Tag: pricing

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PRICING – Sales volume vs. Profit Margin

One of the biggest dilemma when starting a business is how to price your products and services. Unless you are creating a novel business idea, you will have to look into market prices for the same product and compare.

Factors to take into consideration depending on your Products/Services:

  • The costs – How much is the bulk supply/material cost of your product? Can you get it cheaper elsewhere? Other costs such as electricity, water? physical location(warehouse/home/office)? Do you pay rent? How will you be delivering the product to your customer? What about marketing? Any business needs a marketing strategy.
  • The labour – How much is your time worth? Will you be paying someone else the same amount to do the work you’re doing? Don’t overpay yourself, be fair on the price
  • Business strategy – Will you have a website? Will you use multivendor e-commerce? Will you have a physical shop? Can you apply a discount or reduced price during the sales period?


All the above factors can have a huge impact on your profit margin and determine whether your business can survive long term.

Relying regularly on discount can damage your profit margin. For example, how many people will wait until their favourite product is at discount price before buying? For savvy shoppers, it is common knowledge that Tesco, Asda, Boots and other supermarkets will have discount prices every month on their favourite products. Another great example is GAP, anytime you go into a GAP store you will find sales. GAP is a store that is so embedded in a sales culture that if they decided to stop the sales it can be their downfall.

We will go into some examples just to give a perspective.

Some business use premium prices strategy in which they mark up their prices higher than their competitors, thus giving a perception of the higher quality of their products to their customers. Most of the businesses that use premium strategy are usually luxury brands and services. They use specialized marketing strategy to change the customer perception value, e,g, vita coco (that damn water soo expensive), Jimmy Choo, Louboutin, VOSS water, you get the picture 😉

Businesses such as Poundland use economy pricing. Sell cheap, sell lots, happy customers, happy sales volume, winner winner chicken dinner. Poundland is worth at least a billion.

Another aspect of pricing is when you want to “steal” customers from your competitors. A great example is Netflix. It is pricing your products in such a way that you will have an initial loss, but with a plan in mind to take over the market. This type is strategy is usually long-term and you must have support in the form of funding. All in all, Netflix is quite cheap and good value.

Businesses in IT industry use a different strategy, they usually sell a good quality product at a very initial high price (Apple, Samsung), with the time as they develop new products they will gradually reduce the price. They make one hell of a profit. That being said Apple computers will last over a decade, easily, while windows computers, although cheaper they won’t last. Windows don’t offer software updates too, whereas Apple will for free.

Ok, enough of the faff let’s address the elephant in the room:

  • Many recommendations set the pricing to be around (costsx2 or 2.5), for the majority of the business we agree with this pricing strategy.
  • Instead of pricing an item £10, price it a £9 or £9.99, this is called “the 99 effect”.
  • If you have multiple products maybe consider selling some items at costx1.2 and others at costx2.5


The main question you should always ask yourself is “Will I buy this product at this price?”

Another important point we mentioned numerous times is investing in good content, find a good package, label your products using high-quality material and take great pictures. The perception of your product is the value of your product. It is important to also know your public and their shopping habits.