Setting your recommended retail prices for your online store can be quite a difficult decision. We obviously are in business to make a profit but we also have that fear of not wanting to overprice our products and then make zero sales! Many, many online store owners find themselves antagonising over their prices.After running my own online fashion store iland co. for over seven years now, plus working with many other eCommerce brands, I’ve discovered there are many hidden expenses and considerations to you need to think about!

Too low a price point

If you set your prices too low, you will make zero profits or worse you will make a loss on most of your sales. Acquiring a customer who spends $20 is just as costly and difficult as it is to acquire a $200 customer. I‘ve also noticed that the cheaper priced customers are often the hardest to serve. If I want to make $2,000 in revenue or sales, and I’m selling a $200 dress, I only need to sell 10 dresses versus if I’m selling a $20 dress, I then need to sell 100 dresses to make the same amount of revenue. It’s clear that selling less at a higher price point is often easier in order to achieve that same revenue goal. 

Advertising costs

You also need to look at advertising costs because they eat into your profit margins very quickly. For example, I can spend anywhere between $20 and even $100 in Facebook or Instagram advertising to make one sale. If I’m selling a $200 dress that I’ve manufactured myself, so I already have a healthy profit margin, and it cost me $100 to make that sale, I’m probably breaking even. However, if I’m selling $20 dresses and trying to run Facebook and Instagram ads to make that sale, and it cost me the same amount to get that conversion, I am in big, big trouble. So being aware of the cost of advertising is also crucial. Some of the most successful eCommerce fashion brands I’ve worked with are those that sell higher priced items. So if you are selling a $20 dress, and then you’re offering $10 off their first order, and then you also then need to pay GST out of that the cost of the dress which was probably $10, anywhere between $5 and $10. And then if you’re running ads, you are making a huge, huge loss. So you need to consider all of the elements around what makes up your prices. 

Your audience

Also, you need to think about the demographic that you’re selling to and the products. So is it a good market fit? For example, if you’re planning on targeting teens or tween girls, let’s say and you’re trying to sell a $200 beach dress to them, you’re going to find it quite the challenge. I have a teenage girl and I am the one that is spending and paying for all of her clothes. If she came to me and said, Mum, I want this $200 beach dress, I would be saying no, because as most kids and teens and tweens, they spill stuff all over it. They get tired of it very quickly and they’re still growing at the speed of light. So your prices not being in sync with your demographic means it’s going to be a bit more challenging to get those conversions. For example, for iland co., our target demographic is ladies probably, I’d say 40 and up. So they’ve got a little bit more disposable income, and targeting them for products around the $150-$160 mark isn’t as difficult as if I was trying to sell that same price product to a much younger audience. You need to think about your niche and who it is that you’re selling to because despite the cost of your goods, and how much they cost you, there might not be a good match around your ideal retail price and who it is that you’re selling to.

Knowing the cost of goods sold

The most important part of the puzzle is actually knowing your cost of goods sold (cogs). This needs to include the finished landed cost of producing or sourcing the product, any shipping costs, including sending samples to and from the factory, the cost of shipping the product to the customer, if you offer free shipping, the cost of the design work the whether that’s print design, whether that’s tech packs, any contractors or consultants hired during that creation process, you need to think about screens, if you’re doing screen printing.Also, you need to think about the bags, tags, the mailers, any kind of thank you cards, that you might send out tissue paper stickers that you use to send your items to the customer.

So you need to include all of those things into your cost of goods sold and don’t forget any GST for those in Australia, you’re instantly going to lose 10% off the top of your sales. Once you know what that cost of goods sold is, let’s say for argument’s sake, it’s $15. And I’m ordering 100, the total cost of those finished products is $1,500. Then I tally up all of the other costs incurred to bring that design to life, including shipping samples to and from screen costs or printing costs or graphic print design costs, designer costs tech pack cost, shipping the bulk production, which might be another $1,500, so the total cost for those 100 units is more likely to be around $3,000. Particularly shipping at the moment is a huge, huge cost so the true cost of each of those items to me is actually $30, which is very different from $15 at first glance when you look at the quote from the factory. Once you have this number, you need to then consider whether or not you’re offering different afterpay type payment options because they can take up to 8% as well. If your customer then pays via afterpay, I know I haven’t looked at it recently but I know previously, if a customer then returned an item that they’d used after pay, I wouldn’t get that 8% back from after pay, they deduct it off my next payout, I don’t get that back. So if a customer is using a service like afterpay, and then they’re using a 10% discount code or free shipping, that all eats into that profit margin as well. 

Whether to wholesale

Whether or not you plan on wholesaling your product if another factor to think about. If you’re like me and you manufacture your own product, and would like to wholesale your products to other resellers, whether that’s face to face boutiques, or I’ve just been to Hamilton Island, so there’s a little resort stores and things there that would be perfect for iland co. garments. If I want to approach them and say ‘hey, would you like to stock iland co. in your store?’ they obviously need a markup as well. Generally their markup is 100%, so say they buy something from me for $75, they are then going to double the price and sell it to their customer at $150. So you’re instantly selling that product at half the retail price so if you don’t have the profit margin in it, wholesale will definitely not be an option for you. So you need to almost work out,  once you’ve got your cost of goods sold, and then looking at ideal retail price and then figuring out if you want to wholesale, you need to do the math and see whether or not that’s going to work. Always remember that you can start at a higher price and then later discount if need be or if it’s a slow moving product, it’s very difficult to raise your prices after you’ve been selling it for a while unless you’ve made some sort of significant changes or added value in some way.