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 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?
Set your product price aligned with your brand position. In this way, you are building your brand awareness as well.
Before pricing your products, you need to research your competitors and know about the competition you will face.
- 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 stand out from the competition?
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 have different base costs. So think carefully before pricing your product.
Your target audience plays 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.
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 shipping cost. If you got questions calculating your shipping fee, please feel free to contact your dedicated agent.
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.
So the price for the gift box should be
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.
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.
About the Author
May is a blogger at Sup Dropshipping with over 5 years of experience in eCommerce. May’s passion for eCommerce drives her to stay updated on the latest trends and share her expertise with you through her blog. In her spare time, she likes to read a novel or chat with friends.
28 responses to “How to Price a Product: A Step-by-Step Guide”
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
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?
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?
hello I need help how to set price
I need help
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?
Como mudar minha loja na Shopee para internacional?
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.
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
All the products I want to list are not in English. Is there a way to convert them to English?
qazi abdulah is
hi; I am new on this platform. I need to understand how to set price. plz guide me thoroughly
i need help
Recently i started my jewellery store for dropshipping
help me to find best sellers for jewellery
with best price ,good quality
and plzz let guide me about return policy
e.g if my client is not satisfied soo how i can return product
I need help in how i can et my price
The system showing me error. It shows that set your price again and again however I set my price several times but it didn’t let me proceed further
hi, I was wondering if my agent can negotiate shipping prices with the suppliers? thanks,