Am I underpricing my products? Five signs and the maths to check
You are probably underpricing if you almost never lose a sale on price, your best sellers run out before you can restock them, and your gross margin does not cover what it costs you to operate. The way to settle it is arithmetic rather than instinct: work out how many units you could afford to lose at a higher price, then decide whether losing that many is plausible.
Five signs, in the order they usually show up
1. Nobody argues. If no customer, ever, tells you something is expensive, you are not at the edge of what the market will pay. A small stream of price objections is a healthy signal, not a problem to solve.
2. Your bestsellers sell out early. Consistently running out before restock is a demand signal you are answering with logistics when you could answer it with price. Stock-outs on the same three SKUs every quarter are the cheapest evidence of underpricing you will ever get.
3. You are the cheapest in every comparison you run. Being lowest on a few deliberately chosen items is a strategy. Being lowest on everything, by accident, is a habit.
4. Your gross margin does not cover your cost of doing business. Add up rent or storage, software, payment fees, packaging, returns, advertising and your own time as a real salary. Divide by revenue. If your gross margin percentage is not comfortably above that number, no volume will fix it.
5. Discounting stops working. If a 10% off code barely moves units, you are already at or below the price where price is the deciding factor. There is nothing left to give away.
None of those is conclusive alone. Three of them together usually is.
The maths that settles it
There is one identity worth memorising, and it is simpler than it looks:
The share of units you can afford to lose = the price increase ÷ the new gross margin per unit.
That is it. Everything below is that formula with numbers in it.
Worked example: a healthy-margin product
- Price $40.00, cost $24.00 → margin $16.00 (40%)
- You sell 500 units a month → $8,000 of gross margin
Raise the price 5%, to $42.00. New margin per unit: $18.00.
To keep $8,000 of margin you now need 444 units ($8,000 ÷ $18). So you can lose 56 units — 11.1% of your volume — and be exactly where you started. Anything less than an 11% drop and the price rise made you money.
Check it against the identity: the increase is $2.00, the new margin is $18.00, and $2.00 ÷ $18.00 = 11.1%. Same answer.
Worked example: a thin-margin product
- Price $40.00, cost $34.00 → margin $6.00 (15%)
- Same 500 units → $3,000 of gross margin
Raise 5% again, to $42.00. New margin: $8.00. Break-even volume: 375 units. You can lose 125 units — 25%.
This is the result most people find backwards, and it is worth sitting with. Thin margins tolerate price rises better in unit terms, not worse. When you are only keeping $6 a unit, an extra $2 is a third more margin on every sale, so it takes an enormous collapse in volume to be worse off. The intuition that low-margin businesses cannot raise prices is exactly wrong — they are the ones with the most to gain and the most cover to do it.
The catch is the other direction. Thin margins are brutally punished by cuts: drop that $40 product by 5% and your $6 margin becomes $4, and you need a 50% volume increase to stand still.
How to raise a price without a bloodbath
- Raise ten SKUs, not four hundred. You are running an experiment, not repricing the catalogue.
- Start with low-visibility items. Accessories, consumables, spares, anything a customer buys because they are already on your site rather than because they compared four tabs.
- Hold your anchors. Every catalogue has three or four products customers know the price of. Leave those alone; they are what people judge you on.
- Give it four weeks. Two weeks is noise.
- Measure units, not revenue. Revenue will go up at first even if volume is falling, and that will tell you the wrong thing.
- Change one variable. Not price and shipping and a promotion in the same fortnight.
Check you are actually under market first
Underpricing relative to your own costs and underpricing relative to the market are different problems with different fixes. The first is solved by arithmetic; the second needs to know what other people charge.
Run the market check before you touch anything — there is a version you can do in an afternoon that works in reverse just as well. If it turns out you are already at market and still not covering your costs, your problem is cost or mix, not price, and raising prices will just move the pain.
When you don't need software for this
If you carry 40 SKUs and have two competitors, you do not need a monitoring tool to answer this question. You need an hour, a spreadsheet with price, cost and units for each product, and the identity above. Most underpricing is visible in your own numbers before anyone else's come into it — sign 4 in particular needs no competitor data at all.
Tools start earning their keep when you cannot hold the picture in your head: a few hundred SKUs, three or more competitors, or a category where prices move weekly. Below that, the spreadsheet wins. The small-store guide is about where that line sits, and price monitoring explained covers what the category actually does.
Where Pricemastr fits
Once you have decided you are underpricing, the work becomes ongoing: knowing where your prices sit relative to competitors, week after week, without opening tabs. That is the job Pricemastr does. Setup is one store URL with no mapping products by hand; your products come back paired with competitors' automatically, each pairing with a reliability indicator you can review, and anything uncertain goes to a review queue for you to confirm or dismiss.
On paid plans prices are re-checked daily with a morning alert for undercuts, sharp drops and competitor stock-outs. There is price history on every tracked product, a suggested price from a rule you set — you decide, and Pricemastr never changes prices in your store — plus CSV export and on-demand re-checks on Pro and above. Basic is free; Pro is $39 a month and Max is $99, all published on the pricing page.
Do the arithmetic first. If it says you have room, start free and find out how much.
Frequently asked questions
How do I know how much of a volume drop I can afford?
Divide the price increase by the new gross margin per unit. Raise a $40 product with a $16 margin by 5%: the increase is $2.00, the new margin is $18.00, and $2.00 divided by $18.00 is 11.1%. You can lose 11% of your units and be exactly where you started.
Is it true that thin-margin products tolerate price rises better?
In unit terms, yes, and it surprises most people. A $40 product with a $6 margin gains a third more margin per sale from a $2 rise, so the break-even volume loss is 25% rather than 11%. The reverse is also true and more dangerous: cut that same product by 5% and you need 50% more units to stand still.
How many products should I raise prices on at once?
Around ten, not the whole catalogue. Start with low-visibility items — accessories, consumables, spares — and leave the three or four anchor products customers know the price of alone. Give it four weeks and measure units rather than revenue, because revenue can rise for a while even as volume falls.
What if I am underpriced against my costs but at market?
Then price is not your problem and raising it will not fix the underlying issue. That combination points at cost base or product mix. It is worth separating the two questions early, because they have completely different remedies.
Do I need software to work this out?
No. Most underpricing is visible in your own numbers before any competitor data comes into it, and the fourth sign here — gross margin below your cost of doing business — needs no external data at all. With around 40 SKUs, a spreadsheet of price, cost and units plus the identity above answers the question in an hour.