How to Price Your Products and Build an Effective Online Sales Channel

If you’re like most small business owners, you’ll likely make some common mistakes early on.

Two big ones involve pricing and sales – failing to develop a coherent pricing strategy for products and services and failing to think through the intricacies of online sales channels. Both can slow down your profitability and, consequently, your ability to start earning revenue.

But how do you set prices that work for your business? And how do you establish a profitable e-commerce presence to reach potential customers online?

How to Price Your Goods

Accurately pricing your products and services is one of the most important things you can do for your business. Price them too low, and you’ll be seen as lacking value. Too high and you risk pricing your target market out of a sale.

Here are six of the most common pricing methods you can use:

• Cost-plus pricing: Under this method, the sale price is the cost to you to make the product or provide the service, plus a specified profit margin.
• Value-based pricing: This is essentially just pricing your products according to what customers are willing to pay, regardless of how much it costs to deliver the product. For example, two t-shirts made from the same material can sell for $10 or $100, depending on whose name is on the label. An e-book is essentially free to deliver, but the information inside can be priceless.
• Wholesale vs. retail pricing: You should set your retail price first, and then determine what kind of "discount" you can offer as a wholesale price. It should cover your cost to deliver the goods and provide a pre-determined profit margin.
• Tiered, volume and bundled pricing: Tiered pricing is essentially an offshoot of volume pricing. It offers discounts for higher volume purchases that increase as order volume increases. Volume pricing sets one lower price for all orders above a certain amount. Bundled pricing offers lower overall pricing if you buy complementary products together— cable and internet service, for example, or home and auto insurance.

Use Upselling & Cross-Selling to Boost Profits

You can increase per-transaction revenue by borrowing a couple of tactics from larger corporations — cross-selling and upselling.

Upselling is simply offering a "premier" variation of your product or service — Silver, Gold and Platinum level memberships, for example. Or an upgraded version of your product with additional features.

Similarly, by offering additional products or services that complement the customer's initial purpose — called cross-selling — you can increase the amount customers spend per transaction. If you sell bicycles, you could offer helmets and locks, for example. A good mentor can help you brainstorm ways to use these two tactics to increase revenue.

Considerations for Selling Online

Whether you have a physical location or not, selling online offers various advantages. It can expose your brand to a wider audience, raise brand awareness and offer convenience to customers who prefer shopping from home.

You have several options when it comes to selling your products online — your website, online marketplaces and social networks.

Focusing your online sales effort on your website has some distinct advantages — you own what happens there and own the customer relationship, which is crucially important. You aren't subject to the whims of a third party determining how, when and to whom you can sell. But it can be expensive and time-consuming to start a website from scratch.

On the other hand, third-party marketplaces bring with them built-in traffic and search engine optimization to bring customers to you. Your social media profiles can also be a source of revenue, after you've built a solid audience of prospects who are interested in you and your offers. However, these platforms can change their rules at any time, and you'll be competing with dozens, hundreds or even thousands of other businesses who may be similar to yours. So, consider the trade-off.

Remember, also, that you'll need a solid fulfillment system in place to pack and ship orders, no matter which platform generated them.

Consulting with a mentor can be a good idea here as well. A mentor can help you not only with strategy, but may be able to connect you with specialists who can help you build and market your own site, and leverage third-party marketplaces for more customers.

For more information and to find a mentor, visit www.score.org.