In e-commerce, you can have a great product and amazing marketing, but if your pricing is wrong, you won’t make any money. Pricing is the most critical lever for profitability, yet many entrepreneurs simply guess or copy competitors.
This guide will teach you the basic principles of pricing so you can stop guessing and start building a profitable business.
Key Concepts Explained Simply
First, let’s understand three core terms that are often confused: Cost, Markup, and Margin.
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Cost of Goods (COG): This is the direct cost to get the product ready to sell. It’s not just the supplier’s price; it includes shipping, customs, and packaging.
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Markup: This is the amount you add to your cost to determine the selling price.
- Example: Your product costs you ₹100. You add a ₹50 markup. Your selling price is ₹150.
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Margin (Profit Margin): This is the percentage of the final selling price that is pure profit. This is the most important number to know.
- Example: Your price is ₹150 and your profit is ₹50. Your profit margin is (₹50 / ₹150) * 100 = 33.3%.
Key takeaway: Markup is about cost, while Margin is about price. A 50% markup does not equal a 50% margin!
A Simple 4-Step Pricing Formula
Use this formula to set a price that ensures you make a profit on every sale.
Step 1: Calculate Your Total Landed Cost
This is the true cost of your product.
Landed Cost = Supplier Price + Shipping to You + Customs/Duties + Packaging Costs
Step 2: Factor in All Variable Costs
These are the costs associated with each sale.
Variable Costs = Marketplace Fees (e.g., 15% on Amazon) + GST + Marketing Costs per Sale
Step 3: Set Your Target Profit Margin
A healthy margin for e-commerce is typically between 20% and 40%, depending on your industry.
Step 4: Calculate Your Final Selling Price
Use this formula to find the price that will give you your target margin after all costs.
Selling Price = (Total Landed Cost) / (1 - Target Margin % - Variable Costs %)
Example:
- Landed Cost = ₹500
- Variable Costs = 25% (15% Amazon Fee + 10% Marketing)
- Target Margin = 20%
Selling Price = ₹500 / (1 - 0.20 - 0.25)
Selling Price = ₹500 / 0.55
Selling Price = ₹909
You should price this item at ₹909 to achieve a 20% profit margin after all costs.
What is MAP Policy?
When you sell branded products, you may encounter something called MAP, or Minimum Advertised Price.
- What it is: MAP is a policy set by a brand that forbids retailers from advertising a product below a certain price. You can sell it for less, but you can’t show a lower price online or in ads.
- Why it matters: MAP protects the brand’s value and, more importantly, it protects your profit margins. It prevents destructive price wars where everyone tries to undercut each other, leading to a race to the bottom.
How GridRay Helps with Pricing
Sourcing authentic, branded products through GridRay often means you are selling items covered by MAP policies. This is a significant advantage.
- Margin Protection: We connect you with brands that actively enforce MAP. This ensures that you can maintain healthy profit margins without constantly fighting competitors on price.
- Focus on Value, Not Price: With MAP in place, you can compete on service, content, and customer experience instead of just being the cheapest. This is how you build a sustainable brand.
Conclusion
Effective pricing is a science, not an art. By understanding your costs, setting a clear margin target, and using a simple formula, you can ensure your business is profitable from day one. Don’t just copy competitors—know your numbers and price with confidence.