Tips for calculating prices for your online shop
The calculation of product prices is one of the first steps to take when opening your online shop. Like solving other math problems, it may seem like a difficult task to accomplish, but it’s easier than you think. In this article, we will show you an easy way to calculate the final price of a product in your online shop. We describe in this article Tips for calculating prices for your online shop.
You will find calculation examples, you will see how discounts and shipping costs affect prices and you can use our calculator to establish the final price of the products in your shop.
Let’s begin!
The right price for your / your potential customers
The right price must be high enough to generate profit and low enough to entice customers to buy.
The prices of many successful online shops are in range from 40 to 200 euros. This range allows generating sufficient margin to cover the costs of production, packaging, and shipping of the order. At the same time, it is a price range low enough to push the potential customer to buy and love your brand.
How much are customers willing to pay?
It is very useful to check the prices charged by competitors, especially those of competitors who operate in the same sector as you and have had a shop for a long time. Even if you may not know how they calculated their prices, you will get an idea of what price level is considered attractive by potential customers.
Once you have created and published your shop-like online gambling site, you can experiment with different prices. If a customer is willing to buy a product for 40 euros, will they also be ready to pay 45?
The value of a good deal
Would you buy a pair of shoes that cost 2 euros? Would you expect good quality? What would you expect from a pair of shoes that cost 200 euros?
When potential customers compare different shops, they get an idea of the average prices of the products they are looking for. If your shop is displaying above-average prices, people may expect a much higher level of product quality than they are willing to spend. When the prices are very low, however, people, expecting a low quality of the products, may desist from buying. In this case, a strategy that helps to sell more is to raise prices slightly.
The ideal price is the one that makes potential customers think that considering what they are going to pay, the purchase will prove to be a good deal.
Do product prices reveal anything about your brand?
The prices of your products create expectations. Whether or not these expectations are met will affect how people look at your brand. In the case of a luxury brand, the customers will say: “This product is expensive, but it is worth what it costs”. If, on the other hand, your brand does not focus on the exclusivity of the products, but on affordable prices, the buyers will choose it because they will know they can “count on its cheapness”.
Think carefully about how you want your pricing strategy to reflect your brand identity.
Calculation of the basic price of the products
The basic price of the products in your shop is calculated by adding the following three elements:
- Product Cost: How much you paid to purchase or make the product
- Profit Margin: The percentage of profit you want to earn
- Tax: The percentage of VAT or other tax that you have to pay on the sale
First of all, you need to apply the profit margin to the cost of the product and then calculate the taxes. For example:
A pair of shoes has a production cost of 25 euros.
Add 20% profit margin.
The rate is 17%.
Your pre-tax selling price is:
25 * 1.2 = 30 euros
The sales price inclusive of VAT is equal to:
25 * 1.2 * 1.17 = 35.10
calculating prices
What about the shipping costs?
Shipping costs are usually charged separately. After selecting the shipping options to be made available to the customers, you will have an overview of the costs for the delivery of the orders. These costs can increase depending on the size and weight of the packages. Careful and intelligent order packaging can help you cut down on expenses.
Some online shops encourage purchases by offering free shipping of products. Those who manage the shop continue to pay the shipping costs but manage to offset the costs with the increase in orders due to the advantageous offer.
When to offer free shipping and spread costs on various orders:
- If you notice that using the wording “free shipping” on your online shop, you start receiving more orders
- If you can accurately estimate the total shipping costs to be faced for the various orders
- If the shipments are high compared to the final price (cost + margin + taxes) of the products
When to charge shipping costs:
- If your / your customers who buy in your shop also can collect orders directly in the shop
- If you have recently opened your online shop and you cannot yet predict the exact amount of shipping costs
- If the shipping costs are very low compared to the final price of the products
If you have built your shop with Jimdo, you can enter the shipping costs in the shop settings.
Pricing lower than the competition can be a good strategy for attracting more customers. It must be said that the prices of your products influence the perception of your brand. Before you lower your prices, experiment with discounts to see the effect on sales.
