Setting retail prices for your merchandise is key to sales, but also one of the most difficult things to grasp. There are some rules, such as double the wholesale price, but they don't always hold true. Retail pricing is about finding out what your customer base is willing to pay. It can be higher if you offer a specialized and quality inventory or give a special service, but most of the time, the customer looks at price and so must the retailer.
Set a fair price. A fair price depends on how much you paid for the merchandise, what your competitors are charging, your overhead expenses, your sales volume and many other variables. Your price must allow you a profit margin, yet be fair to your customers and low enough to attract customers. Pricing requires a delicate balance.
Use the keystone approach to pricing. The keystone means that you double the price you pay for a product and make that the retail price. If you pay $1.00 for an item, you charge $2.00 for it. Most customers would be appalled if they thought those prices were doubled. They have no idea what it costs to run a business, to pay staff, keep the lights on or pay taxes--all of which a business owner must do to keep the stock on the shelves.
Sell at a lower markup occasionally. Be careful, however, not to price too many items this way or you'll find nothing left for yourself at the end of the year. You can try to balance it out by marking up some items slightly higher to compensate for the lower markups on others. If you decide to use a markup other than the standard keystone, here is a quick way to calculate your selling price: Selling price = [(cost of item) ÷ (100 – markup percentage)] × 100. For example, assume an item costs you $10 and you want to use a markup of 35 percent. The selling price would then be calculated as follows: Selling price = [(10.00) ÷ (100 - 35)] × 100. The selling price = (10.00 ÷ 65) × 100 = $15.38. Do not multiply the cost by 35 percent and add that amount to the cost. That will produce a retail markup of 17.5 percent, not the desired 35 percent.
Include other hidden costs. Freight costs money, and this cost is rapidly increasing. If competition allows, add the freight cost before you apply the markup. Most of the time you will have to add freight to the markup price, thus recovering only the cost of the freight.