Setting Your Ecommerce Price Point

Setting your ecommerce price point is one of the most important aspects of your business. Get it right; you’ll improve your profitability tremendously. Get it wrong; you’ll either make lots of sales and no profit, or no sales at all. With that said, more so than too high or too low, it’s really about having the best price for your situation.

With this in mind, let’s explore the development of a pricing strategy:

The first step is to know how much room you have between what a product costs and what your customers are willing to pay. Known as your “margin,” this will keep you grounded in reality when you start adjusting.

In most cases, your products will carry a manufacturer’s suggested retail price.  The word “suggested” carries a lot of weight in that phrase. While manufacturers can’t dictate the price at which its goods should be sold, it can make suggestions. Either way, in many cases, it’s the point from which most retailers discount.

To begin, do some comparison-shopping to see where you are in relation to your competition. In addition to observing their prices, get an idea of who their customers are and the level of service they provide to make sure you’re comparing apples to apples. If you find you’re too high, you’ll need to either reposition yourself to justify your higher price, or lower your prices to make yourself more competitive. If you find you’re too low, try increasing your pricing incrementally until you find the number at which most people who shop a product will purchase.

A good rule of thumb here, depending upon the price of the product, is to stay within the five to 15 percent range. You can usually be quite aggressive with lower-priced items. After all, a 15 percent increase on a $10 item is $1.50. Meanwhile, on a $100 item it’s $15.00 and on a $1000 item it’s $150. So generally speaking, the more expensive the item, the more conservative you should be.

For the most accurate analysis, try each new price point for a solid month, so you can minimize any calendar-related variables. Similarly, you want to keep all other variables the same. Keep your marketing and advertising efforts exactly the same. Change only the pricing so you can clearly determine its effect. If you’re operating on a robust platform like Shopify Plus or Magento Enterprise, you’ll have the capability of exporting a .csv file listing all of your products and their pricing, which will make keeping track of the results easier to accomplish over the course of the experiment.

When it comes to your pricing strategy, it’s important to keep in mind how you want your business to be perceived by your customers. If you have a line on something lots of people want and/or need, but it’s difficult to find, the law of supply and demand in is your favor. Conversely, if you’re one of a hundred sources for an item, you’ll need to come up with something that makes you stand out. Under certain circumstances, a higher price with commensurately superior service can carry the day. Amazon kills with free or super fast shipping; Zappos blows customers away with unrivaled customer service.

What sets you apart?

Additionally, while you’ll generally want to avoid offering a price at which you make no profit at all, it can sometimes be a good play. Every year around the holidays, big box retailers offer some sort of an amazing deal like a $200 big screen TV set. Their goal is to get people in the store—counting on them to buy something else while they are there. This “loss leader” pricing strategy can be a good tool for attracting new customers for you too. When they get there though, make sure you’re offering something they’ll want to come back for again and again.

Easily one of the most critical decisions you’ll make, setting your ecommerce price point has the potential to make or break your business. While it’s tempting to just go with the lowest possible price and be done with it, ultimately you’ll find there’s no such thing as too high or too low.

It’s all about your specific situation and what the market will bear.

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