Pricing
Pricing glossary
Short, precise definitions for the concepts behind every pricing decision.
- Margin
- Profit per unit divided by net selling price. Sell at 90 with 30 profit and your margin is 33.3%. Price Check →
- Markup
- Profit per unit divided by cost. Same example: 30 on a cost of 60 is a 50% markup. Markup is always larger than margin; confusing them pushes prices down. Price Check →
- Contribution margin
- Net price minus all variable per-order costs (cost of goods, commission, shipping, acquisition). Each sale's share in covering fixed cost and profit. Channel Margin Comparison →
- Break-even point
- The sales volume at which total profit is zero: fixed cost divided by unit profit. With unit profit 30 and fixed cost 3,000, break-even is 100 units. Price Check →
- Price elasticity of demand
- Percentage change in volume for a 1% change in price. Elastic products lose a lot of volume when prices rise; inelastic ones don't.
- Price position
- Whether your price is cheap, mid-market or premium among competitors; usually expressed as a percentile or gap to the competitor median. Price Check →
- Value-based pricing
- Price set by the value the customer receives, not just cost or competitor prices. Better suited to services and differentiated products.
- Cost-plus pricing
- Cost plus a fixed percentage. Simple, but ignores the market and value and often leaves profit on the table.
- Psychological pricing
- Price points that change perception, such as 99,000 instead of 100,000 or anchoring against a pricier option.
- Dynamic pricing
- Changing prices by predefined rules using data such as competitor prices, stock or season. Without clear rules it turns into a price war.
- Competitor price monitoring
- Regular collection of competitor prices from websites, marketplaces and physical stores, compared with yours for equivalent items.
- Van Westendorp method
- A four-question survey (too cheap, cheap, expensive, too expensive) that reveals the acceptable price range in customers' eyes. Price Check →
- Price governance
- Who changes prices, by which rule, when, and how the outcome is monitored.
- Pricing tiers
- Offering two or three packages with different scope and price so each customer picks what fits their need and budget. Price Check →