How To Determine the Optimal Price for an Ecommerce Product?

You gain a considerable advantage via doing early optimal pricing. This is because it could accelerate your path to profitability.
optimal price

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How do brands decide how much their products should cost? Understanding what your customers want to pay is crucial since it can be challenging to balance the supply chain, revenue targets, competition, and countless other factors that have an immediate impact on how well your business performs.

This article is written to help eCommerce business owners in understanding pricing and how to optimally choose the best prices for your products. What’s the big deal about this? Well, since everything is priced. It influences the rate of cart abandonment, first client impressions, and even the full shopping experience.

 

You will anticipate learning the fundamentals of optimal price in this article.

What is Optimal Price?

what is opt price

Optimal Price is the price that optimizes the revenue, profit, or a combination of the two.

To determine the pricing of any given product, this procedure involves applying data analysis to understand how consumers will respond to various prices.

In other words, price optimization is the process of determining the product’s best-performing price point. A sort of pricing optimization known as “behavioral price optimization” examines consumer behavior using on-site sales data from retailers.

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Optimal Price Formula

You can find the optimal price of your ecommerce/dropshipping or any other business products using optimal price formula. It will help you determine your pricing structure if you want to do the math and include more factors, or want to change the importance of particular values.

The optimal price formula is:

Final Product Price = Base Product Cost + Your Profit Margin

Here Base Product Cost = Costs for materials + labor + shipping  + marketplace fees + other costs

For instance:

$100 for electric fan supplies + $20 for labor+ $10 for shipping, $20 for marketplace fees (if sold in-person) =  $150 for the base production cost.

Now Profit Margin= Base Production cost x Markup

For example Base Product cost 150 x 50% markup = 75$ Profit Margin

 

Here because

Final Product Price = Base Product Cost + Your Profit Margin

Final Product Price = 150$+75#= 225$

 

Common Strategies for Finding the Optimal Price

optimal price strategies

There are some good product pricing strategies available. One of the key skills that will decide the success of your business, regardless of whether you’re a laser-focused marketer, a strategic business owner, or an entrepreneur, is learning how to identify the ideal selling prices for your products.

Cost-plus pricing, competitive pricing, and dynamic pricing are the three most popular strategies used by organizations to set prices.

  • Cost Plus Pricing

A cost-plus pricing approach involves calculating the final price of the product after accounting for all production costs. This entails adding a markup percentage to the entire cost of the product’s production in order to achieve the targeted profit margin.

 

Let’s say you wish to offer a coffee mug as an example. If each coffee mug costs $20 to produce and you want to generate a 25% profit, you would figure:

 

25% of 20 = 5

 

20+5 = 25

As a result, you would charge $25 for each coffee mug..

The cost-plus pricing strategy is one of the easiest ways for finding retail prices—but that doesn’t necessarily make it the best. 

  • Competitive Pricing

Competitive pricing is a strategy that involves comparing your own ideal prices to your rivals’ products. The basic premise is that if you price your products roughly in line with those of your competitors’ brands, you’ll be less likely to lose clients to those companies.

Let’s take the scenario where you are selling a product that is quite similar to one made by another company. They have a $10 sticker price, so you choose to sell your goods at $9.99 in an effort to draw clients seeking for a deal.

Although this would seem like a definite way to win, the issue with this strategy is that it’s just too basic. After all, when you implement competitive pricing, you base your decision on your retail prices solely on that of your competitors.

  • Dynamic Pricing

Dynamic pricing, in contrast to cost-plus pricing and competitive pricing, enables businesses to swiftly modify their retail prices in response to changing market conditions and other factors.

Whether you recognize it or not, as a client, you have probably already encountered dynamic pricing. Airlines, for instance, charge more for flights at peak times (when there are fewer seats available and more people wish to go) and less for off-peak times using dynamic pricing strategies (i.e., when there are more seats available and fewer people want to travel).

They can always profit to the maximum extent thanks to this method.

Optimal Price Calculator

If you don’t want to do math yourself, you can use this FREE product selling price calculator chrome extension to find the optimal price of your products in one minute. This calculator is available free at google chrome store.

Conclusion

It’s critical to know the optimal price of your products before your list them for selling. You have a lot of competition in the market.

Your success depends on setting a competitive product selling price. In addition to losing money if you underprice your goods, consumers may see them as being substandard and unreliable. Alternatively, if you overcharge for your products, you run the risk of pricing yourself out of the market.

You can use the formula give above in this article to calculate of optimal price of the products. However, if you want to do this easily in just one minute, then you can also use this free google chrome optimal selling price calculator extension.

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Mark Kennedy

Mark Kennedy

Mark Kennedy is an Ecommerce Consultant & Dropshipping Trainer at eComWiser California. He has 12 years of experience in Ecommerce industry. He likes to write articles about dropshipping, ecommerce and online business.

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