Small business owners spend countless hours working out the details of their business plan, searching for the perfect location, and deciding which products deserve to be on their shelves.
But when it’s time to set prices, they rely on snap judgments and gut-feeling decisions.
If this sounds like you, you could be missing out on higher profit margins.
In this blog, we’ll explore exactly how to price a product for retail — including how to strike the perfect balance between meeting customers’ expectations and turning a healthy profit on every single product.
Let’s dive in and explore six steps to set better prices.
First, you need to understand exactly how much it costs to purchase a product, get it onto the shelves, and sell it. This is represented by your cost of goods sold (COGS), and it includes:
Knowing your COGS will at least help you break even. From there, you can start working toward real profit margins for each of your products.
Pro tip: Tariffs, supply chain disruptions, and general inflation have led to significant fluctuations in the wholesale costs of consumer goods. Make sure your point of sale (POS) system includes vendor management tools that let you spot cost changes and adjust prices accordingly.
Competitive pressure is an unfortunate reality for independent retailers. You’re not only competing against other small businesses in your area — you’re also competing against retail giants with bigger purchasing power and (usually) lower prices.
That’s why our number-one tip is to avoid the race to the bottom. Instead, focus on the value your store offers that customers can’t find anywhere else.
For example, your independent grocery store might not be able to compete with Walmart or Kroger on price, but you can offer higher-quality products, like grassfed beef, organic produce from local farms, or artisan cheeses.
Small smoke shops might not be able to offer the low prices customers find in gas stations and supermarkets, but they can offer unique experiences like cigar lounges or expert tobacco recommendations.
In short, your prices shouldn’t scare customers away, but your goal shouldn’t be to offer the lowest prices in town, either. This approach lets you set prices that reflect the value of what you have to offer.
Pro tip: Want customers to pay premium prices for premium products? You need a rock-solid marketing strategy. Use your website, social media pages, and in-store signage to highlight what makes your product selection special.
Tired of having to swap your shelf labels every time tariffs or supply chain disruptions impact your COGS? Consider investing in electronic shelf labels (ESLs).
ESLs display your prices digitally. To customers, they look nearly the same as traditional shelf labels — but they allow you to update prices across your store within seconds.
Simply adjust the price in your POS system, and it will push the new prices live on your ESLs. This also makes it easier to launch limited-time promotions or experiment with different pricing strategies.
A dynamic pricing approach is also essential if you sell online. Maintaining an e-commerce storefront and fulfilling online orders can get expensive, and your online prices should help you make up the difference.
When customers place an order on DoorDash or Instacart, they expect to pay more than they would in store — so don’t be afraid to set prices that reflect your target profit margins.
When a customer walks into your store for the first time, they look at your prices to determine if they’re getting a good deal or not — but they haven’t memorized the price of every single item on their list.
Instead, they’re looking at a few key value items (KVIs). These are the products customers purchase so often that they know the typical cost.
Grocery store KVIs typically include a gallon of milk, a dozen eggs, and a loaf of bread. In a liquor store, your KVIs might be a handle of Tito’s or a six-pack of Bud Light.
If you want customers to feel they’re getting a good deal, you need to know your KVIs and your competitors’ prices. Keep these prices low — and use them to earn customers’ loyalty.
Pro tip: To determine your store’s KVIs, check your POS system’s sales reports. This should help you identify your highest-turnover products and which ones appear most frequently in customers’ baskets.
While you may be willing to break even on KVIs, the goal is to offset those thin-margin staples with a strong mix of high-margin products.
For grocery stores, your highest-margin departments are often the deli counter, bakery, and prepared foods sections. Keep your product selection and promotions fresh in these areas.
You can also strategically boost margins by offering private-label versions of the most popular name-brand products.
Liquor store margins are often highest on imported and craft beers, luxury wines, and top-shelf spirits. Use smart display decisions like eye-level placement to increase sales of these high-margin products.
Now, let’s talk about what your prices should actually look like. A few common pricing strategies based on retail buyer psychology include:
Experiment with these different pricing strategies to see which resonates best with your store’s target market.
You know how to price a product for retail — now, all you need is the right tools to implement these strategies.
A POS solution with powerful reporting tools, ESL integration, and flexible promotion options can help you identify KVIs, update prices in seconds, and drive bigger purchases.
At POS Nation, we specialize in partnering grocery stores, liquor stores, smoke shops, and other retailers with POS software that’s the perfect fit.
Talk to one of our retail industry experts to see our solutions in action!