Product pricing is essential for every type of business, it can be both traditional and e-commerce. Good product pricing adds value to the existing product. But, do you know what product pricing is? Product pricing is the method of converting the monetary value of a product into numerical terms.
As an eCommerce store owner, you must understand how to price your products in your Shopify store. You should care about the price of the product because it represents your shop’s assessment.
In this article, we will concentrate on the process of adding and managing Shopify product pricing.
Methods of Implementing Product Prices for Shopify Stores
Before making a pricing strategy, a store owner should know the practical procedure for adding prices manually in Shopify. The practical procedure provides proper guidance on how to create and manage product and service pricing.
For instance, if you are selling a product at a discount, then you must make visible the difference between the before and after prices to your customer. So, the product information should include a sale price alongside the original price. This process is called “compare at price.”
This technique enables store owners to share the difference between a product’s original price and its current price in an engaging way.
But how will you set this up on your Shopify store? Here are the steps of the setting process:
#1 Setting “Compare At Price” for A Product
On the Shopify Store, “compare at price” refers to the original price of a product that appears on its listing while it is on sale.
In this process, first go to Shopify admin, choose the store, and click on the product’s name. Secondly, go to the pricing section and set the comparison price to the product’s original price. And lastly, insert the product’s new sale price by tapping on the “Save” option.
Furthermore, a special note for this setting is that the value in the “Compare at Price” setting must be higher than “Price” to show a sale price.
#2 Setting “Compare At Price” For Variant
The setting of the single product and variant is slightly similar, but there is still some distinction. Here is the step of setting the price.
- First of all, select the product from the product page
- Next, go to the variant section
- Find the preferred variant and click on edit
- Then, in the pricing section, set the comparison price to the original price
- Lastly, select the product price at the new offer price and save it
This technique is a wonderful concept to improve sales, not only for the price comparison option but also for customizing product pricing or seasonal promotion. Furthermore, on the eve of seasonal sales, adopting a bulk order management application can be useful for your clients of a Shopify store, for example.
Basic Strategies And Rules Of Making Product Pricing
Including a product offer, regular product pricing is also significant because it defines the value of your product. It also allows you to maximize profit margins, as well as helps you maintain market share, but you may ask why does this pricing strategy work?
It works because these techniques provide a few factors to examine before settling on a product’s pricing. For example, pricing should be precise so that clients do not become confused and get lured easily. If you do not follow this, you may lose potential clients.
Similarly, product pricing should not be excessively high or low, because otherwise, customers will not purchase products because of the high price.
On the other hand, if a product’s price is too low, the customer will assume something bad about the product’s quality. According to the product plan, customers may be turned off by a low-cost product because they believe it to have lower importance. As a consequence, the business will be unable to sustain a profit margin if the owner sells the product at a low price on a regular basis.
As a result, it is important to set a suitable price for the product. It can be retail or wholesale. To manage a Shopify store in the case of bulk orders, use a suitable product pricing application. Here are some rules for setting product pricing.
- Determine the price and cost based on the product level
- Focus on profit margin
- Keep an eye on the fixed cost
- Usage of a product pricing calculator
Rule 1 – Determine The Price And Cost Based On The Product Level
The first rule is to keep an eye on the variable cost. For example, sales commissions, direct labor costs, raw material costs, etc. A business owner should be clear about the overall cost of each product. Therefore, a customer is also interested in knowing the cost of sold products.
So, before putting any random price on the product, do proper research about variable costs. Because, this cost includes monthly store charges, payment rates, developer fees, Shopify third-party application costs, etc.
Again, packaging, storage, labor, shipment, licensing, security, and all other expenses associated with third-party distribution partners are all included in your fulfillment costs.
Lastly, an eCommerce store also requires domain names, marketing, employees, and software costs. So make a pricing plan that meets your minimum profit target and let the cost be adjusted.
Here is an example of how a product’s price will be set. Suppose the price of a product is $20. So, other costs should be:
So, we can see that product pricing includes all essential costs related to the business.
Rule 2 – Focus On Profit Margin
Profit margin is a metric that measures how profitable a business’s economic enterprise is. It is calculated by dividing income by revenues. Moreover, a good profit margin is important for any type of business.
The average gross margin for eCommerce is around 40%. Though each online store is different. So, it is essential to examine the profit margins and develop tactics for increasing them.
For an e-commerce business, the profit margin is quite different from a traditional business. As per a 2016 Marketing Sherpa survey of eCommerce businesses, the average gross margin of product lines was 30% for smaller stores and 37% for larger ones.
Here you can see the difference between the profit margins of two different eCommerce stores, so the distinction between traditional and eCommerce stores is obvious.
The cost of an online order is significantly lower than the cost of a traditional method. For example, a brick-and-mortar business demands a few extra costs, such as rent, labor, etc. But a B2B business does not.
So, what is the process of finding a B2B business profit margin in Shopify?
Let’s say on top of the variable cost you want to make a 20% profit margin. Now, how do you calculate the price of your product? Have a look at the formula for revealing your desired profit margin.
Target price = (Variable cost per product) / (1-your desired profit margin as a decimal)
Here, total variable costs are divided by 1 minus your desired profit margin as a decimal. So, for 20% profit (or 0.2), you must divide the variable cost by 0.8.
So, you will get a base price of $17.85. You can round up it to $18.
Rule 3 – Keep An Eye On The Fixed Cost
Variable costs remain unchanged whenever the sales or production volumes increase or decrease. They are not directly involved in producing a product or in the provision of a service. Such as taxes or labor salaries. But the fixed costs are concerned about these costs.
To set a fixed cost, compare it with the variable cost to decide how many products you need to sell to break even. Break-even analysis calculates the sales volume of a product or service so that a company can recover the cost of the product or service.
These estimates might help people in business make an informed decision about how to strike a balance between covering fixed costs and establishing a realistic and reasonable price.
Rule 4 – Usage of A Product Pricing Calculator
Use a pricing structure calculator to calculate a profitable product selling price to avoid the hassle. The profit margin calculator on Shopify is a professional tool for calculating pricing.
To calculate, simply input your gross cost for every item and the profit percentage you want to generate. Then click “Calculate profit.” The program will use the inserted figures to calculate the ultimate price that you should charge to your clients.
This calculator uses a cost-plus pricing approach, which calculates the ultimate selling price by adding a percentage markup to the manufacturing expenses.
Pricing Strategies for Shopify Stores
After you have done with the rules of Shopify product pricing, some kind of pricing plan is needed. These are some common strategies:
- Pricing on a cost-plus basis
- Set a competitive pricing
- Pricing based on the value
- Approach to Price Skimming
- Offer pricing
- Keystone pricing method
#1 Pricing On A Cost-Plus Basis
The simplest way to determine the price of a product is to use “cost-plus pricing.” It is also called “mark-up pricing.” In this technique, you simply create an item, add a fixed percentage to the expenses, and sell it.
The benefit of cost-plus pricing is that there is no need to look into the market, your competitors, or even your clients because you have already decided how much extra you will charge per product.
For example, if the cost of making a product is $1,000 and a business wants to acquire a 20% markup, the product’s selling price should be $1,000 + 20%, which is $1,200.
And here is the theory: cost x mark-up = selling price
#2 Set Competitive Pricing
When an owner of a Shopify store sets the pricing data according to their competitors’ purposefully lower prices than each other, it is called “competitive pricing.”
Product value is usually the key driver behind this strategy. For example, in industries where the price is the primary distinction, and you depend on pricing to gain clients, pricing can help you.
Unless you are setting a lower cost per unit than the suppliers by decreasing costs and promoting your special pricing, this technique will work. But when you are a smaller retailer, this technique can be challenging to maintain.
Because lower pricing implies smaller profit margins, it will need to sell more units than its competition.
#3 Pricing Based on Value
Value-based pricing is also known as value-added pricing or perceived value pricing. Fixing the price of a product based on how much a consumer peruses a product or service is known as “value-based pricing.”
A business that practices value pricing must have a product or service that makes it better than its competitors. Soit requires some aspects:
- The brand should be well-known
- Products that are both high-quality and in high demand
- Unique marketing techniques
- Customer relations are excellent
- Exceptional business record
So, follow this strategy for your Shopify product pricing business to meet the criteria. For example, fashion businesses are significantly impacted by value-based pricing strategies. Popular name-brand designers typically demand greater costs due to buyers’ expression.
#4 Approach To Price Skimming
In the price skimming approach, an eCommerce business demands the highest opening cost and a customer is willing to pay. Thus, this business cuts prices after a certain period and modifies its products to attract new customers. A price-skimming strategy helps in the creation of a quality-oriented brand image.
For example, Apple has been following a price skimming strategy for a long time. But, before applying the price strategy, be sure about your customer demand and brand value. Because price skimming only works if the demand curve is stable and does not respond to market fluctuations.
#5 Offer Pricing
This pricing technique is the most common and well-known for any eCommerce shop. People love to get great offers and discounts. An offer price can grab the bulk of the traffic on your Shopify store.
Customers willing to pay the value of your product are loyal and will return to buy from you. According to studies, a 5% improvement in client retention can result in a profit rise of 25 to 95 %.
But stop offering frequent discounts. Otherwise, you will lose your product value.
#6 Keystone Pricing Method
The keystone pricing process requires overpricing all products by double the wholesale cost. That means keystone means that if the product costs $50, the sale price will be set at $100.
The basic formula of Keystone makes calculating prices relatively simple and quick. You can use this pricing strategy to keep a healthy profit margin. Competitors play an important role in this method.
If a competitor sells the same item for a lower or higher price, the keystone methodology must be updated to reflect the market price. For example, a jewelry shop can follow a keystone strategy.
The keystone pricing policy is mainly designed to be used in brick-and-mortar stores. It is reasonable for traditional businesses but not for e-commerce businesses.
You may ask why an online store should not follow the keystone method. The answer is that online stores sell their products at a lower price and retarget their customers to overcome losses.
If an e-commerce store uses keystone pricing, its low-cost benefits will disappear, causing customers to go somewhere else to shop.
To conclude, if you have a store on Shopify and are planning to grow more, you must know how to price your products in your store, besides some basic rules and strategies. Drop your old method of product pricing and choose the trendy one. We have just mentioned a bunch of product pricing strategies. Choose your preferred one.