3 Strategies to Determine Product Markup

Author: Adam Wren Date: November 20, 2012

Naming Product Prices

Before you set prices, consider these strategies to determine dollar amounts.

Pricing your products is one of the most important—and tricky—decisions you’ll make as a small business owner. What if you price your product too high or too low? It doesn’t have to be as complicated as you might be making it.

To help you ease your markup headaches, we asked Becky McCray, owner of a liquor store and author of the book Small Town Rules: How Small Business and Big Brands Can Prosper in a Connected Economy for her tips. Here are 3 things she says you should take into consideration before you determine your product’s markup.

RELATED: 4 Creative Ways to Cross-Sell

Research industry benchmarks.

When McCray and her husband first bought a liquor store in Alva, Okla., one of the first decisions they had to make was how to handle markup. Should they raise their prices? Lower them? Keep them the same? McCray says they weren’t sure. So, they did some research and came across The Retail Owners Institute’s Industry Benchmarks, a treasure trove of data that includes statistics such as gross margin across more than 50 different industries, from audio/video and consumer electronic stores to variety stores.

“Industry benchmarks give you a ballpark to start with,” McCray says. “These benchmarks of gross margin can be converted into markup. While it's not a final guide to pricing, it offers a way of comparing pricing with other stores in the industry.”

Think about Keystone markup.

Another rule of thumb to consider is using Keystone markup, McCray says. That’s when you take the price of the good you’re selling and double it—in effect, marking it up by 100 percent. It’s simple and effective.

Talk with other business owners in a non-competitive region.

For McCray, another effective tactic to determine whether the prices on their liquor were right was to talk shop with other business owners in her state who operated stores in a non-competitive region. Ultimately, McCray and her husband found that the prices they set were right. “I was pleased to find where I need to start out with my pricing,” she said.

RELATED: 3 Effective Price Anchoring Strategies


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