Most pricing in small ecommerce is cost plus a number somebody once decided was reasonable. It survives because it is quick and because it is nearly always high enough to cover the goods, which is the only cost it was ever designed to cover. The trouble starts one line further down: the parcel, the payment fee, the advertising that won the customer and the share of rent that order consumed are all real, all absent from the formula, and together they routinely take more than the goods did. This post builds a price from what it actually has to carry, and then checks it against the market rather than the other way round.
- There is no single floor, there are four: covering the goods, the order, the customer, and the store.
- On the example unit those floors run from about €22 to about €68 on the shelf, from the same cost base.
- Margin and markup are different denominators, and mixing them prices a catalogue about twenty points below its own target.
- Build the price from the costs, then test it against the market. Starting from the market prices for competitors rather than for you.
Decide which costs the price must carry
Every price implicitly answers a question about scope, and stating it out loud changes the number. A price that covers the goods alone is a wholesale-shaped price. Add the parcel and the payment fee, the variable costs an order genuinely causes, and you have a price that breaks even on fulfilment. Add the advertising that produced the customer, then their share of the fixed block, and you have a price that funds the business.
The break-even price calculator computes all four rungs at once, which is more useful than any single answer: the four numbers tell you how much room a promotion has, what a bulk enquiry can be quoted at, and where a channel with no acquisition cost changes the arithmetic.
Get the denominators right
Margin measures profit against the selling price and markup measures it against the cost, and the same euro reads as two very different percentages. Multiplying a cost by 1,55 to hit a fifty-five percent target produces a margin of about thirty-five percent, which is twenty points short and entirely invisible unless somebody checks. Working in markup and margin deliberately, rather than interchangeably, removes an error that otherwise runs through a whole catalogue.
And every target belongs on the net price. VAT is collected for the tax authority, so a margin hit on the shelf price is missed on the statement by roughly a sixth at German rates.
| What the price covers | Shelf price |
|---|---|
| The goods | €22,02 |
| The goods and the order | €30,32 |
| Plus the customer's acquisition | €56,19 |
| Plus the store's fixed costs | €68,26 |
Then check the market, in that order
Pricing from the market first tells you what a competitor's cost base can bear, which is information about them rather than about you. Pricing from your own costs first tells you what you need, and the market check then answers a different and better question: whether you can get it, and if not, whether the gap is a cost problem, a positioning problem or a product that should not be in the catalogue.
That is also where the second channel enters. A product that cannot carry a full retail price may still be a good wholesale line, and the wholesale price calculator chains your margin with a stockist's to show where the shelf price would land, which is the test of whether the arrangement works for either party.
A pricing routine that survives contact
- Price the goods at landed cost, not at the invoice, before doing anything else.
- Compute the four floors and write them down; they bound every promotional decision for the next year.
- Set the target on the net price, and say whether it is a margin or a markup.
- Check the shelf price against the market last, and treat a gap as a diagnosis rather than an instruction.
- Revisit whenever costs move. A price set against last year's landed cost is a price set against a number that no longer exists.
Why this beats a rule of thumb
A catalogue priced at a uniform multiple is wrong at both ends: it overprices what sells easily and underprices what costs most to serve, and the second error is the expensive one because volume concentrates there. Building each price from the costs that product actually causes takes an afternoon per season, produces different multiples for different products, and is the difference between a catalogue that earns evenly and one where a third of the orders quietly subsidise the rest.