Retail Pricing Strategy: More Than Just Numbers

Pricing Strategy: More Than Just Numbers

When it comes to pricing in retail, strategy is everything. Without a clear plan, you’re setting yourself up for frustration, lost profits, and an unsustainable business. Here’s what every retailer needs to know about pricing with purpose:

1. Know Your Numbers

Understanding your numbers is non-negotiable. You need to be intimately familiar with your expenses and your profit and loss statement (P&L). If you don’t know how much it costs to run your business, you can’t price your products effectively.

One critical rule: The manufacturer’s suggested retail price (MSRP) is not a pricing strategy, and trying to undercut your competitors is a losing game. Being the cheapest store in town doesn’t guarantee customer loyalty. What customers value most is quality and the relationships you create with them.

2. The True Cost of Doing Business

Your pricing should reflect the unique costs of running your operation. For instance, in my retail store, I often had to price items higher than competitors or even the manufacturer’s price because my costs were higher. Why? Because I prioritized high-quality employees who delivered exceptional customer service.

Sure, I could’ve hired lower-paid, less skilled workers, but that would have impacted the customer experience. Customers aren’t just buying a product; they’re buying the experience, trust, and value you provide.

3. Calculating Costs the Right Way

Here’s a practical way to calculate your costs and ensure your pricing is on point:

• Start with the invoice price of an item.

• Add the shipping cost for that item. (Divide the total shipping cost across all items on the packing slip.)

For example:
If a coffee mug costs $4, and the shipping per item is $0.50, your total cost is $4.50. From there, a common markup is 2.2x, but this varies depending on your business model and expenses.

Beware of Discounts:
If you buy a product at a discount, let’s say $1 instead of the usual $4, you still need to price it as if it cost $4. This ensures your pricing remains consistent and reflects the real value of the product.

4. Specialty Services Need Special Pricing

If your business offers added services—like monogramming—you need to account for every step of the process.

• How many people handle the item?

• How long does each person work on it?

• What is their hourly wage?

You might discover that an item costs $6 to monogram, but you’re only charging $8. Once you factor in labor, overhead, and materials, you could actually be losing money.

5. Communicate Value to Your Customers

Your price isn’t just a number; it’s a reflection of your value. Customers are willing to pay more when they understand what they’re getting:

• High-quality products.

• Exceptional customer service.

• A chance to support a local business that gives back to the community.

Don’t shy away from explaining why your prices are higher. Show them the value you bring to the table, and customers will reward you with their loyalty.

In Conclusion

Pricing isn’t just about covering costs—it’s about creating a sustainable, profitable business that allows you to thrive while delivering value to your customers. Know your numbers, price with intention, and never apologize for the quality and service you provide.