Just got off the black Friday shopping & writing this blog. So let’s talk about the 6 successful steps to price your products properly by Pratik Patel (& that’d be me).
Product pricing is a crucial part of a successful business that most people overlook.
Whether you are new to eCommerce or dropshipping, product pricing is one of the factors that will either make or break your website.
There is a lot more to pricing than how much you choose to charge for your products. Many things play an essential part in pricing a product such as persuasion, psychological pricing, competitors’ pricing, etc.
But when starting a new eCommerce or dropshipping store, you will not have the budget for testing the prices or lose some customers at first right?
Charge too much & you’ll be kicked out of the business by people OR Charge too little & your business will close down. You have to find the sweet spot where customers are happy to pay & you are making enough profit.
So here’s the excat 6 successful steps I price products properly & you should too.
Let’s dive in.
6 Successful Steps to Price Your Products Properly.
So how do you find the sweet spot for the product price? Let me show you how following these exact 6 steps I price my products.
1. Find the Total Expenses
If you don’t know what your total expenses are the how can you price your product correctly?
Finding the total expense from raw material to production to shipping is the first & foremost thing you should do.
Even if you are a dropshipping store there are many hidden costs involved in drop shipping such as shipping through an agent (Extra shipping costs), product returns & refunds, etc.
The same goes for an eCommerce store who manages & manufactures everything inhouse such as raw materials, production costs, production time, rentals, labor, shipping, etc.
If you don’t know how much the total expense is then how can you calculate profit on it?
When you find out your total expenses for a product in the warehouse till it reaches your consumer, you’ll have your break-even point.
2. Find the Additional Expenses for Product Pricing
Once you find your total expenses of the product don’t forget to find the additional expenses too.
Additional expenses are –
- Additional software or apps (Ex – Shopify Loox reviews $29/month)
- Marketing (FB / Google Ads)
- Test sample products
- Research tools, etc.
Depending on your niche you can have different additional expenses but the ones I’ve listed above are the basic ones.
List out all the additional expenses that you think are relevant & add your expenses like labor, shipping, etc to find your total production cost / dropshipping cost for the item.
You don’t need to find the exact marketing cost, etc as you will have to test your product or you will need some ad optimization before you get some sales.
I’ll show you later on how this can help you get your product pricing & marketing strategy in the right place.
3. Finding the Break-Even Point of Your Product
Once you know how much it costs a product from warehouse to shipping it to your customer, you can now find the break-even point.
Here’s a definition of Break-Even point from Wikipedia
The break-even point in economics, business—and specifically cost accounting—is the point at which total cost and total revenue are equal, i.e. “even”. There is no net loss or gain, and one has “broken even”, though opportunity costs have been paid and capital has received the risk-adjusted, expected return
Basically the break-even point is the lowest price you can sell your product & not lose any money.
Finding a break-even point is very important as while testing a new product having a break-even point can be helpful in killing facebook/google ads that are not performing well and can get you over budget.
4. Find out How much Profit You Want
Okay, so now you know how much lowest you need to charge to stay in the business & so it’s time to figure out how much profit do you need.
Many people at start go for 3x,4x pricing or heck even 5x & that’s a wrong strategy.
As I said before too much price can lead potential customers away even if they do like the product & charging too low will drive you out of business.
What I have found is at start (and this is mainly about dropshipping) you should charge a minimum of 3x + free shipping (no less & no more).
Charging a 3x can be profitable as well as it should cover your marketing & other expenses too.
For example, f a product costs you around $8.50 then you can charge $24.99 or $26.99 & yes .99 is a psychological pricing which we will talk about in a second.
5. Study Your Competition
This may sound very typical, but it’s the most obvious thing to do in a saturated market like this.
Also, if you don’t have a competition, then you might want to change your niche because you know..
Find out approx 3-5 competition & find out what are they charging for the product you are selling.
The price they are charging can be the sweet spot of that product because they are successful running ads & if they are not charging more than what they are currently charging then chances are that the price doesn’t work.
You can lowball them, but keep your expenses in mind & try not to go too low.
6. Psychological Pricing
According to Wikipedia – Psychological pricing is a pricing and marketing strategy based on the theory that certain prices have a psychological impact. Retail prices are often expressed as “odd prices”: a little less than a round number, e.g. $19.99 or £2.98.
These prices have a great impact as the brain gets the price as $19 while the price is $19.99
These small roundoff’s add up to a considerable number when you start to get more & more sales.
In a recent experiment conducted by the University of Chicago, they experimented with 3 pricing units – $34, $39. $44 & the pricing of $39 worked the best out of 3.
So, if you want to increase purchases of your products and services, convert zero ending numbers to nines. You can find a perfect example of this strategy can be found on Apple’s website, where each & every product price ends with a 9.
So these are the “6 successful steps to price your products properly”. Pricing a product should not stop or slow you down from opening an eCommerce store.
Remember to split test to find out what works for you & what doesn’t.
Once you feel confident about your pricing, you can launch & market the product to the fullest & if required you can change or adjust your pricing strategy in the future.
Have any questions? or comments? leave them down below & I’ll reply to you.
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How to price a product calculation?
Material costs = $20.
Labor costs = $10.
Overhead = $8.
Total Costs = $38.
Product pricing definition
Product Pricing is a pricing strategy in which the by products of a process are also sold separately at a specific price so as to earn additional revenue from the same infrastructure and setup. By product is something which is produced as a result of producing something else ( the main product).