Setting prices from costs, positioning and demand evidence

Set a candidate DTC price by checking its contribution per order, comparing the offer with alternatives and looking for evidence that customers buy at that price. Then choose one tested price that clears your contribution hurdle, fits its market position and has actual orders behind it.

Calculate the contribution boundary

1. Unit-cost economics: Build a per-order cost record covering product, packaging, payment, fulfilment, expected returns and support. Include acquisition cost when deciding whether a channel can scale, and use ranges where costs vary by order size or region.

First, calculate contribution per order: sales revenue before GST, where applicable, minus the variable costs assigned to that order. Record each cost, including fulfilment and returns.

Compare the candidate price with the full cost picture, not product cost alone. Keep contribution beside the cost record; a price that looks viable before fulfilment and returns may not meet your hurdle afterwards.

For illustration, an average order value of $120 and a gross margin of 50% give $60 gross profit per order. If your chosen contribution hurdle is 30% of that gross profit, the hurdle is $18; subtract the other variable costs to see whether the order clears it. The $120 average order value is not, by itself, a candidate retail price.

2. Positioning: Compare the prices of credible alternatives, then compare what buyers receive, including quality, included parts, service, warranty and convenience. Use specific differences in the offer to assess its position; a higher price by itself does not establish a premium position.

Second, compare the offer with main competitors and other alternatives customers might consider, including imperfect substitutes. Note each alternative’s price and compare features, quality, customer service and comparative efficacy, as well as differences in the offer. Use competitor prices as a positioning reference, not a figure to copy automatically.

3. Demand evidence: Test a proposed price with real transactions or carefully interpreted research. Watch conversion and contribution together so customer response and order economics inform the decision.

Third, look for demand evidence. Market-test with a sample of customers: ask what they spend on similar products and how many they are likely to buy, then test different price options to see what sells. Check actual orders at each proposed price and assess order volume alongside contribution per order.

To settle on one figure, consider the tested prices that meet your contribution hurdle, fit the offer against alternatives and have actual orders. Select the price that passes all three checks; if none does, revisit the candidate, costs or offer and check again.

Keep claims truthful

GST is 10% on most goods and services. If you're registered, add GST to taxable sales, claim GST credits on business purchases, and report and pay—or receive a refund of—the net amount to the Australian Taxation Office (ATO) through your BAS.

Registration is required once current or projected GST turnover reaches $75,000 or more in a 12-month period.

Keep claims about the product or service accurate. Record when each price was available and check its display in every channel.

The ACCC can require businesses to back up claims about their products or services. It accepts reports about possible misleading or false claims.

The ACCC uses reports to inform its education, compliance and enforcement work, and may investigate and take compliance or enforcement action.

Review the price after changes to costs, demand or the product. At each review, recalculate contribution and repeat the alternative-price and demand checks.