Let’s take a step back and define a pricing plan before we go any further. A pricing strategy is essentially a collection of rules or techniques that a company might employ to price its products and services.
Cost-based Pricing
Make no mistake about it: eCommerce pricing strategies are marketing tactics, and nailing your pricing is one of the most effective ways to boost your conversion rate.It’s like running a race without a track when it comes to running an online business. When you manage an online business, you need to have a pricing strategy in place not to overprice your products, or worse, underprice them.
First and foremost, we have a cost-based pricing strategy.We’ll start with this pricing method because it’s the most straightforward.Cost-based pricing entails adding the cost of your products (including shipping charges) to the margin you wish to make from each product to arrive at a price for your products.
Of course, you’ll need to include marketing expenditures in these rates as well, or you risk making sales without earning a profit.When it comes to developing a cost-based pricing strategy for your company, there are two significant considerations.
What Is Cost-Based Pricing and How Does It Work?
The overall cost of a transaction, as well as the profit margin you aim to make per sale.So, let’s look at an example of how cost-based pricing works.Let’s pretend you’re the owner of an online women’s clothing company specializing in crop tops.Because you’re dropshipping, you won’t have to worry about manufacturing costs because you’ll be buying your products directly from your supplier whenever you make a sale.
You spend $5 on sourcing your suppliers’ products and $2 on shipping them to your clients.This brings you to a total of $7.Then you increase the cost of Facebook ads by $5 per product to drive visitors to your online store and convert them.
So you’ll pay a total of $12 to find a product, sell it, and ship it to our consumer.So far, it’s been straightforward. To finish this cost-based pricing plan, you’ll need to decide how much money you want to charge per product.You could try selling the crop tops for $15 or even $20 a piece and see if you can get any sales – at both of those prices, you’d be making a significant profit.
Benefits
Cost-based pricing is a great alternative for new entrepreneurs because it’s so simple.You can develop a price plan without conducting an extensive study about your clients or the market in which you operate.
You’ll be able to relax knowing that every transaction you make is profitable if you can land sales with the marketing budget you’ve set out in your pricing strategy.Of course, you may put that earnings back into your marketing activities to increase sales even more.
Drawbacks
The fundamental issue with cost-based pricing schemes is that they aren’t centered on the client. They’re concerned with the bottom line.Instead of thinking about how much money your consumer wants to pay, you utilize this pricing technique and concentrate on how much money you want to make.
Even if you don’t have any customers right now, it’s critical to consider them when establishing a business.That’s because your consumers are the lifeblood of your company. You cannot progress without them.
Another common pricing strategy for eCommerce businesses is competitor-based pricing.It’s a more complicated pricing strategy than cost-based pricing, but it’s still accessible to entrepreneurs of all levels of experience.That’s because, as the name implies, a competitor-based pricing approach focuses on analyzing your niche’s competitors.
Competitor Based Pricing Strategies
When developing a competition-based pricing strategy, you’ll need to look at other brands that sell similar products to yours and take note of the prices they’ve established for them.Of course, the research will include both high-end and low-cost retailers.
Why? When it comes to competitor research, you want to do it well.Before you can confidently create a competitor-based pricing plan, you need to obtain a clear sense of what’s going on at all levels of the niche you’re selling in.After that, you’ll utilize your findings to determine the prices for your products. This pricing method can be very beneficial if you conduct your homework correctly.
Final Thought
You may now go through the websites of your competitors one by one and check their rates.That’s just acceptable; you’ll gain a thorough understanding of the market you’re in this way, even if it takes some time.You could, however, employ a price tracking program to collect data about your competitors’ prices for you without having to make any human effort.
When you have a decent sense of the average pricing for your niche’s items, compare it to the cost of making a sale, and the gap between the two amounts is your wiggle room.So, if the average price of a yoga mat is $40, but it costs you only $20 to acquire and sell your product, you can charge anywhere from $20 to $50 for it.
