How to Price a Product: A Step-by-Step Guide

Set the best price for your product
Source: envato

Setting a reasonable price is one of the most important steps to make profits and scale your business. But it is not just figuring out a number at once. Your pricing should be carefully considered and periodically adjusted to match with the market.

In this article, you can learn the must-knows before pricing and how to price a product in 3 steps.

Let’s dive in!

What you must know before setting the price

There are multiple factors that affect product pricing. Here we sort out some important ones you must consider before you price your product.

Brand position

Brand positioning refers to how you want your brand deemed by your customers and how it is differentiated with other brands. Here we talk about it from the perspective of product pricing.

Consider what price position do you want to target for your brand:

  • Low price but high-end products?
  • Low price and ordinary products?
  • High price and high-end products?
  • Or high price but ordinary products?

Take Aliexpress for example. Aliexpress is popular with ordinary products at low prices. So most of their products are priced lower than those similar in the market.

Set your product price aligned with your brand position. In this way, you are building your brand awareness as well.

Price a product accoding to your brand position
Price a product according to your brand position

Competition

Before pricing your products, you need to research your competitors and know about the competition you will face.

Research these:

  • How many sellers are there selling the same or similar products as you?
  • What price do they set for their products?
  • Do you have to provide a lower price to your customers to surpass your rivals?

Well, if you have chosen a blue ocean niche, you can definitely charge higher but remember to maintain the price in a reasonable range.

It is always easy to set your price a little lower than your competitors, however, your profit margin may not support that as you may have different base costs. So think carefully before pricing your product.

Customer base 

Your target customers play a significant role in your business. Whatever price you set, you should take their opinion and experience into consideration.

Think about these:

  • Why do your customers choose you instead of other sellers?
  • Do your clients favor your personalized service, unique design, product quality, or competitive price?

Conduct research to check the answers through your social media or communicate with your customers directly if possible. If they choose your brand because of better service, product quality, or unique design, there is no problem that you charge for a premium. Keep in mind that the premium must be a reasonable increase.

Calculate the costs of your product
Calculate the costs of your product

How to price your product

There are various pricing strategies available for online sellers. To make it easy, here we only take cost-plus pricing as an example.

Cost-plus pricing is based on the costs of each product and the profit margin you intend to set. With this strategy, you calculate the selling price by adding a profit margin on top of the total cost of each product.

The procedure is as followings.

Step 1. Calculate the variable costs of each product

The variable costs are costs that changes according to the quantities of products sold, they may include:

  • Cost of the product
  • Packaging cost
  • Shipping fee
  • Advertisement cost
  • Sales Tax or VAT
  • Other commissions

To help you calculate your shipping cost, we developed Sup Shipping Calculator. It is very easy to use.

Filter through the origin, destination, product attribute, and shipping method, then fill in product weight and size, you will get an approximate result of the freight charge. If you got questions calculating your shipping fee, please feel free to contact your dedicated agent.

Sup Shipping Calculator
Sup Shipping Calculator

Step 2. Set a profit margin

Since you already calculate all the variable costs of your product, you can set a profit margin for it next. The profit margin is usually 20% to 30%. But this can be different according to your niche. More margin should be set if your fixed costs are high, you can learn this in the later part.

Step 3. Add the profit margin on top of the variable costs

Now we come to the final step to calculate the price of a product.

The formula you can use is listed below.

The selling price=Variable costs per unit*(1+profit margin)

For instance, you want to sell out a gift box with a profit margin of 30%. All the variable costs of this product are listed in the picture.

Set the price for your product
Calculate the price for your product

So the price for the gift box should be

(5+0+3+10+2+1.5+0)*(1+30%)=27.95

That means you should set the price at least $27.95 to earn 30% profit, which is $6.45. If you want to earn more, you need to set a higher profit margin.

For your convenience, you may refer to our calculating template. To edit the template, you can copy our data and save it as a duplicate, then make your own calculations.

 

Be aware that this price is the last red line, and your sale price should not fall below this. 

Additional Tip: Consider fixed costs for net profits

Fixed costs are expenses that usually don’t change no matter how many products you sell, such as the cost of store rent and plugin subscription. It is mostly used to calculate the net profits of a store. When you want to calculate the net profit margin of your business, you should include fixed costs in all your costs of running the business.

Here are the costs list for your reference, and if you want to learn more about how to calculate the net profit of your store, please check here for the term.

Fixed costs & Variable costs
Fixed costs & Variable costs

Conclusion

Pricing a product seems a bit complicated when there are multiple factors to consider. But setting a well-thought-out and reasonable price to fit the evolving market is always beneficial to your business. Hope our article is helpful to you when you are stuck in pricing your products.

18 Comments

  1. please I want to know what are the costs in addition to your price of item, I want to work with you only on SUPDROPCUSTOM, I’m I the one bearing the cost of the shipping ? please specify to me my basic cost so that I can know to what percentage margin I can fix my price. thanks

  2. hello, i have a shopify store for baby products. the price of the product is b/w 3-10 $, shipping cost is 21$? how would i make any profit or get any customers on this?

    • Hi Salman,
      For your question on how to make profit, it’s easy to calculate the price you should set for each product by the formula in our post. Simply add up all your cost and multiply by 1.3 or your specific margin.
      Well for your question on how to get customers, you should first compare your selling prices with your competitors, and make sure your prices for similar products are not higher than theirs.
      Secondly, if you are not sure about how to get customers, here is a post for your reference:
      https://www.supdropshipping.com/top-digital-marketing-tips-in-e-commerce/

      If you have further questions, please feel free to contact your dedicated agent!

  3. faço dropshiping para a minha loja na shopee,gostaria de saber qual frete o cliente vai pagar, se é o valor mostrado no site da supdropshiping na hora de importar o produto ou é o valor mostrado no site da shoppe?

    • Hi Marcos,
      Thanks for the good question!

      Shopee Brazil is a quite new and nice choice for selling platform. As fara as we know, Shopee requires local sellers’ products only shipped from local supplier.
      Unfortunately, most of our suppliers are from China and requires international shipping solutions to reach Brazil.

      If you would like to purchase from our suppliers, you may change your account status to international seller.
      After that, make sure your product shipping method is set at 3rd-party logistics, and fill in the figures you get from SUP.
      When all these are done, your customers will pay the shipping fee same as you see at SUP.

      Hope this could be helpful to you, and wish you a good sales!

  4. Tenho loja na shopee e na shopfy. Quero fazer drop, porem a forma de envio que aparece no shopee é de 6 dias e quero vender de lojas internacionais (China) como alterar minha conta para vendedor internacional?

    • Hi JULIO,
      To be an international Shopee seller and import products from China, you need a Chinese enterprise license. Please refer to this link for details.
      And it usually takes around 7-15 days for delivery from China to Brazil. It could be a long process.
      Best regards,
      Sup Dropshipping

  5. Hello I use Ecwid for my drop-shipping store. I am a little confused with pricing. My shop is based in Australia and China’s prices are all in USD. Do i advertise the prices in USD or AU dollars. Also if i advertise my price in AU dollars will i be out of pocket at the checkout? And if i do advertise in AU dollars will i have to update daily with the changing price of the US dollar? Do i need to manually change the price from USD to AU dollars, or just keep price set at the USD dollar. Thank you so much for your time.

    • Hi Michelle,
      If your shop is based in Australia, you should advertise the price of your products in AU dollars. And you can adapt your price to your market instead of updating it with the changing price of the US dollar.
      But products from Sup Dropshipping are priced in US dollars by default. When you first list them in your store, you need to change the US dollars to AU dollars. If you want to refer to the price on our platform, you can manually change the currency to AUD with our tool on the most top of the product detail page. Then you can set your price, which leaves room for profits even if there are exchange rate changes.
      Hope my answer is helpful to you.
      Best regards,
      Sup Dropshipping

  6. Bonjour,
    Ne serait-il pas possible d’automatiser le prix de vente par rapport au prix d’achat comme l’application de Dropshipping d’Alibaba ?
    C’est à dire que les prix de vente de chaque article est basé sur la formule suivante :
    PRIX DE VENTE = (PRIX d’ACHAT + FRAI DE PORT) * COEFFICIENT DE MARGE
    Ainsi on n’a plus qu’à définir le coefficient de marge désirée et non pas de saisir tous les prix de vente

    • Hi René,
      Thank you very much for your advice. But we are sorry that we currently don’t have the system to calculate the product price automatically. We are trying to develop such a system to facilitate your calculation. You will be informed via email when we successfully build it.
      Besides, as we said in our article, there are many factors to consider when you set your price. And your cost includes not only the shipping fee and how much you pay for the product, but also tax, packaging, and advertising cost. You may refer to our calculating template to set a proper price.
      Hopefully, my answer can give you some help.
      Best regards,
      Sup Dropshipping

    • Dear Cheryle,
      On top of the product page, just under the website address, there is a “Language” button. If what you see is now not in English, please check the top bar on any product page and find the second button to change the language and currency. Change language
      Happy Weekend,
      Sup Dropshipping

Leave a Reply

en_USEnglish