One area that a lot of online business owners seem to be constantly challenged by is how to determine pricing of their products.
Unfortunately, there is really no simple answer to this question.
When I work with clients to help determine their pricing we tend to work through a series of questions and processes. The things you will need to consider include:
- The weight of the type of items you sell
- The size of the products
- Where they are going to
- The average dollar amount of each sale
- The average size of each order
- Any special packaging requirements
- The general budget of the customers you are marketing to
The main challenge with calculating a postage cost is when orders are for different sizes and amounts of items, and going to different locations. All of these factors affect how much you will pay for postage and packaging.
Some online stores will calculate the exact cost of postage for an order and then add it to the total bill. While this is the most accurate method, you may risk losing sales. Firstly, many people will want to know the price of postage before they place an order with you. Secondly, most people who shop online want everything to be quick and easy, so they will want to know the cost of postage up front.
Another option would be to include a postage calculator. Keep in mind however that some people, when calculating the postage amount, may enter the incorrect details, they won't necessarily know the size or weight of a product or they may find this too much mucking around.
A third option, and one of the more popular choices, is to have a set price for all orders or a range of set prices. For example, $10 postage on all orders or $5 postage for orders under $50, $10 for orders between $51-$100, $15 for all orders over $100. This can work well and you would calculate this based on your average postage costs.
The fourth option is to offer either free postage on all orders or a flat fee for orders under, say $100, and free for all orders over $100. Because your postage costs may add up to a considerable amount, you can't afford to be paying the postage yourself. This cost must be accounted for somewhere, so you would include an amount for postage in the prices of your saleable products. By doing this it still works out much the same for you - instead of charging $40 for a product + $5 postage, you're charging $45 for the product and free postage. However the benefit is that if your customer is looking at free postage when they purchase products from you or $10 postage when they purchase from one of your competitors, who do you think they will choose?
When helping my clients with online stores to calculate the postage on their products I suggest they follow the following process:
1. Based on previous figures or estimated figures for new businesses, calculate average postage amounts.
2. Decide which methods you think will be best suited for your business.
3. Run a survey to ask customers what method they would prefer - this can be done via an online survey, a mailed survey or simply by asking each customer, including those on your mailing list if you have one. It's important to remember that you are calculating the postage in a way that is easiest for you but also one that your customer prefers. You may find most of your customers would prefer to pay for postage but have a lower price for your products, while another business' customers prefer to pay a higher price for products in exchange for free postage. Never assume - don't be afraid of asking.
4. After a month or two, evaluate the sales and costs to ensure that your costs are being met and you are still making a profit, without risking sales because your postage costs are too high.
I also suggest evaluating your pricing regularly - at least every six months - to ensure that this method is still the best for your business.
If you find that one method isn't working particularly well and you want to change your pricing structure, by all means go ahead. It can be good to try two different methods to determine which works best. However keep in mind that regular customers won't want to see you chopping and changing all the time. If you change once or twice, that's fine - just don't do it too frequently.
Posted on November 7, 2018