|Merchant Account Information|
Pricing Your Products
In our scramble to find a way to offer the lowest prices on the Internet, we often overlook the basic steps that we should be taking BEFORE we even offer a product for sale.
We also overlook something even more important: you dont HAVE to have the lowest price in order to make great sales. Following are some things I do before and after determining my bottom line. I sell by having products drop-shipped for my sites, which works VERY well, but these steps should be covered no matter your distribution method.
Should you be selling this item now
Snowboards dont sell well in the summertime. You may have a hard time moving a pair of roller blades in January. Dont waste your time and your site space marketing products out of season. Ask your supplier for a little historical information regarding the best time to sell their products. Believe me, to everything, there IS a season. They have the figures. If they dont want to share this info with you, find another supplier.
Identify your costs
Profit isnt just the difference between wholesale and retail. You have other costs to consider. Think about every penny you spend in order to get that product to the customers door, and plan accordingly. For example, your merchant account probably costs you about 2.2% plus 30 cents per transaction. On an item youll sell for $20, thats 74 cents. Dont forget that calculation when pricing the item. Are you warehousing the item How much is that space costing you per item per month Did you spend money stocking up on shipping materials How much per unit What about advertising Monthly hosting costs You may need to project some estimated sales in order to arrive at some of these figures.
This may seem very complicated, but its really not. Just take the figures one at a time, and youll arrive at a wholesale cost plus an amount that, when added together, becomes your initial ESTIMATE of "cost of goods sold". Identifying all your costs is critical if you want to price your products properly.
Check out the competition
Search on the item you plan to sell. Check out the competitors prices. But DONT get caught up trying to beat the wrong competitor. You need to stay within your "venue".
My stores are built in Yahoo Shopping http://store.yahoo.com. 90% of my traffic comes from there. When I seek out my competitors, I look for other businesses like mine ONLY in Yahoo Shopping. Then I compare.
If Im thinking about selling a product, and I get 1,500 hits in 400 stores on that item in Yahoo Shopping, forget it. If I get a hundred hits in 20 to 40 stores, Ill look into it further.
So check out the competition, narrow down your product list, make a note of the five lowest prices you find, and then ask yourself another question:
Is anybody going to buy this thing
This doesnt have much to do with pricing, but it should be said.
When considering products, theres unique, and then theres too unique. Yak Cheese may sound like something that nobody else has for sale on the Net. Theres a reason for that. If you sell more than 3 boxes a year, Ill EAT some.
Unique is Rain Barrels made in Maine. Its Exotic Cheeses imported from Italy. Silk Parisian Lingerie. Things you dont see every day, but would be proud to give as a gift.
Then theres "common". Everybody and their grandmothers are selling Alabaster Figurines on the Internet. Do they sell Sure, in a limited fashion. Do you want to sell them Not if you want to make any real money.
In my experience, unique products, like Rain Barrels and Parisian Lingerie, DO sell. So do Coleman Sleeping Bags, and Conair Hair Dryers. BRAND NAMES sell. Look at your potential product, and ask yourself honestly if YOU would buy it on the Net.
Set your price
Take the five lowest prices you collected on a product in your list that has survived the above. Calculate your estimated cost, then subtract that from the lowest price. If you dont see at LEAST 15% profit, dont bother.
If you do, there are a couple of ways to proceed. You can undercut the lowest price in your "venue" by a bit, and hope to "kick off" the product and get yourself noticed. Chances are, though, that the following week youll find that someone has undercut YOUR price by just a bit. That becomes a losing game.
I generally set up a couple of "loss leaders". These are desirable items in my general product line that I sell dirt cheap just to bring in customers. Then I price the rest of my products at the second or third lowest price in my venue. The customers come in for the loss leaders, and then I can market everything else to them via email. I spend a lot of time making my site look better and easier to navigate, and pay a great deal of attention to my customers.
That makes me more reputable in the eyes of the customer. Youll find that people dont mind paying just a little more if they feel comfortable in your store. They dont like to worry that theyre buying from a "hack" who may not deliver. Nothing says "hack" like a cluttered, confusing storefront.
After youve sold an item for a month or two, revise that "cost of goods sold". Measuring past performance is just as important as setting the correct price to begin with. If sales drop, recheck your competition. If thats not it, drop the product, or shelve it until the "season" comes back around. Dont get sentimental about your products, and NEVER just let your store sit there in limbo once it starts to make money. This is a dynamic business; stay on top of it!
A last word or three
Retail pricing on the Internet is so fraught with permutations that it would be impossible to cover everything here, even if I KNEW everything. The steps above are just the basics of a process that works for me. Hopefully something here will strike a chord and work for you as well. Patience and persistence are the keys to a successful Internet business, so hang in there, and dont quit the day job for at least a couple of weeks. ;o
I hope this helps in your future marketing decisions.
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