Pricing for Ecommerce

Pricing your products well is a crucial part of online success.

February 2, 2022

First costs, allowances, seller fees... figuring out your prices for selling online can seem like a complicated task. But once you understand the concepts, you can make informed decisions for your company. Our guide provides you all the basics you need to get started.

There are several factors that will determine how you may need to price your catalog differently from your traditional brick-and-mortar channels. Below is a high level overview of what those considerations are and how to build those into your pricing strategy.

Channel Pricing and Cost Considerations

Ecommerce channels are broken down into two distinct categories: Online retailers and marketplaces

Online retailers

Pricing with online retailers like Wayfair, Overstock, and Amazon Vendor similar to working with a brick-and-mortar retailer. 

You provide a first cost, akin to the wholesale cost you would give to traditional retailers. The online retailer will then apply a markup of 1-2x (or more) to arrive at the on-site retail price for customers. 

This markup goes towards covering the channel’s overhead costs for marketing, selling, and shipping your product. You should set your first cost at a level that you think will allow the retailers to price competitively. 

Most channels will also deduct an allowance from your profits, which is typically between 1 and 10% of every first cost sale. This allowance will be defined in your contract with each channel. 


✔️Allowances can change

Depending on your agreement, channels can revise the allowance rate 2-4 times per year based on account activity. For example, a high return rate can lead to an increased general allowance, while a low return rate may reduce it.


Marketplaces

Marketplaces, including Walmart Seller and Amazon Seller, do not apply markups to your prices, but instead charge a seller fee as a cost of doing business with them. Walmart and Amazon typically charge a 12 to 15% seller fee in the home goods & furniture category.

The lack of channel markups allows you to set higher margins as a seller. However, marketplaces generally do not handle shipping for you, so you will be responsible for the logistics and cost of fulfillment.

General cost considerations

In addition to channel-specific factors like allowances and seller fees, there are other cost considerations that come along with ecommerce. 

  • Returns: When a customer returns your products, you will not be paid. Depending on your agreement with the channel and the type of return, you may also incur some additional fees related to returns. Some merchants like to add a small cushion to their pricing to mitigate lost revenue and the costs of handling returns.
  • Promotions: Participating in and running promotions is an important part of growing your ecommerce business. Some merchants will build a cushion into their pricing so that offering discounts doesn’t eat into profit margins too significantly.

There are many other potential reasons you may want to add an additional buffer into your pricing. However, keep in mind that adding in too much buffer can impact your competitiveness and conversions online.

Channel competition

The internet makes it easy for customers to price-shop, which means competition between ecommerce retailers and marketplaces is fierce. Most large retailers and marketplaces have automated systems in place to assess the competitiveness of the products on their platform. 

If a channel does not feel like your products are priced competitively, or if they find your products selling for significantly less on another channel, they may suppress or remove your listings. Therefore, when you are building out the pricing for your products, consider what the final retail price for shoppers will look like across your channels.

Pricing strategies

There are many different pricing strategies when it comes to ecommerce. Some of these strategies can be combined. These are some possible pricing strategies:

  • Cost-based pricing, which is the most straightforward, and is based on your business rather than the end-consumer. This is a “bottom-up” approach which builds in enough buffer for your cost of goods sold as well as ecommerce costs.
  • Competitor-based pricing, which takes the competitive landscape of similar products/categories/brands into account. 
  • Value-drive pricing, which looks at the consumer and their willingness to pay first. 

  • Loss leader pricing, which sets a low or negative profit margin on net-new products for a limited period of time, to attract sales and positive reviews. This social proof can help improve a product’s ranking onsite. Once a SKU reaches 5-8 positive reviews, pricing is normalized.

The home goods industry is unique. There are countless price-points, categories, styles, and product level details that define average order value (AOV). Because of this, no two merchants are the same

Pricing with Bear

Merchants working with Bear have a dedicated Success Manager to help them define their pricing strategy. Provide prices once, and you can see all the relevant variables and recommended margins for each channel, which you can then adjust any time you need to.

Questions? Comments? We'd love to chat. Set up a call today!

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