Pricing For Profit

Whether you run your business in an online or physical store, pricing your product is one of the essential elements you should focus on. This affects every aspect of your firm, from your expenses and profit margin down to its cash flow. A pricing mistake can make a big difference in all of it. You do not only consider your pricing to create profits alone but for it to benefit your company’s reputation and the satisfaction of your customers with your services or products. Explore every bit of this post to help you with your pricing decisions that can attract customers while earning a reasonable profit.

Understanding Your Unique Selling Proposition

Competition for eCommerce brands is tight since they compete with local and international brands. As an entrepreneur, you have to be wise enough to create a strategy that sets your products or services apart from what other businesses offer. You should know exactly when to stand out as you sell your products or services. This is why a unique selling proposition, most commonly referred to as USP, is a wise strategy for business owners to create an impression to the customers that their brand is better and unique than others. Proving the industry you are in that you are the best brand is not enough. You must establish what you want to be known for, and creating a USP is how you can do it.

Establishing a solid marketing strategy like USP can make or break your business by attracting, retaining, or losing potential customers. USPs are more than a company slogan or offer. It must be distinguishable, appealing, and can quickly be delivered with consistency and value. It should be the first step you must take before considering the pricing, customer concerns, and other business agendas you must fulfill.

For example, The North Face’s eCommerce brand has the USP “product that lasts a lifetime.” What sets them apart from other brands is their promise of getting your money back if a fault can be found in their products. They ensure that they produce high-quality, durable materials that can last a lifetime. If a customer proves otherwise, they will be given a choice to repair, replace, or guarantee money back.

How to Determine Your Cost

Cost are important indicators that can help business owners, market analysts, investors, and other related people understand past business conditions, predict a firm’s future performance, and aids in making economic decisions. This is the value of money expensed for producing items or delivering services. There is one widely know formula in determining the cost: labor + components + tools + marketing costs + overheads = cost. Let’s break down this equation.

The cost of labor includes the payment to employees; components include the materials used in producing the items; tools can be the machine needed for production; marketing costs are the expenses you make upon selling your products or services which specifically direct to promotion; and lastly, overhead costs are expenses you will incur in running your business such as internet and telephone bills, utilities, rent, and other related costs that are within the scope of its definition.

Common Types of Pricing Models

Each business uses varying pricing models to gain profit. The strategy they will use may rely on their entrepreneurship goals. To find a suitable pricing model, you have to determine factors that affect the price, such as the demand for your product in the market, the cost of items sold, the behavior of the consumer, and current market conditions. Despite the different pricing strategies, gaining profit is the common ground among them all.

There are indeed more pricing models you can use in your business. However, we have listed the following most common types that may help you with your pricing concerns.

  • Skimming is a pricing strategy that maximizes the price at first release the gradually reduces it after some time or when the product becomes less relevant. Usually, technology-related products use this type of pricing.
  • High-Low pricing is somehow similar to skimming. The only difference is the prices drop just one time at a given rate, not gradually.
  • Premium pricing strategy creates an impression of luxury, quality, and value to customers. When we say premium, that means that your brand, regardless of the price, will sell out because the customers will be willing to pay as they are after the product’s luxury.
  • As its name suggests, psychological pricing is a way of enticing your customers with an altered price. An example could be an item set to $9.99 instead of $10 to trick customers into a lower price.
  • Bundle Pricing is a method of including two or more similar products in one set and price.
  • The condition of your market determines competitive pricing. The pricing must be within the range of your competitors’ prices.

Profit Margin

Profit margin determines your business’s sales rate in percentages after subtracting all expenses. This is important because it can help resolve financial problems quickly, determine whether the company’s profit is in good health, and help create business decisions. It can also show other parties like investors and creditors how efficiently a business handles financial concerns.

Profit margins are divided into the net, gross, and operating profit margins. Gross profit is what remains after subtracting the number of items sold. Net profit is the difference between the cost of goods sold (COGS), operating expenses, taxes, and interests. Lastly, operating profit margins result after deducting COGS and operating expenses.

Each of these types creates different results. Each business also determines whether its profit margin is good or bad. The age and size of a corporation affect a firm’s profit margin. New companies are more likely to have more significant profit margins than established ones. Usually, as businesses expand, profit margin also decreases.

Pricing Adjustments You Can Make to Increase Profit Margin

Strategically increasing prices can help you raise profit margins. You cannot easily choose a pricing model that may have worked for others because it’s not a one-size-fits-all solution. Setting it right can boost profit or otherwise might create a more damaging effect on your yield. You can study the different pricing strategies that best fit your goals, your customers’ needs, and the overall market.


The advantage of running your eCommerce site is the privilege of adjusting prices later on. However, as a wise entrepreneur, you must think clearly of your choices as this affects you or your business and your customers. If you are starting with your trade, always remember that it is risky but don’t be afraid to try different tactics as you go on. Pricing can sometimes be complicated for beginners, but you will have an excellent grasp of it once you have already familiarized your business, customers, goals, and market.

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