How To Set A Price Point For Your Products

Deciding on a price point for the first line of healing crystal gift sets for Little Box of Rocks was probably the task that made my head spin the most. Having no prior experience in retail, I had no clue how to set a price that would be both fair to the customer and profitable for the store. And so, the method to my madness in the beginning was to drive my friends and family crazy with questions like, “Does this price seem to high or too low?”

Very scientific, I know.

Thankfully, we don’t have to pull numbers out of thin air and drive our friends and family crazy along the way.  I’ve come to learn of a much more practical approach to deciding on a price point for our products.

A Simple Price Point Formula

Cost x 2 x 2

Here’s an example: Let’s say you sell essential oil. If each bottle costs you $5 to buy wholesale, you will want to double this cost twice. So, your retail price would be $20.

With this being said, it isn’t always this simple. It does become a little more complex when you have a product that is comprised of multiple components. If your product comes with various components that add additional costs (i.e. note cards, extra packaging, etc.), you will have to add the cost of all the various components as well as any labor that you pay for in assembling the product. Remember to also factor in costs like shipping, import fees, and product packaging as these costs all count when it comes to calculating the cost of your product.

What about wholesale?

Cost x 2 = Wholesale price

If you decide that you want to become a wholesaler of your products, you will quickly learn that retailers almost always want a cut of 50%. Thankfully the formula has us covered. Simply take your cost and times it by two, and you will have your wholesale price. Double it again and you will have your MSRP or your “Manufacturers Suggested Retail Price,” which is the product that it will sell for in stores.

Exclusivity vs. Accessibility

While the formula makes pricing your products more of a science, it can become more of an art when you take into consideration what the price point says about your brand. In other words, what does the price point communicate to your customer? Does it convey a sense of exclusivity or accessibility (affordability)?

Let’s imagine that your best friend buys you a crystal bracelet. You are so touched at her generosity because you know that this bracelet sells for over $200 in stores. But let’s imagine that you found out one day that she bought it on sale for $20. Would you feel the same way about it? Chances are that your perceived value of your friend’s gift would decrease, even if you didn’t mean for it to.

So while the price point formula is effective, there are times when we might choose to strategically abandon it in order to convey a sense of exclusivity. Before making this decision, ask yourself, “Could I see this product on a shelf in Walmart?” If the answer is no, you might consider setting a higher margin price point to reflect the luxury feel that you wish to convey.

The Free Shipping Dilemma

One of the most important decisions you’ll make as an online store-owner is whether or not to offer free shipping. Free shipping is something that customers have come to expect when shopping online, and in fact, many will opt to abandon cart if they have to pay any extra fees for shipping.

If you do choose to offer free shipping, whether it’s done with a minimum purchase or with every product, you will want to consider building this into your price point as well. And while one option is to factor in the entire cost of shipping and add it to your prices, often brands will add only a portion of it. In other words, they’ll add just enough to make the shipping price palatable for the consumer. For example, if a product retails for $24 and shipping for this item costs 17.99, the retailer might opt to increase their product price by $8 to $32, and adjust the shipping price for the customer to $9.99 instead.

Room For Promos

The last thing you’ll want to ask yourself is whether or not you will be offering discounts and promotions. If so, you will need to decide if you will allow these promos to cut into your profits, or if you will increase the price point to compensate for them. You’ll need to ask yourself how often you will be running promotions. If your brand positioning is designed to convey luxury, perhaps you will hold off on discounting altogether. But if you are offering frequent promotions, let’s say with every new subscriber to your mailing list, you might consider padding your price point to accommodate for these frequent sales promotions.