MBA1824 Ecommerce Product Pricing 101

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Hey oh welcome to the Hunter. Practical Business Lessons every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started back in 2014 with my co founder and in today's lesson you will learn E Commerce product pricing 101 pricing your e commerce products has a totally different strategy than than any other kind of business. There's a lot of information out there when it comes to pricing courses or books, even live events software, but not much on actually pricing physical products you sell in your e commerce store. Luckily in the past I ran my own successful e commerce store with my own brand, my own clothing line and learned a lot of hard lessons when it came to pricing. I'm going to share with you the things I wish somebody told me when I got started and what were some of the moves I made that made all the difference in making my business more profitable and actually more popular with my customers. There are a lot of things you need to consider when it comes to pricing products for e commerce Profit margins, packaging, fulfillment, shipping, returns, overhead. So much more. So having the right pricing strategy is critical to long term success. So let's get into it. Let's get down to business.

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As I mentioned, E Commerce has a lot of moving parts. So it's not that straightforward to price your products. But when it's time to sit down and put a price on every single product on your E commerc store, whether it's a T shirt, whether it's a collectible, whether it's something that's handcrafted or consumable, like cupcakes or all natural juices, pricing is really what's going to set you apart from you and the competition as well as your long term success. So let's get into it. The first thing I want to say is that one of the advantages of E Commerce, especially if you're creating a product that is unique, that you've created your own brand, you have a huge advantage because you don't really have competitors. So I want to speak to the people who are listening that are running or thinking about running ecommerce stores of this nature. Again, you're creating your own product like you're crafting your own clothing or your own artwork or whatever it is. It's not something that you can just pick up from Walmart or Amazon or any other store. You are the sole provider of this product. Now, whatever the product is, yes, of course you will have some competition because unless you have a very unique product, you'll have somebody who has their own brand claiming to produce the same results or the same kind of product. So for example, you might sell an organic shampoo that helps people with dandruff and you have your own unique brand and label. But you'll also have competitors with a similar product with a different brand and label. Now, even though you have competitors, I don't consider them competition because you're able to price differently and drastically different from your competition because you can actually claim you are different versus me selling, let's say Oreos on my website and somebody can go and buy Oreos from the supermarket or you know, Amazon or whatever it is, it's the same product. Now having a unique product on E Commerce allows you to really price yourself out of the competition and you actually want to do this. I actually learned this the hard way. It's actually A bad idea to be competitive in your space when it comes to price because you're never going to win the price war. You're never going to win it because there's always going to be a bigger company that can come in and gouge your pricing, can really undercut you and steal your customers. So it's always actually better to play outside of that arena and be a premium product and actually be expensive on purpose. When I started my ecommerce store was tailored men's clothing. I actually was priced too low and I was competing with designer shirts in department stores like Macy's or Marks and Spencer. My dress shirts were like 40 to $50 and that was directly in competition with other shirts even though it wasn't custom tailored with other brands in department stores. The only way I really started to blow up and my company really became successful and I started to get a lot of customers and more revenue and be a lot more profitable was I priced myself out of that competition. I actually tripled my prices. So my dress shirts were 1 to $200. My cost didn't change, but my dress shirts price, the retail price changed. And what this did is it allowed me to compete with less competition. I wasn't competing with large department stores anymore. My only competition was really high end designer fashion like Tom Ford. But the great thing about being priced expensively is that your customers are not price sensitive. So they will buy you to try you out. They might buy you and not like the and give it to a friend. When I priced my products expensively, when I tripled my pricing, not only did my pricing go up and I made more money, my returns dropped over 300%. So less people returned the product, they would just give it to a friend. If they didn't fit in it or they didn't like it, they just order again. I was dealing with a different clientele and this is very easy to do with E Commerce because you can justify the price by being boutique, by being unique, by being bespoke. So what I advise you to do is price yourself out of the competition, out of your most crowded space. You know your space best, whatever your product is, whether it's organic shampoos or cupcakes or dress shirts. Like in my case, where is it most crowded and noisy. Get out of that space and get clear out of that space big time and double your price or triple them. In fact, I was so shocked how successful tripling my prices were in E Commerce, I actually did an experiment. I actually had a dress shirt that cost $200. But I produced that dress shirt in a unique color, and it was an exclusive poplin blue color that I created. And we only sold a hundred of them. I only made a. It was a limited batch. It's the same shirt, but a different color. And I actually sold it for $350, $150, more than the same dress shirt you can buy for $200. Just as an experiment. It didn't cost me any more money to make this shirt, but I just wanted to see how high can I go. And because of the anchoring and because I'm dealing with a market that is not price sensitive, they bought it, it sold out. Those shirts sold out in less than three weeks, which was fast in my inventory kind of usage. And I couldn't believe it. This shirt is the same exact shirt, different color, 200 bucks. This one, 350. But it goes to show you, people like things that are unique. People value things that are limited. People value things that are exclusive. And you have this advantage with E Commerce. The next fundamental I want to pass on to you is know your costs, okay? I'm talking A to Z, meaning everything, until the customer actually has it in their hands. So that includes production, that includes packaging, that includes shipping, that includes warehouse fees, that includes the materials, all the costs to produce that product. In my example, with my men's clothing, it cost me $23.22. I remember, to the cent, $23.22, to produce a particular dress shirt that I sold for $200. But once I started adding on everything else, that was just a raw cost of how much it cost me to produce, to hand tailor this shirt. After I included all the things I just listed, you know, warehouse and packaging and shipping and everything I have to do to get it to my warehouses and then ship it to the. Even if I'm passing on the shipping fees, I have to ship it to the warehouse or I have to get that to the warehouse so it's stocked and be ready to be picked and packed. It ended up being $52 per piece, which ends up being more than double than the actual cost to produce. So you need to know your total costs, and this is important. Now that I knew it's 52, I can easily see. Back in the day when my shirt was $55 to $100, my profit margins were razor thin. There was no room for me to discount the product if I ever wanted to do a sale or a clearance. So doubling would be great, but I thought tripling would be even better. I actually went 150 and it was doing well. So I went up to 200. So if my product is 200 and I know my total cost to get that, that product in my customer's hands is $52, I know I have a good healthy margin. Even if I do a clearance sale and I do 50% off, I'm still making 100%, almost 100% on profit on those products. So know your total costs because it's going to help you know how far you need to raise your prices. I like to 3x when it comes to E Commerce because it gives me more wiggle room, like I mentioned, for discounts and sales. Insight number three, if your E commerce product is not unique, it is a household brand that people can buy at different stores. Your product is not the product. Your product is the experience. And this is a really tough space to be in. But the only way for you to really differentiate and grow and to really compete is to really offer a better experience to buy that product. So for example, Amazon offers a great experience for people to buy products online, the same products they would buy in the supermarket or buy at a retail store. But people go with Amazon because Prime two day shipping, one click checkouts. All that is going with the experience of Amazon. I will shop at Amazon because the experience is better than me going into the store. That's why they are such a profitable company because they know they can't compete on price. They have to constantly, you know, try to be the cheapest. So the profit margins on the actual products are not great, but they're gonna make money in other ways through the experience. So you're not Amazon, okay? You don't have, or at least I don't think you have the amount of capital to be able to compete with that kind of experience. So you need to do a different experience. One of the things I did in my E commerce store that was incredible and I literally got this idea from Amazon because when I started Amazon, prime just started out and this idea of having a membership and you get certain perks was very interesting. And I had Club Zen Home, which is my. My clothing line was called Zen Home. And not every customer bought this, but my loyal f. The people that love my product that shop at my store more than once a year got exclusive access to me. We did webinars, they got an exclusive newsletter. They got a gift certificate on their birthday. They had first access to early releases or first releases. So they would get first access, 24 hours, first access to anything that we were dropping, anything new and they would get free shipping with any order over $100 and that membership was about $100 a year. We experimented price but ended up being $100 a year and we kind of had a SaaS business on the side because of that experience we were offering. How can you improve the experience for your customers when it comes to shopping? What are some things that they hate about shopping online or shopping on e commerce? What are some ways you can solve that problem? How can you enhance their shopping experience? How can you give them something special, package that all up into some sort of club or membership and you can even have a physical meetup one day and have dinner and drinks together. People love community and you can incorporate that in your e commerce store.

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To wrap up Teddy's lesson, E Commerce pricing is dynamic. Don't compete on price. It's one of the fastest ways for you to go out of business. Really. And I almost went out of business with my E commerce store until I wisened up and priced myself out of that competitive space. I increased my prices. I tripled and quadrupled my prices in some cases and it made all the difference. I had less orders in total, but my revenue tripled. My headaches were less, my returns were less. I know it's a little scary. It was scary for me, but it's a game changing. Move number two, know your total costs to get that product in the hands of your customers and make sure you have a healthy margin. I say 3x to allow you to discount later. And then lastly, if you don't have a unique product, a unique brand or label, you got to have some sort of unique experience included in your E commerce experience for your customers. Even if you do have a unique product, add on those experiences, those clubs, those memberships. People love community. Thanks so much for listening to the $100 MBA show. If you love what you hear, hit subscribe so you never miss an episode. By hitting subscribe, you also get access to over 1800 lessons in our archives. Go ahead and smash subscribe right now. Before I go, I want to leave you with this. One of the other reasons why I realized I needed to really increase my prices and really have a lot of buffer on my profit margins is because at some point in the season, with a clothing line, I knew I had to discount my product. I had to put it on a clearance rack, so to speak. Because with fashion, you can't just sell the same thing over and over. You can have a few pieces that are kind of staples in your brand, but you're going to have to bring in fresh types of items all the time. And if you sell your products at very close to cost, there is no room for discounting, because you're going to be losing money on a good number of items in your inventory. I always say price so that even if you go 50%, 60%, 70% off, you're still making a profit, a healthy profit. Thanks so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

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