Pricing your products
The price of your products determines how much profit you make from a sale, but also affects how willing your target audience is to purchase your product.
If you price your product high, then you might make more profit from each sale, but customers can think your product is overpriced and not place an order. Further, this can create opportunities for competitors to offer lower prices and attract your customers to their business.
If you price your product low, then you might make more sales, but you can lose out on extra profits, and customers might think your product is poor quality resulting in fewer sales.
When you price your products, you need to find a balance between making a profit and meeting your target market's expectations for an appropriate price. This guide explains core pricing concepts, industry best practices, and how to apply them within Shopify's ecosystem.
On this page
- Core concepts and terminology related to pricing products
- Step 1: Determine your costs
- Step 2: Research your market
- Step 3: Determine your value proposition
- Step 4: Set a price
- Step 5: Monitor and adjust your prices
- Shopify features and considerations for implementing your pricing strategy
- Example pricing scenarios and trends
- Shopify-specific pricing tools and features
Core concepts and terminology related to pricing products
| Pricing Concept | Definition | Example | Shopify Tool/Application |
|---|---|---|---|
| Cost-plus pricing | Base price equals total production costs plus a fixed markup percentage. | A T-shirt with $45 CAD production costs and a 35% markup sells for $60.75 CAD. | Use Shopify's profit margin calculator to automate calculations. |
| Value-based pricing | Prices reflect perceived customer value rather than costs. | Luxury brands like Apple charge premiums for innovation and brand reputation. | Highlight unique value propositions (for example, sustainability, craftsmanship) in product descriptions to justify higher prices. |
| Competitive pricing | Align prices with competitors' rates. | Strategies include price matching and loss leaders. | Use apps to monitor competitors' prices in real time. |
Step 1: Determine your costs
Before you set a price for your products, you need to know how much it costs to produce them. This includes the cost of materials, labor, and any other expenses associated with creating your product. After you have a clear understanding of your costs, you can use this information to set a price that covers your expenses and ensures that you make a profit.
Step 2: Research your market
Researching what your competitors are charging for similar products helps you find the general price range that your customers are willing to pay. This will help you understand how you can position your products in the market. Research how products are marketed when they cost more or less than the average price range, and read product reviews to understand more about how product pricing is perceived by customers of those products.
Step 3: Determine your value proposition
Your value proposition is what sets your products apart from your competitors. You need to understand what makes your products unique and why customers should choose them over other options. Examples of factors that can lead to a higher price are innovative design, quality materials, or fair-trade sourcing. Conversely, low price can be its own value proposition, and if you're selling a product that can be sold for less than what your competitors offer then set your prices accordingly.
For example, Gustav is hoping to sell a new children's toy. After investigating the market, Gustav finds that the average cost for similar products is $5 CAD. When reviewing the product details, Gustav notices that the competitors use plastic for some key components, while his product uses metal, which increases the durability and longevity of the toy. Gustav decides to price his product above the average, and highlight the better quality of the product in his marketing.
Step 4: Set a price
Now that you have a clear understanding of your costs, your market, and your value proposition, it's time to set your price. You can use a variety of pricing strategies to help you to calculate prices, including cost-plus pricing, value-based pricing, and competitor-based pricing:
| Strategy | Description | Common Industries |
|---|---|---|
| Cost-plus pricing | A business calculates the total cost of producing a product and then adds a markup or profit margin to determine the final selling price. The markup is usually a percentage of the total cost, and it is added to ensure that the business makes a profit on each sale. | Manufacturing and retail industries, where the cost of producing a product is relatively stable and predictable |
| Value-based pricing | A business sets the price based on the perceived value it provides to the customer. This takes into account the benefits and value that the customer receives, rather than just the cost of producing it. The goal is to capture the maximum value that the customer is willing to pay while still allowing the business to make a profit. | Software and luxury goods industries, where the value of the product or service is subjective and varies from customer to customer |
| Competitor-based pricing | A business sets the price based on the prices charged by its competitors. This involves analyzing the prices of similar products or services and setting a price that is either lower, equal, or higher. The goal is to remain competitive and attract customers by offering a similar product at a lower price or by offering additional value at a higher price. | Retail industry, where the prices of products are comparable and visible to customers |
Whichever strategy you choose, ensure that you follow similar pricing for similar products in your store so that your customers can understand your pricing. Choose the strategy that works best for your business and set your prices accordingly.
Step 5: Monitor and adjust your prices
Pricing isn't a one-time decision. Monitor your prices regularly and adjust them as needed. This includes monitoring your costs, your competitors, and your market. If you notice that your prices are too high or too low, then make adjustments to ensure that you're staying competitive and profitable.
Shopify features and considerations for implementing your pricing strategy
Cost analysis involves calculating all expenses for your products on Shopify, including direct production costs such as materials and manufacturing, shipping expenses for both receiving inventory and delivering to customers, marketing investments across different channels, and various platform-related fees. Platform fees encompass your Shopify subscription costs, payment processing fees, and any third-party transaction fees that might apply.
When selling across multiple markets, consider how your pricing translates internationally. Using Shopify Markets, you can automatically adjust your prices to account for exchange rates, local taxes, and regional pricing preferences. Market-specific adjustments help ensure your products are priced appropriately for each region while maintaining your profit margins and market positioning.
Pricing models in practice
| Model | Best for | Shopify example |
|---|---|---|
| Cost-plus | Simple, low-risk businesses | Calculate markup using built-in profit tools |
| Value-based | Brands with loyal audiences | Use Compare-at price to emphasize discounts |
| Competitive | Saturated markets | Sync prices across sales channels with Shopify Marketplace Connect |
Example pricing scenarios and trends
Price skimming is a strategy where you set a high initial price for a new product and gradually lower it over time as market demand stabilizes. For example, launching a smartwatch at $200 CAD and reducing the price as competitors enter the market. Penetration pricing takes the opposite approach - setting an initially low price to quickly gain market share in competitive markets, like launching a reusable water bottle at $15 CAD below competitor prices to attract price-sensitive customers.
Price sensitivity refers to how demand for your product changes based on its price. You can address this by offering different pricing tiers based on customer segments. For example, retail customers might pay standard prices while B2B buyers receive 20% off orders over $1,000 CAD. Regular A/B testing of prices can help you understand how different customer segments react to various price points.
Market trends and best practices for product pricing
You can track emerging pricing trends and adapt your business strategies to match evolving market dynamics. Current trends in pricing strategy reflect technological advances, changing consumer preferences, and the growing complexity of retail operations:
AI-driven pricing optimization: Advanced analytics tools now monitor competitor stock levels and demand patterns in real-time, providing data-driven recommendations for price adjustments to maximize revenue and maintain market competitiveness.
Sustainability premium pricing: Companies are increasingly charging premium prices for eco-friendly and sustainable products, such as organic cotton apparel, while highlighting relevant certifications to justify the higher price points.
Omnichannel price consistency: Businesses are focusing on maintaining consistent pricing across all sales channels, synchronizing in-store and online prices to provide a unified shopping experience.
Systematic price auditing: Regular price audits should include:
- Reviewing costs quarterly and adjusting for inflation or supplier changes
- Monitoring supplier pricing changes and market conditions
- Analyzing competitor pricing movements
- Updating prices to reflect changes in operating costs
- Documenting pricing decisions and rationale for future reference
Shopify-specific pricing tools and features
Shopify POS seamlessly syncs retail prices between your physical store and online channels, ensuring consistent pricing across all sales channels. This integration allows you to update prices once in your Shopify admin and have them reflect everywhere.
Shopify Analytics dashboard provides product performance reports to track profit margins, sales by product reports to identify top and underperforming items, inventory reports to make data-driven pricing decisions, and customer behavior analysis to understand price sensitivity.
Bulk price editing through CSV import/export allows you to efficiently manage prices for large catalogs by updating hundreds of product prices simultaneously, adjusting variants and compare-at prices in bulk, making currency conversions for multiple markets, and scheduling price changes for future dates.
Automated pricing rules help create pricing strategies by setting location-specific prices for different markets, creating inventory-based discounts that trigger automatically, configuring tiered pricing for wholesale customers, and scheduling seasonal price changes in advance.
Managing discounts through Compare-at price shows original versus sale prices (for example, $30 CAD to $10 CAD seasonal clearance). This helps create a sense of value and urgency for customers. To avoid margin erosion (the gradual reduction in profit margins due to frequent discounting), set minimum discount thresholds and carefully time your promotions. Consider using automatic discounts for targeted promotions without sharing discount codes.