Here, we zoom out from the basics and look at the strategy behind products, pricing and sales. Imagine yourself shopping for your product. Would you be willing to pay the price? The main thing is to retain a balance between what you’re willing to pay, and what it takes to give your eCommerce store — your eCommerce business — a skyscraper-high revenue.
PPP: Price Products Properly and you’ll bring cash-flow, financial stability and eCommerce store success.
Anything skyscraper-high has to start low, and since products are your foundations, you can strengthen them with specialisation. If your store trades technical instruments, for example, rather than selling everything from microscopes to semiconductors, try specialising in tech tools for architects. This is niche marketing, and it involves concentrating on a sector and marketing your products or services to it.
There’s a worry that niches can limit sales and lower profit margins, but a well-defined specialism can be a boost to your business. The sharper you define your market, the more your store can ‘speak’ to it. Result: more and more architect-customers who buy; spread the news and raise your revenue skyscraper-high.
Factor in Profit
As we wrote in our Pricing - Basics article, to Price Products Properly, you need to cover your costs and factor in profit. We recommend that you estimate the costs inherent in each of your products. Take ‘Product 01’ for example. Create a spread-sheet of everything you need to cover per-month for — just it! These might include:
- Manufacturing cost
- Supplier’s cost
- Delivery-to-your-warehouse costs
- Stock-taking costs
- Your salary as owner or manager
- Employees’ wages
- Your fixed overhead costs (mortgage, rent, insurances)
- Your variable overhead costs (delivery, utilities, pest-control)
- Debt service costs (costs associated with borrowing money)
- Any additional production costs (bar-coding, packaging)
- Your marketing/advertising costs
- Return on the capital costs invested by you/owners/shareholders
- Capital costs for future expansion
- Income tax
Add these estimates together. There. You have a raw figure of what money ‘Product 01’ is made of. If you were to sell it for this amount, it would cost you dearly. So, decide what percentage you need to mark up ‘Product 01’ by, and how many you need to sell to make a good profit.
Whatever you specialise in, if you run your eCommerce business from home or as a sideline, most of your costs are domestic and would exist whether you were in business or not. But how many rooms are you using as office and ‘warehousing’ space? If it’s one room out of four, don’t lose hard-earned cash; apportion to your business 25% of your mortgage or rent, and 25% of your utilities.
Think about your profit margins. If they don’t have a recommended price to go on, shopkeepers mark up wholesale prices by 50% at least. What’s more, many retailers turn to ‘keystone’ as their formula. This is as easy as ‘think of a number, double it’, because it really does entail taking a wholesale price and doubling it. So you could take a £10 set of drafting pencils from a manufacturer or wholesaler, and sell them online for £20, no wait; £ 19.99.
Pricing your products using cost + mark-up is attractively simple, but not always sustainable. There are a number of questions to bear in mind:
- How much is your market willing to pay?
- How is your store perceived in the market?
- How much do your competitors charge?
- Are your products highly visible to your market?
- Are your products frequently shopped-for and compared?
- How much does each of your products sell in volume?
Your answers will trigger a reason to raise or lower your prices. But arm yourself with data that tells you what's currently working within your product-range. Some of your products are making money — but which of them are losers? Look at each one’s profitability and continue with what works and change what doesn't.
Having said that, not all your products have to make a profit! Try offering some below their recommended retail price, or ‘at cost.’ Think of other ways to entice store visitors and push them to your products. You can track these visitors and perhaps later, target them with customised ads and social media marketing.
If you would rather not price from scratch, how are your competitors pricing identical products? Perhaps you could justify a higher price by offering an extra or two.
Time and Number Magic
Exploit the magic of odd numbers. For example, a ‘£39.99’ price-tagged product sells a lot more than if it’s tagged ‘£40.’ So price ‘Product 01’ just below £40, or raise it to £43. Hold on; £43 and £45 send out nearly the same numerical signal. Tempted?
Within a product category, tag one at a relatively higher price — the others will positively exude value in comparison. This ploy is often used in the online selling of software as a service. Here, a ‘Platinum’ or ‘Enterprise’ product is offered, but what’s urgently conveyed is that the next item down is the ‘most popular.’
Use time to your advantage. You can accelerate sales if you advertise that a price is an ‘introductory offer’ or limited to ‘one month only.’ Or try offering a short-dated voucher code that only lasts a weekend. ‘Buy one - get one free’ offers are popular too; they’re better than ‘50% off’ promotions that always seem to shout “I’M LOW VALUE!”
Talking of values, pitch your store at the right level. Is yours a ‘premium’ eCommerce store, a ‘standard’ store or a ‘budget’ one? Each has its place in cyberspace, but for shoppers who crave quality, ‘cheap’ might look like your store lacks eConfidence.
In eCommerce, making skyscraper-high revenue requires a formidable product-range and a pricing strategy to match. Put yourself in your customers’ place: are your prices fair? And it’s important to ‘know your customers’ — regular and otherwise. The more you know, the easier it is to sell them what they value.