At what price I should sell my product online? How to decide the best selling price? How to earn profit by setting correct selling price? If you have ever come across any of above questions while listing your product, you are at the correct place. Read this article till the end to get the answer.
Common mistakes by most of the sellers while setting selling price
When it comes to selling a product online on Flipkart, Amazon or any other marketplace, people always make a big mistake while deciding selling price of the product. The mistakes can be like:
- Setting selling price which is too high
- Setting selling price which is too low
- Breaching MRP rules and regulations
- Changing selling price too frequently.
- Setting selling price which is not justifiable/worthy
How important it is to decide correct selling price!
Always remember that selling price can make you winner all the time among the sheer competition. Right selling price attracts more customers and it builds trust factor too. A buyer always remember a seller by many means. Try to include your “price”factor into that “List of means”
Selling price should be such that it gives you profit when the product is sold and it should resist any downfall of revenue due to any uncertain reason.
Cons of setting wrong selling price
Wrong or higher or lower selling price may results in below scenario:
- Downfall of revenue
- Risk of higher cost to sell product
- Low return on investment
- and at the end “Failure of Business”
So to decide the attractive, profitable and smart selling price is the skill to be learnt right now.
In this article. I will teach you how to set the selling price for a product so that you will never be in loss at any point of time in your business.
Always keep in mind that the profit you earn in online selling business is not always the final profit. I am telling you this because when you sit to do your accounting you may find that you had to invest a lot more than usual in your returns (customer return/marketplace return/cancellations)
Let’s try to understand this by a practical example.
Assume that you are selling a product for INR 250 which costs you INR 100.
Now after deducting marketplace commission of INR 68 (at 15%) and shipping charges INR 60 (average shipping charges), you may jump out of chair knowing that you made profit of INR 22 by selling one product.
Hey, Hey, Hey Stop there buddy !!
What if out of 10 orders, your 5 orders are returned by the customer (in worst cum worst case) ?
Let us continue calculating the profit from above example.
So now, You sold 10 products.
At first sight your profit amount should be INR 220 (10 Orders X 22).
But if a customer returns the product, there are several charges which are to be bared by a seller. So let us consider that return shipping charges are same as INR 60.
Some marketplaces also applies collection handling fees so the return fees estimates 1.5 times the initial shipping charges on an average as per the industry standards.
Hence I’ll deduct total INR 90 per order when its returned by a customer.
I assume that all of those 5 returned products are not in the condition to be fulfilled again for fresh orders. So they are in total loss condition.
Now, lets recalculate the profit for 10 orders Final Profit = 220 (Initial Profit) – 450 (Return Charges for 5 orders) = -230 🙁
Notice that you are in loss here because you never considered that return ration can be too high sometimes. Its unpredictable. However I will also guide you about how to reduce returns in online selling business.
How to set the correct/right/worthy/smart selling price for a product
The 3X Thumb Rule
Always follow “3x Thumb Rule” to set the right selling price.
Now you might be wondering,
What is “The 3X Thumb Rule” & how to apply it?
The rule says, always set the selling price equals to 3 multiplied by your product cost.
1x will cover your returns
2x will set your threshold of downfall in revenue
3x will be your net profit.
So now, when you start following this rule, you’ll realize that customer will also find it legitimate (because its the moderate price factor considered by industry standards), it will never breach MRP rule since its quite justifiable. And the golden gain is, you are ALWAYS earning the profit (never in the loss).