Pricing Choices
High volume and smaller profit margin vs. Lower volume with higher profit margin
When it comes to pricing, there are two ways to look at it, and you will need to pick the one that works for you and is most comfortable for you. The first is selling a high volume of items for a lower profit margin. For example, say you are selling T-shirts, and it costs you $3 to make the shirt, and you know you can sell them for $19.95, however they may not sell as fast as if you list them at say $12.95. You need to ask yourself, do you want to sell more shirts at a lower profit margin, or less shirts at a higher profit margin. It's really up to how quickly you want your items to sell. I'm sure you've seen dollar stores and think "How in the world do they make any money?" This is a case of selling more items at a lower profit margin. The dollar store may only make .50 or less for every item they sell, but they do sell many items at once. Most people spend at least $20 at the dollar store because they figure, "Hey everything is $1, it won't hurt to get so many things!" You do however want to make sure you don't sell them so low that someone asks themselves "What is wrong with it, why is it so cheap"? For example if you are selling the same T-shirt as many other people on the Internet, and they are charging $19.95 and you are charging $6.95, people may wonder what is wrong with it and steer away from purchasing it. You may however be able to get away with this if you clearly state that there are no flaws, and have an outstanding return policy. Here is a clear cut example of the difference:
Say your item cost you $5 . If you set the price at $10 and sell 100 of the items, your total revenue will be $10 x 100 items = $1,000, less cost of $5 x 100 = $500. Total profit: $500.
If you set the price at $7.50 and sell 250 items, your profit will be $7.50 x 250 items = $1,875, with cost of $5 x 250 = 1,250. Total profit: $625. Thus, lowering the price yielded greater total profits, even though less was made on each sale. (Note: the cost of advertising and shipping the product was not considered in this basic example.)
