In our scramble to find a way to offer the lowest prices on the Internet, we often overlook basic steps we should take before we offer a product for sale.
We also overlook something more important: You don't have to have the lowest price in order to make great sales.
I sell by having products drop shipped for my Web sites, and the following are steps I take before and after determining my bottom line. These steps should be covered regardless of your distribution method.
When Should You Sell?
Don't waste your time and Web site space marketing products out of season. Snowboards don't sell well in the summertime. You might have a hard time moving a pair of inline skates in January.
Ask your supplier for a little historical information regarding the best time to sell its products. Believe me, there is a season for everything.
The supplier has the figures. If the company doesn't want to share this information with you, find another supplier.
Identify Your Costs
Profit isn't just the difference between wholesale and retail. You have other costs to consider. Think about every penny you spend in order to get that product to the customer's door and plan accordingly.
For example, your merchant account probably costs you about 2.2% plus 30 cents per transaction. On an item you sell for $20, that's 74 cents. Don't forget that calculation when pricing an item.
Are you warehousing the item? How much is that space costing you per item per month?
Did you spend money stocking up on shipping materials? How much per unit?
What about advertising?
What are your monthly hosting costs?
You might need to estimate sales in order to arrive at some of these figures.
It might seem complicated, but it's really not. Just take the figures one at a time and you'll arrive at a wholesale cost plus an amount that, when you add the two together, becomes your initial estimate of "cost of goods sold."
Identifying your costs is critical to pricing your products properly.
Check Out the Competition
Search on the item you plan to sell. Check out the competitors' prices. But don't get caught up trying to beat the wrong competitor. You need to stay within your "venue."
My stores are built in Yahoo! Shopping. Ninety percent of my traffic comes from there. When I seek out my competitors, I look for businesses like mine with stores only in Yahoo! Shopping. Then I compare.
If I'm thinking about selling a product and my search returns 1,500 hits in 400 stores on that item in Yahoo! Shopping, forget it. If my search returns 100 hits in 20 to 40 stores, I'll look into it further.
So check out the competition, narrow down your product list, make a note of the five lowest prices you find, and ask the nextquestion.
Will Anyone Buy?
This doesn't have much to do with pricing, but it should be said.
When considering products, there's unique and then there's too unique. Yak Cheese might sound like something nobody else has for sale on the Internet, but there's a reason for that. If you sell more than three boxes a year, I'll eat some.
Unique is rain barrels made in Maine. It's exotic cheeses imported from Italy. Or silk Parisian lingerie. Things you don't see every day but would be proud to give as a gift.
Then there are common items. Everybody and his grandmother sell alabaster figurines via the Internet. Do they sell? Sure, in a limited fashion. Do you want to sell them? Not if you want to make any real money.
In my experience, unique products such as rain barrels and Parisian lingerie do sell. So do Coleman sleeping bags and Conair hair dryers. Brand names sell. Look at your potential product and ask yourself honestly if you would buy it via the Internet.
Set Your Price
Take the five lowest prices you collected on a product from your list that has survived the above criteria.
Calculate your estimated cost then subtract that figure from the lowest price. If you don't see at least a 15% profit, don'tbother.
If you do, proceed accordingly: You can undercut the lowest price in your venue by a little bit to "kick off" the product and getyourself noticed. Chances are, though, you'll find that someone has undercut your price the following week.
I generally set up a couple of loss leaders. These are desirable items -- in my general product line -- that I sell dirt cheap just to bring in customers. I price the rest of my products at the second- or third-lowest price in my venue.
Customers come in for the loss leaders, and I can market everything else to them by e-mail. I spend a lot of time making my site look better and easier to navigate. And I pay a great deal of attention to my customers.
That effort makes me more reputable in customers' eyes. You'll find people don't mind paying just a little more if they feelcomfortable in your store. They don't like to worry that they're buying from a hack that might not deliver. And nothing says hack like a cluttered, confusing storefront.
After you've sold an item for a month or two, revise that cost-of-goods-sold figure. Measuring past performance is just as important as setting the correct price to begin with.
If sales drop, recheck your competition.
If that's not the problem, drop the product or shelve it until its season comes back around.
Don't get sentimental about your products -- and never let your store sit in limbo once it starts to make money. This is a dynamic business; stay on top of it.
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