Examples of Variable Cost and Fixed cost

First, let’s take a look at what is a Variable Cost and what is a Fixed cost. Based on Wikipedia:

• Variable Cost: Are expenses that change in proportion to the activity of a business. Or in simpler terms, the cost that goes up when your sales goes up.
• Fixed Cost: Are business expenses that are not dependent on the level of goods or services produced by the business. Or in simpler terms, those monthly fees you have to pay for your online shop.

These two are the only cost you need to worry about for your entire online shop. All costs will just fall into these 2 categories. To make it perfectly clear, here are some of the examples.

Variable Costs:

• Product costs
• Delivery costs
• Packaging costs
• Any raw material costs
• Transaction fees

Fixed Costs:

• Staff salary
• Yearly e-commerce subscription fees
• Yearly payment gateway fees (if any)
• Rental costs
• Accountancy costs

While it feels different, many of these costs and fees are the same for a normal shop and an online shop. So what we know of the ‘offline’ shop can be applied to the online shop too.

So if you are given the choice, which cost would you prefer? Variable or Fixed?

Free Delivery (No Shipping Fees) Always Win

Simplicity is king. Whenever you are faced with a choice, always choose the simpler option. This is especially true when it comes to consumers.

Adding a shipping fee to your online shop is not simple. Your customers are forced to worry about the additional unknown cost. Each time they look at the price of your product, the back of their head is asking ‘but you haven’t calculate in the shipping cost yet. It’s not as cheap as it seems’.

That’s no good. Some of your customers may just abandon their shopping cart and forget about it.

The best solution is, as the title suggested, give free delivery. Tell your customers upfront and on the main page: ‘There are no additional cost, no shipping fee, no hidden charges’. Now, what prices your customers see are what they will get. Tension and stress dissolved and they can just go about their shopping without worry.

That only translates to more sales for you. How simpler can it get?

Price Anchor

Besides setting your price at a very attractive price point, there is one more trick many large retail stores use. It’s called Price Anchorage.

Ever heard of a conversation such as this: “Normally our standard price is $300, but today we have a special promotion price of $199”. Wow! What a good price don’t you think?!

Actually, no. We would feel the price is attractive because we just anchored what we thought was the original price at $300. We got anchored by the price.

Now, it doesn’t matter if the original price is truly $300 or not, what matters is you felt the price is cheaper. And that’s what we can implement on our online store too.

Always anchor your price when situation permits. Always put a higher price, let your customer see it, and then show them the lower price. For example:

Normal Price: $300
Current Price: $199!!

Effective, don’t you think?

Lower Your Price the Smart Way

It is common knowledge that the more you lower your price, the higher the purchase rate will be. But the million dollar question is, how to lower your price?

Lowering prices is a good way of ensuring online sales, but the secret is to lower the price to a point where you get the maximum impact.

Consider this: $10.60 and $10.50. Would the 10 cents entice you to buy? How about $50.10 and $50.00? Does it make a difference?

Now, let’s take a look at this. $20.00 and $19.99 Notice how much more effective it is. Just by lowering a single cent you affect the buying decision by so much more. In fact, lowering 1 cent to any other price point will never achieve such an impact.

That, dear reader, is the most impactful way to lower your price. Just take your price you prefer to sell your product at and lower it by 1 cent. Ensure that the front number is changed because of it. Numbers such as $59.99, $15.99, $9.99 or even $0.99.

Minimal reduction in price, maximum impact.