If you have an online store, you know that you need to update the inventory from time to time. Importing XLS files and product descriptions isn’t the only way to promote new products, though. You have to take care of the quantity, figure out how much profit you can make, set pricing strategies, and more. Since it’s a pretty complicated process, you should give it your full attention. When you’re trying to set the right retail price for your products, there are a lot of things to think about. Covering all of them will give you a better idea of how much money you can expect to make from each product. By the end of this article, you’ll have a better idea of how to set the right prices for retail.
How to figure out the price at the store?
Setting prices for products isn’t just about keeping a certain profit margin. Now, smart resellers use the prices to help sell their products better. By using websites to compare prices, many online stores change their prices to get more people to visit. This is a sure way to make money. A study done a few years ago found that price is the most common reason shoppers choose to buy products from a certain site.
So, you now know what setting prices in retail means and how important it is. In fact, there’s a whole science behind it. All you need to do is learn the steps and put them into action. First, let’s look at the latest pricing strategies and then find out what we can do with them.
Markup pricing
It’s the most common way to set prices, and the industry has a name for it. Markup pricing is figuring out how much the profit margin is when the retail price of a product is divided by the profit margin. You don’t have to worry about formulas and hard math. You can instead use a percentage calculator to fill in the fields. If you’d rather do it by hand, you can just divide the markup by the retail price. Here’s what I mean:
$10 / $20 = 0.5 (50%)
The manufacturer or supplier sets the markup price, which is $10. The $20 value, on the other hand, means that the product costs around $20 in stores, etc. So, you’ll make 50% more money than you put in. Even though it sounds great, you still need to keep your markups high because you can “play” with the prices for marketing purposes. If your default profit is 50%, you can offer discounts, promotions, pay for advertising, and more.
Minimum Prices for Ads (MAP)
Next, you should know that some manufacturers and suppliers tell all their resellers the minimum price that can be advertised for each product. As a reseller, what does this mean for you? Most suppliers choose to use the MAP strategy to figure out the retail price of a product so that sales are fair and there is healthy competition. In other words, if your supplier sets their latest product’s minimum price at $100, no dropshipper will be able to sell it for less than that.
Most suppliers already have their prices set, so dropshippers are usually told ahead of time. If someone sells for less than the MAP, they will be breaking the “Terms and Conditions” with their supplier, and there will be consequences.
Competitive pricing
Competitive pricing is another way to set the right retail price for your goods. Competitive pricing is the exact opposite of minimum advertised pricing, as its name makes clear. There are two ways to set prices in a way that is competitive, and it’s best to know both before putting prices on products.
Setting prices higher than your competitors is called “premium pricing” or “prestige pricing.” This usually happens when you sell high-quality items that are hard to find on the Internet, like luxury clothing, and where the competition is low. Also, depending on where you live, you can set prices if you live in a developed country where the average household income is higher than in developing and third-world countries.
On the other hand, if you change your prices so that they are lower than those of your competitors, you are lowering your prices. This gives you better marketing chances because your prices are really lower than those of your competitors. Selling items at lower prices will almost always bring in more money.
Strategies for setting prices based on sales and discounts
When it comes to marketing, there are many different pricing strategies that are all about discounts, special offers, and different kinds of promotions. Most online stores use two or more strategies at the same time to see which one works best. We’ll let you decide which of the following strategies works best for you.
Shipping is free
Think of this pricing method as a part of what people call “psychological pricing.” When we see the word “FREE,” it makes us want to buy something right away. It’s a trade trick that’s been used for a hundred years and is now known as a “giveaway.” People always like it when you give away free things, especially on social media. It usually leads to a lot of shares, likes, comments, and free exposure for the brand. Another way to sell “free” items is to charge more for shipping and then call the item free. Even though more of the products are sold, the profit margins are usually small.
Bundling products (Bundled pricing)
You must have heard about deals that come as a whole. When thinking about how to set the right retail price for their products, most online sellers will use this pricing method. So, you can often find an online store that sells a bundle of several items at a discount. For example, there are a lot of online tech stores that sell laptops and offer discounts on other accessories. Still, resellers love this pricing strategy because it makes more money for them when more people buy.
In other words, the idea behind this method is to make secondary sales with smaller profit margins so that the total number of sales goes up. But if you don’t use it right, it could go wrong. Since it’s a package and not just one product, some customers will be unsure about whether or not to buy all of them instead of just the first one, which is what they had planned to do.
Price skimming
One of the most important ways for more experienced resellers to set prices. It starts with high prices and then slowly lowers those prices over time. This is a great way to make a lot of money if most of your business comes from repeat customers. As soon as all the stores start selling the same things, you can start to lower your prices to still have the best deals.
You’ve probably seen most of these ways to set prices, but probably from the customer’s point of view. Some readers might think this is easy, but in reality, it’s a complicated process of trying things out and figuring out who your audience is.
How to decide how much a product will make in profit?
Unless your supplier makes you set default profit margins, this process is pretty different from one industry to the next. To put it simply, formulas and strategies that work well for one store might not work as well for another. Every store is different, and each one has its own pros and cons. So, it’s up to each business owner to try different things and find the right mix. It’s also an important part of running a business and a task that never ends.
Every month or so, store owners need to look at their products and set new prices because new products are always coming in. Also, competitors put out new versions of the same products with fair prices as soon as they can. So, you have to set new profit margins all the time, and you have to do it carefully. We should break this process down into a few steps and use a clear example to help you fully understand it.
Let’s say you and your best friend decide to make and sell handmade silver bracelets online.
Calculate costs and expenses
First, sit down and write down all of the costs. From getting the materials to making and shipping each bracelet, there are a lot of costs. Figure out how many bracelets you can make every day, and make that your main goal. You’ll be able to figure out everything later with it. Let’s do the next thing.
Look for ways to save money.
You can save money by getting more than one offer for the materials from different suppliers. The market is big, and if you spend some time researching the local suppliers, you can always get the best prices. This will add to your monthly income in the long run, so pay close attention to the details. For example, people who run restaurants always try to find the best ingredients at the best prices. Since you’ll be buying in bulk, make sure to ask for discounts whenever you can.
Putting prices on things
Find out how much your competitors are charging for the same products, bracelets in this case. Write down the average prices on the market, including the lowest and highest ones. Now, if you need $500 to buy the materials and you think it will take you around $500 worth of time to make these bracelets, that adds up to $1000. When you add the $500 shipping costs to the pile, the total operating costs come to $1500. In this case, you’ll need to make at least $2,000 per month from your business. After selling everything, you’ll have $500 and the other $1500 will be ready to pay for the next month’s bills.
Plans for the future
Now, figure out, based on how many bracelets you can make, about how many you can sell each month. This is the best way to figure out how much you will spend (and make) in 30 days. To figure out expected profit margins, all you have to do is divide net profits by gross revenue. The most important step comes after that.
Evaluate, compare, and adjust profits (using past, present, and future sales)
Try to take a fresh look at your profit margins every so often. This will help you see things as they really are. Also, compare the money you made each month. Why? Because in this field, comparing the past to the present can tell a lot about how a business will do in the future. If some of the numbers don’t make sense, it’s best to start over and look at the numbers again. Remember that a business can’t just go from making $500 per month to $10,000 per month. At least, not if you don’t have extra money to spend on advertising.
How much should a product make in profit?
As we’ve already talked about, setting profit margins depends on location and products. Before you set prices, you will need to think about both of these things.
Profit margins based on location
In countries with more people and higher average incomes, you can pretty much set the prices. The best ones to go after are the U.S., Australia, Germany, the U.K., Canada, France, Scandinavia, etc.
Customers in most of the countries listed above aren’t too picky about prices, so you can set higher profit margins here. If they make more money, they don’t have time to look for deals on the Internet. Instead, they just want to buy the product, so if you offer discounts, your profits will go down.
Profit margins based on the product
In the retail business, there is a general rule that says the higher the value of the product, the higher the profit margins. So, if you want to sell high-quality (higher-value) products, you can expect to raise the price by 30–100% at first. Sometimes, resellers sell items and make twice as much money. There are millions of online customers, so it’s not clear if this happens by chance, because of the size of the market, or for some other reason.
Conclusion
Depending on what kind of store you want to open, setting the right retail price will be a big part of how much money you make. Some will be perfect for big businesses, while others will help small businesses make more money. No matter what you decide, you should sit down, make a plan, figure out costs vs. profits, and then look for a clothing dropshipping supplier.
Lastly, if you start making money with one strategy, don’t change it until sales start going down. Once they do, they can think about switching between markets, offering discounts and package deals, and anything else that brings in more sales.
