Estimated reading time: 3 mins
You’ve done your homework researching niches, brainstormed brand names until blue in the face and asked every trusted mind you could for feedback on your business model. You even have a detailed mock-up of your layout and site navigation.
While it may have felt like forever to get to this moment, you’re not quite ready to upload product images and descriptions. A key detail standing in your way is how to price your e-commerce products?
Depending on what you sell and the niche you operate within, determining how much to sell your products for will hinge on several factors. Let’s look at the high-level considerations to keep in mind when pricing products in your e-commerce store.
The first step to getting a product-pricing baseline for your e-commerce store is to figure out your operational costs. These costs will vary with your business model, but generally will be divided between fixed and variable costs. Fixed costs could include business areas like payroll, website hosting, domain name costs, physical office space and any other expense you expect to stay the same each month.
Variable costs, on the other hand, are expenses that fluctuate monthly. These could be things like logistics, storage/inventory and server costs (data only grows, after all). There are also expenses that could fall under fixed or variable, such as marketing and advertising. For example, one e-commerce store may have a set budget in place for AdWords, while another might let their budget be dictated by how many clicks their ads generate.
Your Target Customer(s)
Every e-store has buyer personas and target customers they’re looking to satisfy. These demographics and customer models will play a huge role in your marketing initiatives, but before you get to that point, let these personas inform your pricing.
Are your customers value-based or luxury? Frequent shoppers or occasional shoppers? Some business models just aren’t as profitable at the end of the day like others. For instance, groceries are bought routinely and carry thinner margins than irregular purchases, such as a store that sells high-end electronics online. Understanding the price point that will resonate with your ideal customer, and considering how often you’ll sell to them, will provide pricing clarity.
Pay Attention to Competitors and Your Industry
Unless you’re entering a super specific niche, you’ll likely have at least a few competitors, in some cases, several. Do your homework on these companies by aggregating as much pricing, product, customer and shipping info as you can in a spreadsheet.
These details will give you a rough sense of whether the store is operating with low, average or high margins. It might also help to see how these brands are advertising themselves to customers, such as the keywords they target in SEM and the types of social media content they post. On an overarching level, consider your niche and how it’s trending. Is it stable, trending upward, downward? You can use tools like Google Trends to gauge historical search data around core terms that relate to your business.
Not all businesses make killer profits, and certainly not right away. For some operations, the goal is revenue growth instead of profit. When pricing your e-commerce products, it’s important to commit to what kind of business you want to be long-term.
Pricing your e-commerce products may seem like a straightforward enough process, but it’s hard to introduce one pricing model and then adopt another. In the end, the ideal pricing balance is one that drums up business yet still leaves you with enough margins to reinvest in your store for continued growth.