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Ecommerce Forum

Pricing on your products?

 10:27 pm on Dec 5, 2006 (gmt 0)

I just have a quick question to ask.

Do you guys apply a fixed percentage of markup on all of your products?

Or, do you have a few different percentage for different categories?



 11:00 pm on Dec 5, 2006 (gmt 0)

Its easy to be 'busy fools' sending out lots of low value products and making no money. So, the cheaper the product the higher the mark up.


 11:11 pm on Dec 5, 2006 (gmt 0)

For us, it depends on the product and the competition's prices. Granted, we deal with services, but it translates into the product world as well.


 11:16 pm on Dec 5, 2006 (gmt 0)

For myself it really depends on the competition.


 12:48 am on Dec 6, 2006 (gmt 0)

I did a little research. Some of the products I got from my vendor are higher than what my competition offer, and some of them are lower than my competition. So that's why I'm having a hard time.

For those Item that are higher than my competition. If I try to offer them at the same level as my competitor I end up not making alot of profit(overall cost+overhead+shipping). On the other hand, I think my site are better design, and will be listing higher on the search engine.

Should I still just used a fix percentage variable for all of my products?


 1:07 am on Dec 6, 2006 (gmt 0)

It's up to you- you get to charge whatever you want.

A fixed markup price makes everything easier to manage, but you make it very easy for your competition to undercut you. When you manage to get a great wholesale price, you also miss out on a lot of extra profit if your competitors didn't get similar deals.


 1:21 am on Dec 6, 2006 (gmt 0)

I found this formula that would work best for my scenerio.

(Total cost X desire markup percentage)+totalcost = retail prices

* In figuring out the total cost I already add the cost of web site hosting, and state and federal taxation. Since the taxation are fix variables, if I break it out over a few hundred products. My profit margin should be able to cover that, and still make a decent profit. At the same time my pricing per unit cost shold also be decent enough to make seem reasonable to average consumers.

Am I right to assume this? If there's anything wrong with this assumption, please help me to correct it. I don't want to be in "the losing business".


 1:53 am on Dec 6, 2006 (gmt 0)

There are a lot more important expenses to consider than those you have mentioned. Web hosting is cheap and generally insignificant. Taxation? You only get taxed when you make a profit, which is hard enough.

The killers are the advertising costs (ppc mainly), commercial link purchases (directories etc). Don't for one minute think you will be able to manage on organic listings for traffic, especially if the site is new.

Then there's the numerous other people with their hands in your pockets - merchant account providers (if you get one), gateway fees, third party processing fees, chargeback fees (they will happen).
Then there's the hits you take on returned items, not to mention time you need to deal with cutomers, update websites, deal with inefficient suppliers etc.

Then there's the secure certs you need to buy, domain registrations etc.
Depends on your niche, but unless you mark up your items about 40%,
I think you'll have a hard time being profitable.


 2:00 am on Dec 6, 2006 (gmt 0)

FalseDawn is 100% correct.


 2:17 am on Dec 6, 2006 (gmt 0)

FalseDawn. I want to thank you for pointing out a few of the item I neglect to add to my Total Labor Cost.

I did factor these item in as part of my Total labor Cost: web hosting,merchant account providers, gateway fees, domain registration. I got it as part of my webhosting package.

I didn't add these item as part of my Total Overhead cost ; third party processing fees, chargeback fees, ppc, commercial link purchase. Since my Total Overhead Cost are things that I didn't factoring in but will effect me greatly.

So what I have is: Total labor cost + Total Overhead Cost + Product Cost + desire markupu percentage(40% in this case as you suggest).

Since I have over a few hundred products, will I be able to break the Total labor cost, and Total Overhead Cost over those hundred of products? If I can do that than those two variable will be fraction per item, which will help bring down my Total product Cost per item and will give me a greater profit margin. If I need to get into a price war, I might even be able to slash further and still make decent profit margin.

Although price slashing is not something I look forward to. It's a very bad market strategy for the long run.


 4:23 am on Dec 6, 2006 (gmt 0)

We sell mostly wholesale - In general 2.5 times production cost = what we sell the item for - varies greatly on demand or lack of demand.


 6:44 am on Dec 6, 2006 (gmt 0)

when someone says "markup your items 40%", does that mean yourcost+(yourcost*40%)?

I alwasy get confused with exact definitions of margin, markup, etc...

for example, if sell widget a for $15 and i pay $7.50 for it, do i have a markup of 100%? is my margin 100% too?


 5:51 pm on Dec 6, 2006 (gmt 0)

for example, if sell widget a for $15 and i pay $7.50 for it, do i have a markup of 100%?

Yes, doubling the price is a 100% or "keystone" markup. Another term you might hear depending on the industry is "Triple Key" which is tripling the wholesale price.

Markups really vary by industry. In the industry I am in, 2.5 to 3 times markup is common because of the added costs involved in sales. In the lower end of the market, a five times markup isn't unheard of, especially if the products are cheap Asian imports instead of US or Canadian produced items.


 6:13 pm on Dec 6, 2006 (gmt 0)

thanks redwolf. i always knew what worked for my biz, i just got the terminology confused. appreciate the info


 6:45 pm on Dec 6, 2006 (gmt 0)

Yes, doubling the price is a 100% or "keystone" markup.

Doubling the price--keystone-- is a 50% markup, which is to say that the retailer makes 50% of the selling price. Terminology may vary with the industry.

Keystone markup:
- A markup in which the cost price is doubled or a markup of 50 percent of retail is obtained. For example, if an item is retailed at $20 and cost the retailer $10, then the keystone markup has been applied.


 8:28 pm on Dec 6, 2006 (gmt 0)

People equate quality with price, you can fail to sell anything because youve priced it to low, strange but true.

I have seen this happen and it has never ceased to amaze me, public just cant tell value with out being told.


 8:36 pm on Dec 6, 2006 (gmt 0)

^ I could agree with that. If you set your prices too low, potential customers may also wonder why your prices are so low - reflecting negatively on your company.

When starting my ecommerce site I actually prompted to undercut the major online retailers in my niche. This seemed to work well, but wasn't very productive for the business. Now that the business is building substantially, I've slowly raised my prices. Very few seem to have even noticed, and it doesn't seem to be effecting sales at all.


 6:58 am on Dec 7, 2006 (gmt 0)

A fixed markup percentage is easy to implement, but you won't realize your maximum profit potential on any single item. In reality, a subset of your products will make the most money for you. You can raise prices on some items, while other needs to be lowered. I think by offering a low price (not the lowest price) with fair to good service can be a workable formula in some industries.

Aside from margin, I have some other factors I consider when pricing products. Those factors include my business and personal expenses. I want to spread those expenses across every item I sell. Some business expenses I consider are:

Business Expenses
* Purchases, Cost of Goods Sold.

* Postage & Delivery
- inbound shipping: inventory purchases, supplies, returns. I think your inbound shipping charges need to be recouped somehow by raising your profit margin percentage or by including a handling fee in your shipping quotes.
- outbound shipping: shipping to customers, daily pickup, usps postage

* Tax (income tax, state tax, self-employment tax, sales tax, business license tax)

* Credit Card Processing - payment gateway, merchant account, chargebacks, paypal fees, google checkout fee

* Advertising (ppc, shopping comparison engines, ebay, amazon, etc.)

* Business rent & insurance (?)

* Returns. If you can't re-sell your returns or return to the supplier for a credit, that is one less unit you can sell. that raises your unit cost (e.g. bought 50, but you sell 49). Also products damaged enroute that UPS/FedEx will not pay a claim on is also one less unit.

* "Shrinkage" - theft, online fraud, bad checks

* Information Technology - dsl/cable, web hosting, shopping cart, software purchases, web design, programming, file server, workstation, printers, etc.

* Shipping supplies (boxes, packing material, tape, envelopes, paper, toner, labels, etc). Milk the free supplies that your shipping carrier (ups, fedex, usps, dhl offers) provides to keep expenses down. This can also be factored directly into your shipping and handling fee. Others may factor it into the item price instead. If you're an affiliate marketer or pure drop shipper, this may not apply to you. Any drop ship fee incurred to you could also be captured as a handling fee to your customer.

* Bank fees - interest paid on loans, wire transfer, late fees, monthly account fee

* Utilities - phone and fax


 4:29 pm on Dec 9, 2006 (gmt 0)

I do have another question. If I price myself with a 40% markup while the rest of the competition are charging 20% markup price for their products. Should I under cut myself. I know what chopping could do to the market.

Do consumer gear toward lower price?
Or are they gear toward better site design and navigation?


 7:13 am on Dec 11, 2006 (gmt 0)

I do have another question. If I price myself with a 40% markup while the rest of the competition are charging 20% markup price for their products. Should I under cut myself. I know what chopping could do to the market.
Do consumer gear toward lower price?
Or are they gear toward better site design and navigation?

It depends on your marketing plan. Do you want to be the Mad Marvin Discount Bin shop, or an exclusive boutique shop? Each method has it's followers and can be profitable, but you really need to have a more distinctive product and/or marketing plan if you are not going to compete on price.

Personally, I aim more for the higher end of my marketplace. For one reason, they always have money even when the common Walmart shopper might not. They also seem to appreciate my work more. I only vaguely keep an idea of what the rest of my competitors are charging. I am about in the middle of the upper tiers. I don't really even bother playing in the lower tiers with the importers who all have the same products in the same type of osCommerce stores for a few percentage points above their wholesale costs.

I have found also that when I raise the prices on some slower moving pieces that they suddenly start selling much better. Also, I was taught very early in my career that if you looked a situation where you doubled your prices and lost half of your sales, you still came out with about the same revenue with a half of the work.


 4:08 pm on Dec 11, 2006 (gmt 0)

>>>Do consumer gear toward lower price?

In a word .... yes.


 5:29 pm on Dec 11, 2006 (gmt 0)

Do consumer gear toward lower price?
Or are they gear toward better site design and navigation?

Three factors go into the sale of a product: quality, service and price.

Pick two to compete on.

If you want to offer the lowest price, then you will have to sacrifice either quality or service.

Candid India

 5:06 am on Dec 12, 2006 (gmt 0)

there is a static price and mark up on all the categories but yes according to the requirements and features required by client and the project's duration and overall cost some minor changes can be made.


 8:32 pm on Dec 13, 2006 (gmt 0)

some slower moving pieces that they suddenly start selling much better - Yep people equate price with quality

Oliver Henniges

 10:09 pm on Dec 14, 2006 (gmt 0)

>Depends on your niche, but unless you mark up your items about 40%,
>I think you'll have a hard time being profitable.

Quite recently I imported a couple of thousand niche products into my database from a very good supplier who delivers all his items as single units even those whoch only cost a few pennies. For the very low-price-products I calculated different prices for 10, 100 or 1000 pieces, as long as the final sum was less than 1000 Euro. Overall I used this formula:

$sellfor= $buyfor*(1.2+(1/sqrt(sqrt($buyfor)));

A degressive curve with exorbitant profits for the pennystocks, stabilising at 20% markup somewhere beyond a thousand $$ for a single deal. Ineresting it averages to exactly the 40% markup Falsedawn mentioned. And it has the clear advantage that my employees might use it with a primitive calculator quite easily, looks much more complicated than it is.

I'm still in the testing-phase, but I think I will constantly move to calculate all other products alike next year. Of course, precise price findings depend on your market niche and your specific costs, but I doubt it makes sense to constantly monitor your own prices and those of your competitors. You might loose a lot of time.

From a psychological point of view it might also be quite helpful to say "I am the one who sets the trends and prices." (My formula, respectively). The formula itself will definitely undergo a finetuning in the future, but I will definitely move towards a unique calculation formula over all my products, no matter what my competitors will do with specific product groups.

[edited by: Oliver_Henniges at 10:11 pm (utc) on Dec. 14, 2006]

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