Price Calculation in eCommerce: How Brands and Retailers Should Approach It Differently

Price calculation in eCommerce isn’t just about applying a formula. Price calculation is about aligning pricing with your business model, customer expectations, and competitive position. While both brands and retailers operate in the same digital ecosystem, their approaches to pricing are often fundamentally different.

This article explores how each side of the eCommerce landscape, brands and retailers, should approach price calculation, what factors to prioritize, and how to protect margins while remaining competitive.

Understanding the Basics of Price Calculation

Before diving into tailored approaches, it’s worth revisiting the foundational price calculation formula:

Selling Price = Cost Price + Markup (or desired margin)

Where:

• Cost price includes raw materials, labor, packaging, shipping, and platform fees.
• Markup is typically based on a percentage of the cost.
• Margin is calculated based on the final price: Margin = (Selling Price – Cost Price) / Selling Price

But that’s just the starting point. Let’s break down what each business type must consider beyond the formula.

Price Calculation for Brands

For direct-to-consumer (DTC) brands, price is part of the brand identity. Besides selling a product, you’re selling a promise of quality, exclusivity, or values.

Key pricing considerations for brands:

1. Brand positioning:
   Price signals quality. A $90 face cream tells a very different story from a $15 one. The price must reinforce your positioning and justify it through packaging, messaging, and user experience.
2. Cost structure:
   Brands have full visibility over production costs such as materials, labor, overhead, fulfillment, etc. This allows for a more accurate and controlled price calculation.
3. Distribution channels:
   Many brands sell via both their own site and marketplaces (like Amazon). They must factor in seller fees, fulfillment fees, and channel-specific promotions when calculating prices.
4. MAP enforcement:
   If working with retail partners, brands often set a Minimum Advertised Price (MAP). This protects brand equity and prevents margin erosion from aggressive undercutting.
5. Psychological pricing:
   Charm pricing (e.g. $49.99) can work well in DTC, but premium brands may prefer rounded numbers (e.g. $50) to convey elegance or simplicity.

Example: A sustainable apparel brand calculates its hoodie cost at $22. With a 3x markup to maintain margins, its DTC price becomes $66. On Amazon, after accounting for 15% seller fees and fulfillment costs, the price needs to be closer to $78 to maintain parity.

Price Calculation for Retailers

Retailers work with thinner margins and fierce competition. Unlike brands, they don’t control the product, but they can control the pricing strategy.

Key pricing considerations for retailers:

1. Supplier pricing and margin targets:
   Retailers must calculate prices starting from the wholesale or distributor price, often dictated by the brand. If a brand sets MSRP at $100 and offers a 40% margin, the retailer buys at $60 and must decide whether to sell at MSRP or discount strategically.
2. Competitive benchmarking:
   Retailers often sell the same products as others, which makes competitive price monitoring essential. Even a 2% price difference can affect conversion rates.
3. Dynamic pricing strategies:
   Especially on marketplaces, price adjustments based on real-time competitor data can be a game-changer. Retailers benefit from automated tools that recalculate prices across large catalogs.
4. Bundling and volume pricing:
   Retailers can calculate prices that make room for BOGO deals, bulk discounts, or upselling strategies that drive average order value.
5. Marketplace and platform fees:
   Whether selling on Shopify, Amazon, or Walmart Marketplace, each platform takes a cut. These costs need to be baked into final prices.

Example: A consumer electronics retailer buys headphones at $55 with an MSRP of $89.99. To stay competitive, they set their base price at $79.99, offering occasional 10% discounts. After Amazon’s referral and fulfillment fees (≈17%), their net revenue per unit is $66.39, leaving them with a ~$11 margin per sale.

How to Review and Adjust Prices

For both brands and retailers, price calculation isn’t a one-time task. Here’s a quarterly review checklist:

• Monitor raw material or supplier cost changes
• Track competitor price changes using monitoring tools
• Review conversion rate trends for different price points
• Simulate different discount levels or cost increases
• For brands: Ensure MAP compliance across retail partners
• For retailers: Review average order value and profitability by SKU

Final Thoughts

While the fundamentals of price calculation remain the same (cost, markup, and margin), the execution differs greatly between brands and retailers in eCommerce. Brands must factor in their positioning and control over production costs, while retailers must navigate fierce competition and thinner margins.

A strategic, data-driven pricing approach is what separates sustainable eCommerce businesses from those in a race to the bottom.