How do you go about setting the right price for your product or service? That’s a question that people in the ecommerce business often end up asking themselves. Well a common approach for many businesses is to look up competitors and attempt to undercut them in terms of cost or charge more and add a premium to the products or services offered.
Another way that people often go about is through percentage of sale. So let’s say the manufacturer gives you the product for a set amount of price plus your mark up percentage equals the selling price on your ecommerce website. The problem with these methods is that it often leads to a lot of errors and involves a lot of guess work that can lead to businesses overpricing or under pricing the products or services that they offer.
Now the real answer to the question on how to set the right price for your products or services is actually fairly simple – it’s however much the market is actually willing to pay for it! The truth is that there is no exact mathematical formula for coming up with the right price for your product or service. What businesses should do instead is focus on asking the market how much they are willing to pay for individual products or services in order to maximize profit. How should one go about doing it though?
Well you can start by split testing prices on your website to see which ones actually end up bringing more profit in your bank account. Let’s say you are in the business of selling cameras and you’ve set a price of $500 because that’s what most of your competitors are selling at. However, if you’ve taken the time to install split testing software on your website you can then run different prices for your product – perhaps $500 for one visitor and $600 for others.
Of course goal of split testing is to determine over time which price point contributes the most profit to your bank account. Think about it – at the $500 price point you have to consider a number of fixed costs that you’d have to deal with in order to deliver your products or services to your customers which includes:
- Cost of goods or services
- Staffing cost
What if through split testing, you find that your market is willing to pay you $600 for your product? That means you’d be able to add $100 of pure profit to your bottom line. Sure it might decrease the number of buyers that actually do make a purchase from you but you will most likely find more profit in your pocket at the end of the day. You may be surprised how much profit your business is potentially missing on if you stick with your original price point without proper split testing!
Don’t simply take our word for it though – take the time to split test your prices and see what it actually does for your ecommerce business. If you found this useful please subscribe to our channel, share the video and leave a comment below. I’ll be seeing you in the next video!
Samuel Junghenn is the Managing Director of Think Big Online and has over 12 years experience in Online Marketing. He is passionate about building businesses using the power of automation and the Internet along with the thrill of motor racing.