There are many ways to set prices for your business, and sometimes the best way to find out which one works best is to try them all. But that can lead to some surprises, and some people just can’t take that unnecessary risk.
You don’t have to worry though, because in this article, we’ll talk about the different ways you can set prices for your business. So, without further ado, let’s jump right into what’s important.
Cost-based pricing is the first thing on the list.
Pricing based on costs
This strategy is pretty much the easiest and most common way to set prices. It’s likely the first thing people who want to start their own business think about. After all, it’s not hard to understand. To make money, you just add a fixed percentage and amount to the total cost of your product.
It’s simple, easy, and very convenient to figure out. It doesn’t take much time, and it has been shown to work many times. It’s a tried-and-true strategy, and many businesses have tried it, thought about it, or even taken some ideas from it.
As an example, look at this online store that sells Baja hoodies.
Now, try to figure out how much it will cost all together. You should first think about how much it will cost to make, including the cost of materials, labor, and any other fixed costs you might have to pay along the way. Let’s say the total cost of the whole thing is around $60. You can start making a profit if you charge $5 more, but that won’t be enough if you have other costs that you have to pay for in order to run your business.
Since you have an e-commerce business, you also have to worry about shipping costs and maybe even advertising costs. For cost-based pricing to work, you should try to get at least 50% of the profit margin.
Pricing based on what people want
Consumer-based pricing is another pricing strategy that works well in many industries, like SaaS startups. What’s the reason? Because pricing based on the consumer does not take into account the costs of making the product. Instead, you should try to price your product based on how much people are willing to pay for it.
This takes advantage of the fact that if your market is willing to pay more for your service, why not charge them that amount until you’ve reached your limit? Consumer-based pricing doesn’t care much about how your competitors price their products. Instead, you should focus on making sure your prices are as good as they can be and that your customers still think your products or services are valuable.
But there is a catch to this plan: you always have to keep developing and coming up with new ideas. It doesn’t have to be about your product or service in particular. If you make it easy for people to buy from you or talk to you, you’ll get the sales you need.
Not much of a catch, really. But in the long run, pricing based on what customers want gives you both the profits you need and the new ideas you’ll have to keep coming up with if you want to be successful.
A lot of e-commerce sites on the internet use bundled pricing as a way to set prices. You also see it a lot in malls and shops where people buy things. It’s one of the best ways to set prices, and when combined with the right marketing techniques, it can get a lot of people interested in your products.
Putting together a package of products and services and offering a discount on the total price is a great way to get a lot of attention. This is because people might be more interested in getting everything they need at once instead of looking for each item separately.
This is even better when it comes to e-commerce because you can do a lot of marketing along with the bundled packages. You can do things like use predictive dialers to call your current clients and offer them these discounts when they buy more than one service from you.
You can easily show infographics or pictures of the bundled product and its extras on your website or on other e-commerce sites. You can even send emails to customers who seem to have forgotten about bundled packages they put in their shopping carts on your online store.
When you combine discounts, ease of use, and quantity, you get a great deal that many customers will find hard to pass up.
Dynamic pricing is the exact opposite of pricing based on costs. It’s a plan that depends on being able to change and adapt to different situations. In dynamic pricing, your prices shouldn’t stay at the same point for too long. Instead, they should change based on how supply and demand are always changing.
Food prices tend to change a lot because so many people need it and the supply is always changing because of things like weather, natural disasters, bad crop seasons, pests, and so on.
The same thing can be said about e-commerce. If you have a lot of customers in a short amount of time, you have to keep raising your prices. But that doesn’t mean there isn’t also something bad about this. Due to price changes, some people aren’t willing to pay when the price is high and would rather wait until the price goes down.
In the long run, that will hurt how many sales you make. In a way, you’re trading high-priced sales for fewer conversions than you would get if you charged a fixed price.
Pricing based on the market
On the other hand, a market-based strategy involves looking at how much your competitors charge for their products. It’s a lot like being a copycat, but instead of copying your seatmate, you look at a lot of other competitors and try to figure out which one works best for your strategy.
A great way to get a lot of attention in the market is to look at your competitors’ prices and try to gain an edge by undercutting them while still making a profit. But it does come with some costs and questions about why you charge less.
That is easy to refute. If you can meet the quality requirements for the prices you sell at, customers and consumers will pay a lot more attention to your brand name. This is because you offer the same product as everyone else, but at much lower prices.
Let’s look at this paddleboard store that sells online as an example.
If they can keep their paddleboard prices lower than their competitors’ while keeping the quality, customization, and accessories that come with their products, they will be much more competitive in their niche market than their competitors because they’re just giving the customer a better deal overall.
There are a lot of tools you can use to easily keep track of your competitors. Tools like HubSpot sales hub are well-known for this kind of in-depth research, and you can easily base your market-based pricing strategy on this.
Premium pricing is the opposite of pricing based on what the market will bear. On this plan, you don’t try to undercut your competitors’ prices. Instead, you try to push your own prices to the limit. Because you want to charge a high price, you try to make your product look expensive and of higher quality than similar products.
Premium pricing is often advertised with words like luxury, exclusivity, and quality. There are companies that believe in these three things and show their customers that it’s not just talk, but that they really do sell high-quality goods.
Take this online store that sells protein supplements as an example.
Their business is pretty unique because it’s all about health, and people are often willing to pay more for protein supplements that they think are of better quality. When it comes to these kinds of goods, most people care more about the quality than the price because their health is often at stake.
You can even offer quality discounts on high-priced items, like the military discounts that big companies often use to get certain customers to buy their products.
Pricing at a higher level is a great strategy, but only if you have the money to back it up. Customers who are willing to go the extra mile to buy from you will give you a lot of money. This will happen if you are much better in terms of quality or if you have very exclusive and expensive products.
But if your brand name can’t keep up with the hype, you run the risk that nobody will want to buy your products or, worse, that people will think your products are a way to get money or a scam.
Before you put your pricing strategy into action –
Once you’ve decided on a pricing strategy for your business, there are a few more things you need to check and get ready for before you fully jump in. It won’t be good if some things that could have been avoided stop your initial change and forward progress in their tracks.
First of all, you should always know what your business does well and what it could do better. If you don’t have the assets to back up your inventory stocks, you might want to get an inventory management platform first to keep your sales line from getting backed up. After all, you need the right tools to carry out the right pricing strategy.
This keeps you from missing out on possible sales and also helps you build trust with your customers because you can give them what they asked for. The only thing that’s worse than bad prices is not having enough products to sell.
Get in touch with your niche.
After you’ve stocked up, make sure you have the marketing skills you need to sell your goods and their attractive price lists. Make your online store as appealing as possible to the people you want to buy from. Try to get as much attention as you can on your website or social media pages. You can also try to appeal to people’s sense of beauty by using images and graphics that look nice.
Before putting in place any new pricing strategies, you should market as much as you can. If you can’t do any of these things or are just getting started, you don’t have to worry too much about marketing new pricing strategies. Instead, just focus on marketing your brand and business and laying the groundwork for your future business goals.
Get your site ready.
The last thing you need to do is make sure that your website and other e-commerce platforms are all set up and ready to go. This is the last and most important step that will decide how successful your new pricing strategies and online store will be in the end.
If you didn’t talk to your web designers about how ready and able your website is to handle the traffic, no one would be able to buy your products or even see them.
Before the big show, use UI research and analytics tools to get the most out of your website. Also, make sure to optimize and maximize your website as soon as you can.
Businesses often make the mistake of not being ready for things that don’t happen often, like releasing a product that becomes an instant hit. Too many companies have lost a lot of potential sales in the past because their first wave of customers slowed them down.
Find Out What Works!
After putting your pricing strategy into action and getting the first sales, it’s important to look at how your company did. At this point, all that’s left to do is make sure everything goes well and check to see if and when the pricing strategy worked. It’s best to keep an eye on sales and marketing for a while to figure out if the pricing strategy you’ve chosen is working for you.
This information will be even more useful to you if you ever decide to change your pricing strategy again, or even if you just want to take your current pricing strategy to the next level in your current business. At the end of the day, information does help you make better decisions about how to take your business to the next level with the pricing strategies you already have.
You can choose from a lot of different pricing strategies for your business. Some work better in certain situations than others, but it goes without saying that pricing strategies are important for the success of any e-commerce business that wants to break into the internet markets.