The Pricing Strategy That Made

Us 30% More Money

The eCom m erce pricing st r at e gy Im about t o share has
been a m assive gam e- changer for m y st ore .

In m y second year in busine ss, it produced e nough ext ra

incom e t o hire m y first full- t im e em ployee so I could
work on higher- leve l t asks and fr ee ly t ravel for m ont hs at
a t im e. More recent ly, it again significant ly boost ed t he
profit abilit y of m y st ore , Right Chan ne l Radios.

Bot h t im e s, t he st rat egy has t aken less t han a wee k t o im plem ent . An d bot h t im es, it
increased t he over all profit abilit y of m y busine ss by right aroun d 30 %. So what is t his won der
st rat egy?

Here it is: st rat egically r aising your pr ices.

Product pricing can be t he m ost powerful t ool in your arse nal whe n it com es t o im proving
your bot t om lin e. While t act ics like SEO an d conve r sion opt im izat ion are expen sive an d can
t ake m ont hs (or ye ar s even) t o im plem ent we ll, you can adjust your prices and m easure t he
result on your bot t om lin e alm ost inst ant ly. It s an incredibly powe rful leve r t hat we as busi-
ne ss owne r s dont exper im ent wit h en ough.

Product pricing can be the most powerful tool in your
arsenal when it comes to improving your bottom line.

Followin g is m y 4 st e p guide t o con duct in g your own pr ice experim e nt . If youre anyt hin g like
m e, youll be able t o collect a good chun k of un realized profit s t hat youve previously been
leaving on t he t able .

Apply For Membership at eCommerceFuel.com

Step 1: Identify Your Top Selling Products
If youre an e Com m er ce com pany wit h just a couple of SKUs, t his par t will be easy. But
unfor t un at e ly m any st ores have hun dreds or t housan ds of product s. Tr ying t o int e lligent ly
run a price t e st on such a large n um ber of product s can be a night m are.

Inst e ad, pull an 80/ 20 m an euve r and focus in on your 25- 50 m ost popular product s. For m ost
st ores, t his should r eprese nt r oughly 50 % or m ore of your reven ue. Opt im izin g pricin g on
t he se it em s will give you t he m ost bang for your buck from a t im e invest ed pe rspect ive .

The best place t o do t his is Google Analyt ics. Go t o t he Conversion s - > e Com m erce - >
Product Pe rfor m ance page an d youll get a n icely form at t ed re por t of your t op sellin g it em s,
bot h from a reven ue an d a QTY pe r spect ive.

Step 2: Raise Your Prices

St ep # 2 m ight be t he hardest : act ually t akin g t he physical st ep t o raise your pr ices. I t hin k in
all ent repre ne urs, t he res a deep- seeded fe ar t hat if we raise our price s cust om e rs will
aban don us in dr ove s, our com pany will collapse an d well be dest ined t o a life of pan handling.

This is a t ot ally n or m al fe ar, but com plet ely irrat ion al. In a wor st - case scen ario (assum ing you
dont pull a Net flix and really bungle t hings up), youll have a shor t period of sub- opt im al
profit s. If t he expe r im e nt doesnt wor k out aft e r t his, you can reve rt t o your old pricin g and,
alm ost cer t ain ly, be r ight back whe re you st art ed.

Youre r iskin g a few wee ks/ m ont hs of slight ly lower n et in com e in exchan ge for an ext e nded
fut ur e of higher profit abilit y. In alm ost all cases, it s a good bet t o m ake.

Now t hat your e e m ot ion ally pum ped up t o m ake t he chan ge , he res how t o do it :

Fir st , m ake sure t o recor d all your legacy pricing be fore you go in an d chan ge e ver yt hin g up.
It s always good t o have a backup, an d will com e in han dy if you do n eed t o rever t your pricin g
if t he expe r im e nt doesnt wor k. Ive foun d t he easiest way t o do t his is by expor t in g a .csv file
of all your product s. If your e on Shopify or Magent o, bot h offer t he abilit y t o do t his.

Next , dive int o your t op product s and st ar t increasin g price s. This is as m uch an ar t as a
scie nce , but here are a few rules:

Apply For Membership at eCommerceFuel.com

Think Incrementally
Ive found raising pr ice s by 5% t o 15%ish is a good rule of t hum b for bum ping up pricing. You
want som et hin g t hat will m ake a diffe ren ce on your profit abilit y, but you also dont want t o
pot e nt ially st ar t gaugin g cust om e r s or radically chan ging how youre posit ioned or pe rceived
in t he m ar ket . Easy does it .

Be More Aggressive With Cheaper Item

On a perce nt age basis, get m ore aggre ssive raisin g price s on che ape r it e m s as t he absolut e
increase in t er m s of dollars is less n ot iceable. A 50 % in crease on a $10 it em t akes it from $10
t o $15 in n om in al t er m s, t he ext r a $5 oft en isnt a de al breake r. However, t r y raising pricing
on a $10 0 pr oduct by 50 % an d your cust om e rs will be m uch less like ly t o cont inue buying.

Understand Where Youre At In the Market

This is where t he ar t of pr icin g com e s int o play. If youve got a gorgeous, in credibly we ll don e
websit e an d are curr ent ly below m arket pricin g on m ost of your it em s you can afford t o
bum p pr icing a bit m ore aggressive ly. Howeve r, if youre st ill rockin g t hat Zen car t websit e
t hem e fr om 20 0 6 an d ar e pr iced right at t he t op of t he m arket you m ay n eed t o t em per your
hikes.

Spen d som e t im e lookin g at how m uch t he product s are se lling for on ot he r n iche we bsit e s,
an d also be hon est wit h yourse lf how professional an d t rust ed your own websit e is.

Re-Investigate Your Product Pricing

While Im sur e youre t op- n ot ch at kee ping on t op of supplier price increases, I t e nd t o m iss
t hem from t im e t o t im e . Ill be goin g t hrough an invoice an d realize weve been m aking a scant
5% m ar gin on a product for m ont hs due t o our failin g t o increase our pricin g when cost s
went up.

The res not bet t er t im e t han during your pricing expe rim e nt t o look int o product cost s. In
fact , Id recom m en d havin g a spr eadsheet t hat list s t hree colum n s: your current price, your
cost , an d t he n ew price. Seein g all of t hese it em s side- by- side will be really helpful as youre
com ing up wit h a ne w price an d will en sure youre n ot se llin g t oo close t o cost .

Apply For Membership at eCommerceFuel.com

Consider Amazon, But Dont Let Them Scare You
Am azon is goin g t o be a pig t o com pet e wit h on price, an d t he res a good chan ce t hat even
before your pr ice hikes youll be chargin g m ore t han t hem . So does t hat m ean you should give
up? Heck n o. Just keep t hese t hin gs in m ind.

The che ape r t he it em s, t he less im por t ant it is t hat you n eed t o m at ch Am azons price. This is
e specially t r ue if t he product det ails offe red on Am azon .com are scarce . This is where havin g a
great page wit h am azin g product videos can help you get away wit h chargin g a few dollars
m ore .

Also, look t o see if t he product s are Prim e eligible an d how m any reviews t hey have . If t he re are
few r eview an d cust om er s arent able t o get it shipped for free in 24 hour s (gasp!), youve got
m ore r oom t o char ge a bit m ore as t he Am azon alt e rn at ive isnt quit e as seduct ive .

Using Comparable Test Periods

You should easily be able t o com plet e all of t he re search and execut e on t he im plem ent at ion in
un der a week, if n ot a day or t wo. Once youve got eve r yt hin g set updat e your pricin g on your
live st ore t o st ar t t he expe rim e nt .

While n ot required, I like t o st ar t m y experim ent s on or n ear t he begin n in g of a calen dar m ont h.
This will line up your exper im ent dat a wit h your m ont hly fin an cial st at em ent s for easy
com parison . You can also cont rol for (at least a lit t le bit) m ont hly var iat ion s from wee k t o week
like people get t in g paid, bein g m ore likely t o shop at cer t ain t im es, et c.

Step 3: Understand What Were Optimizing For

The hardest part of run ning a pricin g experim ent is figurin g out
what t o opt im ize for, an d t r yin g t o cont rol for t he m yriad of
m oving par t s, variable s and chan gin g con dit ions.

You de finit e ly dont want t o opt im ize for reven ue. Wit h a price
in crease, your reve nue will alm ost cer t ain ly decrease as youll
t ur n off highly price sen sit ive shoppe rs. So you should
opt im ize for avg. profit / order, right ?

The hardest part of running a pricing experiment

is guring out what to optimize for.

Apply For Membership at eCommerceFuel.com

Nope. Hypot het ically, your avg. profit / order could skyrocket by 50 %. But if your volum e of
or de rs dries up by 90 % due t o t he pr ice s in cre ase , youll be m aking far le ss t han you did
be fore .

Then t heres t he issue of t r affic. Let s say your profit abilit y does in crease m ont h- over- m ont h.
If youre opt im izin g for on e m et r ic, how do you know if t his was due t o a br illiant n ew pricin g
st rat egy or just because you had a bun ch m ore people com e t o your sit e? In a sit uat ion like
t his, you pot ent ially could have m ade m ore m on ey wit h your old pricin g but t he diffe ren ce
was offset by t he larger volum e of cust om ers.

It s a har d que st ion , an d t heres n o per fect an swer. But t he one m et ric Ive set t led on t o
opt im ize around is profit / visit or.

Optimizing for Pro t / Visitor

I love t his m et r ic because it account s for so m any of t he variable s built - in t o a pricing
experim ent . It fact or s in differe nce s in t raffic t hat can skew your re sult s. It account s for t he
decrease in conver sion due t o your pr ice s hike , but also con siders t he in crease in profit youre
m akin g from t he higher pr icing. An d it s really, really easy t o calculat e .

It s n ot pe rfect as Ill discuss be low, but it s t he best m et ric Ive com e up wit h so far. In fact , I
t hin k you can m ake a good case t hat it should be t he # 1 m et ric st ore own ers should focus on
com pared t o r even ue, conve r sion r at e , t raffic or any of t he ot he rs big m et rics t han oft en grab
our at t ent ion . But Ill save t hat t irade for anot he r blog post .

To calculat e profit pe r visit or sim ply t ake t he # of sit e visit ors for your t est period divided
by your t ot al profit for t hat period. So let s say we had 50 ,0 0 0 visit ors an d we m ade $10,0 0 0 in
profit . Our calculat ion would look like t his:

$10 ,0 0 0 (Pr ofit) / 50,0 0 0 (Visit or s) = $0 .20 profit/ visit or

You can n ow calculat e t his m et r ic for your cont rol an d t e st pe riods an d use t he com parison t o
judge your expe r im e nt . Mor e on t his be low.

Optional Tactic: Individual Order Audits

While n ot m an dat or y, Id also recom m e n d for at le ast a por t ion of your t e st pe riod doin g
in dividual order profit abilit y audit s. Again, I kn ow you dear reader are incredibly disciplin ed
and m ay not be able t o re lat e . But sadly I can oft e n go m ont hs wit hout realizin g m ajor
pricin g, shippin g or orde r proce ssing t ren ds t hat are hur t in g our gr oss m argin . Doin g a daily
or de r audit can help spot t he se t re nds.

Apply For Membership at eCommerceFuel.com

In m y m ost recent pr icin g experim ent , I had on e of our VAs put t oget he r a daily spre adsheet of
all orde r s t hat list ed reven ues, cost s of good sold, t ot al profit an d gr oss m argin . It also split
out product cost s an d reve n ue cost s so I could see if low m argin orde rs were due t o product
cost issue s or shippin g overages.

For 1- 2 wee ks, I reviewed t his daily an d caught dozen s of t hings t hat were causing us t o bleed
m oney. From le ss popular product s we re we re pr icin g t oo low t o shipping wit h sub- par
car rier s, I m ade a n um be r of changes t hat will save us t housan ds of dollars t his year.

You can see (and st eal) t he spreadsheet I used t o do m y orde r profit abilit y audit r ight he re. To
get your own edit able ver sion , go t o File > Make a Copy in Google Docs or download it as
an Excel file.

Step 4: Measure Your Results

A large disclaim er: st rict scient ific folk an d t hose
obse ssed wit h cont rollin g for all possible variables will
go int o convulsion s at t his point . Given pricing
experim ent s have so m any m ovin g par t s, t he res a bit
of a judge m e nt call in decidin g if your expe rim e nt was
a success. So t his is by n o m ean s a foolproof way t o
decide .

But t he alt e rnat ive is get t in g caught t r yin g t o account for t he doze ns of pot ent ial variables,
fallin g int o an over- an alysis t r ap and doin g not hing. So he res t he im pe rfect (but realist ic) way t o
det e r m in e t he out com e of your experim ent .

The first t hin g t o do is t o cr eat e your base lin e, which you like ly have already done . Calculat e t he
profit/ visit or for your cont r ol m ont h ideally t he full m ont h before your chan ged your pricin g.
Next , calculat e t he pr ofit/ visit or for t he expe rim ent period again , ideally t he cale n dar m ont h
r ight aft er your cont rol.

Com par in g t hese t wo n um ber s should give you a good sen se of how t he experim ent we nt .

Hopefully, it s a no- br aine r. If your cont rol m ont h profit abilit y was $0.20 / visit or an d un der
your n ew pr icin g per iod it is $0 .30 / visit or, you should be jum pin g for joy. Wit h a 50 % increase
in pr ofit abilit y, you can be fairly sure it was a succe ss despit e any variables you didnt com plet e ly
cont rol for. At t his point , Id fee com for t able per m an e nt ly leavin g t he pricing in place.

It s a bit t r ickie r if your differ en ce is sm aller, say 10 %. In t hat case, Id de fin it ely cont inue t o t est
but would want t o see a 2- 3 m ont h t rack record of t hat 10 % im provem ent .

Apply For Membership at eCommerceFuel.com