Most founders price too low. Not because they don't value their work. Because they're scared nobody will pay more.
Pricing is one of the most uncomfortable parts of running a product business.
It's also one of the most consequential.
Get it wrong in one direction and you're leaving money on the table on every single sale. Get it wrong in the other direction and you're pricing yourself out of a market that doesn't yet know why you're worth it.
Most small ecommerce founders get it wrong in the first direction. They price too low. Not because they've done the maths and landed there intentionally, but because they're scared. Scared nobody will pay more. Scared they'll seem expensive. Scared they'll lose sales to a competitor who charges less.
So they undercharge. And then they work incredibly hard and still can't figure out why the business isn't profitable.
This post is about fixing that.
Why "what are my competitors charging" is the wrong starting point
This is where most founders start. They look up five competitors, find the average price, and set their price somewhere near it.
The problem is that you have no idea what's behind your competitors' pricing. You don't know their cost of goods. You don't know their margins. You don't know whether they're profitable or whether they're slowly going broke while you're trying to match them.
Pricing based on competitors is essentially outsourcing your financial decisions to businesses you know nothing about. That's not a strategy. That's guesswork with extra steps.
Start with your own numbers instead.
The maths you actually need to do
Before you can price your products properly, you need to know three things.
Your cost of goods sold (COGS). Your business overhead. Your target profit margin.
Let's go through each one.
Cost of goods sold
This is everything that goes into producing and delivering one unit of your product.
Materials or wholesale cost. Packaging. Labels. Any production costs. Shipping to you if you're buying stock. The cost of shipping the product to your customer if you're absorbing that.
Add all of those up and you have your COGS per unit. This is your absolute floor. You cannot price below this number without losing money on every sale.
A lot of founders think they know their COGS but haven't actually calculated it properly. They've included materials but forgotten packaging. Or they've included packaging but forgotten the inbound freight on their stock order. Go through it line by line. Every cost that touches that product before it reaches your customer needs to be in that number.
Business overhead
Your COGS covers the cost of the product. Your overhead covers the cost of running the business.
Subscriptions and software. Shopify fees. Marketing and ads. Your own time if you're paying yourself a wage, or the value of your time if you're not yet. Contractor or staff costs. Insurance. Accounting. Any other fixed costs you carry every month regardless of how many products you sell.
Take your total monthly overhead and divide it by the number of units you sell in a month. That gives you an overhead allocation per unit. Which tells you how much each sale needs to contribute to covering your costs of doing business, on top of the product itself.
This is the number most founders have never calculated. And it's the number that explains why a lot of product businesses look like they're making money when they're not.
Target profit margin
Once you know COGS and overhead allocation, you know your break even price per unit. That's the price at which you cover your costs and make nothing.
Your actual price needs to be higher than that. How much higher depends on your margin goals, your market and your brand positioning.
A rough guide for product-based ecommerce: a gross margin (revenue minus COGS) of 50 to 70 percent gives you enough to cover overhead, marketing and profit while still having room to run the occasional promotion without going backwards.
So if your COGS is $20, you're looking at a retail price of $40 to $67 to hit that margin range. Then you layer in overhead and profit targets on top.
That maths might tell you your current price is too low. Good. Now you know.
The psychology of pricing
Here's something your psychology degree might have covered.
Price is not just a number. It's a signal.
Customers use price to make assumptions about quality, value and brand positioning before they've even looked at the product properly. A product priced too low doesn't just hurt your margin. It makes people wonder what's wrong with it.
This is the counterintuitive truth about underpricing. It doesn't just cost you money on every sale. It can actually reduce your perceived value and make people less likely to buy.
Think about the last time you saw two similar products at very different price points. Did the cheaper one immediately feel like the better deal? Or did you wonder why it was so much cheaper and what that meant about the quality?
That same instinct applies to your customers.
Pricing with confidence, at a level that reflects the true value of your product, is not arrogance. It's positioning. And it often converts better than underpricing because it signals that what you're selling is worth something.
What to do when you think your price is too high
This is the fear that keeps most founders underpricing. They've done the maths, they know what they need to charge, and then they panic because it feels like too much.
Here's the reframe.
If your price feels too high, the answer is almost never to lower the price. It's to increase the perceived value.
Perceived value is everything that makes your product feel worth the price before someone has even bought it. And it lives in your product pages, your brand story, your photography, your packaging, your reviews and your copy.
Features tell. Outcomes sell. If your product page is listing what the product is made of instead of what it does for the person buying it, you're making the customer do the work of justifying the price themselves. Most of them won't.
Tell them what it feels like to use it. What problem it solves. What their life looks like with it. Why the materials, the craftsmanship, the process behind it matters. Give them the story that makes the price make sense.
When perceived value goes up, price resistance goes down.
The discount trap
One more thing worth naming because it comes up constantly.
Discounting is not a pricing strategy.
Running a sale to move old stock, reward loyal customers or mark a specific occasion is fine. Using discounts as a regular tool to drive sales is not fine, for two reasons.
First, it trains your customers to wait for a discount before they buy. Why pay full price today when there'll be a sale next month? Once you've established that pattern, it's very hard to undo.
Second, discounts come directly out of your margin. A 20 percent discount on a product with a 50 percent margin means you've just cut your margin to 30 percent. You need to sell significantly more units at the discounted price to make the same profit as you would have at full price. Often the maths doesn't work.
If you're regularly discounting to drive sales, the answer is usually not more discounts. It's stronger perceived value at full price.
When to review your pricing
Pricing isn't set and forget. It needs to be revisited when your costs change (materials, freight, platform fees), when you have enough sales data to understand what your market will pay, when you reposition your brand or move upmarket, and when your margins are consistently too tight to run a sustainable business.
A good rule of thumb is to review your pricing at least once a year. Not necessarily to raise prices every year, but to make sure the maths still works and that your pricing still reflects where the brand is positioned.
The honest version
Most founders are undercharging. And they know it. They've done the rough maths and they know their margin is too thin, but they haven't raised prices because they're scared of losing customers.
Here's what actually happens when you raise prices properly, with a clear rationale and strong perceived value behind it.
Some customers leave. Usually the ones who were always going to be the most price-sensitive and the hardest to retain anyway.
Most customers stay. Because they're not buying from you because you're the cheapest option. They're buying from you because they value what you make.
And you make more money on every sale without working any harder.
That's worth the discomfort of raising prices.
Want help working out if your pricing and margins actually stack up?
This is exactly the kind of thing a mentoring session or a Pick My Brain call can work through. Bring your numbers, your costs and your current pricing and we'll look at whether the maths works and what needs to change.
Book a Pick My Brain session HERE — $275 inc GST.
If your store also needs work to convert the traffic you're already getting, a Conversion Audit will tell you exactly what's costing you sales and what to fix first.
Book a Conversion Audit HERE — $397, delivered within 7 business days.
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