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How to Price your Products on Shopify
Last modified: December 8, 2023
There are several things that can make a business successful on Shopify. One of those things is to make sure that you’re pricing your products successfully online. There are many ways that people think you should calculate your product prices.
But it is an important point on Shopify. Too low a price and even though the unit profit is there, the overall profit of your store is too low because of the fixed costs within the business like Shopify basic plans, marketing, leases, insurance and more.
So what are the options for you to set your store’s prices?
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The first thing to look at is how much of a profit margin you’re going to make. Ideally, you should be aiming for a profit margin of about 40-70%. This is the value of the price that is profit. Therefore, items that cost the consumer $10 should cost you between $3 and $6.
This allows you to promote your product at times with discounts that could go up 10-20%, which is significant enough that customers might be interested in them. Therefore, you can still make a profit in sales at a good level.
Another thing is to consider how much you’re going to sell at specific prices. For instance, if you can sell about 1000 units at $10 but only 100 units at $15, then you might be best-selling at $10. But that does depend on the profit margin of the unit. If the unit costs $9 for you, the profit is still higher at $10 selling point.
This does take some time to find out, and you might need to try out some prices before the best price is found for you.
You can also use your competitors to discover what prices you might want to sell at. There are lots of competitors out there for your products, even if they aren’t the same, there are going to be comparable products which you can use.
This isn’t the most accurate because research has found that consumers will spend more money with a brand they trust. However, if you can build good reviews by using apps like Vitals or other review apps, then you can build trust with your audience and this can help you charge more of a premium, while also being competitive with others.
A good example of this is if your competitors are selling a product at $10.99 and have a 4.4 rating on a review site, but you have a 4.8 rating on the same review site, you might be able to charge $11.99 for the same product. You will get more profit per unit, but at the same time, you could get more sales because you have a better reputation.
Pricing Strategies For Your Shopify Products
Understanding Market Sensitivity
Price sensitivity is a crucial factor in eCommerce. Customers are well-informed and seek maximum value for their money. Therefore, understanding market trends and customer expectations is vital.
Regularly testing different price points with real customers can provide valuable insights, helping to refine your pricing strategy.
Cost-Plus Pricing Method
A straightforward approach to pricing is the cost-plus method. It ensures covering all costs while achieving a sustainable profit margin.
This method involves adding up all costs associated with bringing your product to market, including production, shipping, and marketing, then applying a desired profit margin.
Value-based pricing focuses on the perceived value of your products to customers.
This strategy involves setting prices based on how many customers believe your product is worth, considering factors like brand reputation, product quality, and customer service excellence.
Practical Shopify Product Pricing Tips
Analyzing competitors’ pricing is essential. It helps in understanding the market standard and positioning your products appropriately. Ensure your prices are competitive, but also reflect the quality and value of your products.
Dynamic Pricing Techniques
Consider dynamic pricing strategies, such as promotional discounts or seasonal pricing. This can attract more customers and boost sales, especially during peak shopping seasons.
Ensure these strategies are used judiciously to maintain product value.
Utilizing Pricing Tools
Leverage Shopify’s pricing tools, like the profit margin calculator, to simplify the pricing process.
These tools help in determining the most profitable and competitive price points for your products, considering all variable and fixed costs.
Conclusion: How to Price your Products on Shopify
There are numerous ways that you can price your products on Shopify. Above are three options to easily price your products that allow you to earn a profit and gain sales without pricing yourself out of the market. Part of the process is making your brand more trustworthy.
What role does cost of goods sold (COGS) play in Shopify pricing?
COGS is crucial as it represents the direct costs of producing your products. Accurately calculating COGS ensures your pricing covers these costs while allowing for a healthy profit margin.
How can I use psychological pricing in my Shopify store?
Psychological pricing, like setting prices slightly below a round number (e.g., $9.99 instead of $10), can make products appear more affordable. This strategy can effectively increase sales.
How can customer feedback influence my pricing strategy on Shopify?
Customer feedback provides insights into perceived value and price sensitivity. Use this feedback to adjust prices, ensuring they align with customer expectations and market trends.