

Materials + overhead + labor = wholesale × 2 = retail

Some add profit to this equation:

Materials + overhead + labor + profit = wholesale × 2 = retail

Of course, you yourself set the amount of profit you want to receive. But don't sell yourself too cheap! You can track your expenses using dedicated apps or online accounting resources such as Outright.com.

Analyze your business priorities

☞ Business plan

It doesn't matter what formulas you use to set prices for your products. The ideal balance will always be based on your business plan. How do you imagine your customers? What do they think about the price-quality ratio of your products? Do they consider your products to be useful purchases or beautiful luxury items? If you are a fashion brand, are your unique products up to date?

Pay attention to the comments of your customers, and you will understand how to correctly set prices for goods.

☞ Keep track of competitors

Be sure to keep an eye on your competitors' prices. If your products cost too little in comparison to them, they will look cheap in the eyes of buyers. However, if you can offer customers a better deal, your brand will appear more meaningful to them.

It is very important to closely monitor your prices and adjust them if necessary. Stick to a business plan that outlines your profit target, but make your business flexible enough to respond in time to any market movement.

☞ Remember the "differentiation factor"

How unique is your product? Experienced business people know that the answer to this question can affect pricing much more than the cost + profit formula. For goods that the buyer considers to be one of a kind, he will be willing to pay much more.

The Wishnya online store is a great example of positioning a bright and stylish brand.

If you can effectively show the difference between your products and those of competitors, then you have a better chance of setting a high price on them. This means that the more unique your product is (or the more unique you present it), the more leeway you have to set prices. This rule does not work for every business, but still, if you can, try to convince your target audience that your solution best suits their needs or even includes elements that competitors do not have.

For example, if you sew custom-made clothes, offer your customers the services of a personal online stylist who will tell them which cut is best for a particular body type. Small differences from competitors can mean high profitability in the future.

☞ Consider the "wow factor"

Another pricing component that has more to do with psychology than mathematics is the wow factor, or the fashion factor. For example, Apple makes smartphones just like hundreds of other businesses. However, they managed to stand out from the crowd of competitors not only due to their own operating system and product quality, but also due to the positioning of their products as a fashionable gadget and an attribute of a high standard of living.

It's the fashion factor that allows them to set premium prices (the highest on the market), even though their smartphones are made from the same components as everyone else.

So, remember that people are willing to pay more for goods that are considered:

• high quality or luxurious;
• fashionable;
• rare;
• unique.

Happy sales!