You review your competitors' prices and find someone selling for less than you do. You consider lowering your price, but you know that what remains from the sale is limited. Then you consider raising it, and the question returns: Why would the customer buy from me if they can get the product at a lower price?

Torn between the fear of losing the customer and the fear of selling without profit, pricing becomes a perplexing decision. You need a price that the customer accepts and leaves you with enough to run your store and sustain your business. To arrive at it, you must understand your costs, what the customer is actually comparing, and the reasons that might lead them to choose you.

In a Salla session with Mohammed Al-Omari, a specialist in business development and financial performance analysis, we discussed the relationship between cost, the market, and customer-perceived value. Here, we outline how to use these elements to evaluate your price, and what to review when a competitor's price seems lower than you can afford.

Watch Mohammed Al-Omari explain the relationship between cost, value, and market prices, starting from minute 11:10.

Cost | How far can you lower your price?

Before you ask what price the customer will accept, calculate what it costs you to sell. You buy the product for 50 SAR and sell it for 100 SAR, expecting 50 SAR to remain. However, this calculation stops at the purchase cost, whereas the sale itself may involve packaging, payment processing fees, and shipping costs you bear, alongside the advertising cost attributed to the order.

Suppose the product cost is 50 SAR, packaging, payment fees, and store-covered shipping add 15 SAR, and the customer acquisition cost per order is 10 SAR. The total of these costs becomes 75 SAR, leaving an amount of 25 SAR from the 100 SAR selling price.

This remainder is called the contribution margin, because it contributes to covering the store's remaining expenses—such as subscriptions, salaries, and rent—and then generating profit. Therefore, do not treat it as pure net profit that you can withdraw completely.

If you reduce the price to 80 SAR, assuming previous costs remain constant, you will only have 5 SAR left. Here, the question becomes: Is the contribution from your sales at this price enough to cover the rest of your overhead? And how much volume do you need to sell to achieve that?

Use your store's actual costs, and pay attention to variations across products, payment methods, and shipping options. If an order contains multiple items, calculate shared costs once and allocate them appropriately when analysing products, so you do not burden each individual item with the full shipping or customer acquisition cost.

Competition | Is the lower price really why the customer chooses them?

When you see a cheaper product, review what the price includes before comparing it to yours. Are the specifications and quantities identical? Is the shipping cost comparable? Are the delivery timeframes, return policies, and service levels similar?

These details help you understand the comparison the customer is actually making. Two products may look identical in photos, yet the buying experience or the value received from each can differ substantially.

On the other hand, the product and offer may genuinely be identical, making the price difference a decisive factor. In that case, you need to understand your competitive position: perhaps the other store purchases in larger quantities, secures better supplier terms, or fulfils orders at a lower cost.

Their price tells you what their customer pays, but it does not reveal what remains for them after the sale. Therefore, use competitors' prices to understand the market, then return to your own numbers to see the impact of matching them on your store.

The Choice | Why would a customer buy from you if your price is higher?

This question deserves a clear answer from the customer's perspective. If they see the exact same product, the same service, and the same purchase terms, it is only natural for price to become a decisive factor. Before asking them to pay more, identify what they will receive in return for the difference, and make sure it is both obvious and meaningful to them.

The difference could lie in the product's material quality, manufacturing details, customisation options, or a service the customer genuinely needs. However, the phrase "our quality is better" alone does not explain what will be different in their experience. Showcase details with imagery, clarify specifications and use cases, and ensure delivery schedules and policies are transparent.

For instance, if a customer is buying a gift for an upcoming occasion, ready gift packaging and clear delivery timing may be essential. If they are purchasing an item requiring an exact fit, accurate sizing charts and detailed photos help them evaluate their choice. The value of these elements depends on customer need and your ability to deliver on your promises.

Review your product page and ask: Can the customer understand the reason for the price difference without contacting me? And is the feature highlighted genuinely important to them, or is it merely an expense I bear without delivering perceived value?

If you cannot identify a difference the customer values, and your costs do not allow you to match the market, review your supplier, purchase volume, fulfilment method, or the product's viability altogether. You cannot resolve every pricing issue simply by convincing the customer to pay more.

Adapted from his discussion in the Salla session.

Sustainability | Is what remains sufficient to run your store?

A price might cover the costs directly tied to an order, yet leave a modest sum that falls short of covering overhead expenses at your current sales volume. This is why you must connect the remainder of each sale to the volume you can feasibly sell.

Suppose your fixed monthly expenses amount to 3,000 SAR, and each unit sold leaves 20 SAR after variable costs. In this simplified example, you need to sell 150 units just to break even on fixed costs, before generating any profit:

3,000 SAR ÷ 20 SAR = 150 units

If you typically sell 50 units, there is a gap that warrants review. You may need a different price, lower costs, an adjustment in expenses, or a realistic plan to increase sales. Relying on the assumption that orders will simply increase over time—without assessing what is needed to reach that point—can delay identifying the core problem.

This is an illustrative calculation for a single product, assuming constant costs. If your store sells multiple products with varying margins, you will need to factor in the sales mix of these items when calculating your break-even point.

To explore costs and break-even points further, learn financial essentials for e-commerce stores with Mohammed Al-Omari on Salla Academy.

Discounts | Do you really need to lower prices across the board?

When hesitant about your pricing, you might resort to storewide discounts to encourage purchases. However, before cutting prices across all products and customers, identify the specific problem you want to solve: Do you want to clear specific inventory? Encourage higher order volumes? Or test customer demand for a new product?

A clear objective helps you define the scope and duration of the promotion, and then calculate its cost. Discount margins vary across products, so do not assume that the same percentage is suitable for everything you sell.

Also explore alternatives that align with your objective, such as product bundles or conditional free shipping, and calculate the remaining margin on the order in each scenario. Changing the format of an offer does not eliminate the need to calculate its true cost.

To understand the impact of discounts on your remaining margins, read also: How to calculate the impact of discounts on your profit margin?

Testing | How to test your price before rolling it out?

You do not need to change prices across your entire store all at once. Start with a frequently ordered product where you have sufficient data to understand performance, then specify the rationale for the adjustment and the metric you want to monitor.

Record your current baseline: The actual selling price post-discounts, unit volume sold, variable costs, and total contribution margin over a representative period.

Isolate your variables: If you change the price, ad campaign, creative assets, and the offer all at the same time, it will be difficult to determine what drove the outcome. Keep the test as clean and controlled as possible.

Monitor order volume and retained margin together: A drop in units sold does not automatically signify that a higher price failed, nor does a rise in units prove that a discount succeeded.

Suppose you were selling 100 units, with each unit leaving 10 SAR after variable costs, yielding a total contribution margin of 1,000 SAR. Following a price adjustment, you sold 80 units, but each unit now leaves 15 SAR, raising the total contribution margin to 1,200 SAR. In this scenario, volume decreased, yet the net amount left to cover overhead and profit improved.

This does not mean raising prices is suitable in every scenario. Keep a close eye on customer enquiries, complaints, and repeat purchase rates when test timelines allow, and account for seasonality, advertising spend, and stock availability between both test periods.

Set a decision deadline: Allow the test to run long enough to generate meaningful data based on your sales volume, then decide whether to maintain the price, tweak it, or run another test.

The Decision | What to review if customers reject the price?

If a price fails to deliver expected results, return to the core decision drivers. Did the price increase without the customer understanding the value delivered? Are you comparing it against dissimilar products? Is there an issue with the product page or checkout experience? Or is the product cost simply too high to compete effectively?

Your next step could involve refining the product description, sourcing a better supplier, adjusting your product catalogue, or reconsidering overhead expenses. Sometimes, you simply need to accept that a specific product does not align with your store's operating model, rather than continuing to sell it at a margin that strains your business.

Before choosing between "lowering the price" or "raising it," write down three things: what it costs you to sell, what the customer receives, and what remains for your store. Then validate your decision with actual figures. This way, you can evaluate pricing on concrete insights rather than fear alone.

Watch the Session | Deepen your understanding of how discounts impact your store's profitability

In the Salla session, Mohammed Al-Omari discussed the relationship between pricing, costs, discounts, advertising, and cash flow, answering merchants' questions regarding their financial decisions. The discussion on the impact of discounts on margins begins at minute 19:31 of the recording.

Planning to launch your e-commerce business? Create your store on Salla, and start setting up your products and prices backed by clear cost visibility.