Your supplier just raised prices. It's a normal event, and it forces a decision on you: what happens to your own price?
Most merchants answer by habit. Some absorb the increase and hope it's temporary. Some add the same number of dollars the supplier added. Some keep their margin and raise the price by the same percentage. All three sound reasonable. They give three different prices, and for any given product at least two of them are wrong.
The right one doesn't depend on how big the increase is. It depends on how your buyers react as the price climbs — and you can read that off the sales you've already made. Here's how, with the numbers.
Three instincts, three prices
Say you sell a product for $50. It costs you $30, so you make $20 per unit — a 40% margin. Your supplier raises the cost to $36: an extra $6, or 20%.
Your move
New price
Margin/unit
Margin
Before the increase
$50.00
$20.00
40%
Add the same dollars
$56.00
$20.00
36%
Keep the percentage
$60.00
$24.00
40%
Three moves that all sound defensible, and a $10 spread between them. That spread is half the margin you had before the increase. Picking by habit means picking a number of that size without looking.
What decides it
Not the size of the increase. The same $6 has a different right answer on different products, because what matters is how buyers react as the price goes up — and in particular whether that reaction gets stronger the higher you go.
Same increase, opposite answers
Take two products that look identical today. Both sell 100 units a month at $50, both cost $30, both make $2,000 a month. The only difference is what their buyers do as the price climbs.
Product A: No ceiling
Each step up in price loses about the same share of buyers, whether you start at $40 or at $60. There is no price where demand falls off a cliff. Typical for products without an obvious comparison: your own brand, a distinctive design, a gift, a specialty item.
$50: 100 units/mo
$53: 86 units (−14%)
$56: 75 units (−25%)
$60: 63 units (−37%)
The best price is a fixed multiple of the cost — here 1.67 times. Cost $30 gives $50. Cost $36 gives $60.
Product B: Hard ceiling
Buyers compare, and around $70 practically nobody buys any more. Each extra dollar loses about the same number of buyers, so the higher you go, the larger the share you lose. Typical for products with a visible reference price: the same item sold elsewhere, a well-known brand, a commodity.
$50: 100 units/mo
$53: 85 units (−15%)
$56: 70 units (−30%)
$60: 50 units (−50%)
The best price sits halfway between the cost and the ceiling. Halfway between $30 and $70 is $50. Halfway between $36 and $70 is $53.
Now the cost goes to $36. Here is the monthly profit each move earns on each product:
Your move
Price
Product A
Product B
Pass on half
$53
$1,462
$1,445 ✓
Add the same dollars
$56
$1,500
$1,400
Keep the percentage
$60
$1,512 ✓
$1,200
Same starting point, same increase, opposite answers. For Product A, keeping the percentage is exactly right, and eating the increase costs 7% of profit — every month, for as long as you sell the product. For Product B, keeping the percentage is the worst move on the table, 17% below the best. The best move there is to pass on half.
Adding the same dollars is never the best move, but never the disaster either. It's the hedge you'd take if you knew nothing about the product. The point is that you do know something.
Most products sit between the two. Their buyers have a ceiling, but a soft one: sensitivity grows as the price climbs, just not as steeply as for Product B. For those, the best increase lands somewhere between half the dollars and the full percentage. Where exactly is a property of the product, and it shows in your sales history.
Eating it is never the best answer
Whatever the product, the best price moves up when the cost moves up. The question is only by how much — for the example, somewhere between $53 and $60. Absorbing the increase means running the product at a price that was tuned to a cost you no longer pay.
The loyalty argument doesn't change this. Loyal buyers are the ones without a hard ceiling just above your price, and that is exactly the case where the full increase gets passed on. "Our customers are loyal" is an argument for Product A, not for eating it.
When holding the price is right
If the increase is a freight surcharge or a currency swing that may reverse within weeks, holding the price can beat changing it twice. Supplier list prices, on the other hand, rarely come back down. Know which one you're looking at before you decide to wait.
How to tell which product you have
You don't need a survey or a test. Your own price history already contains the answer.
1
Compare your past increases
Find the last two or three price increases on this product, or on close relatives in your catalogue. For each one, compare units sold in the couple of months after against the couple of months before, skipping promotion weeks, and turn it into a share: "lost 8% of buyers for a 10% increase". If the later increases lost about the same share as the earlier ones, there's no ceiling near your price — keep the percentage. If the last one hurt much more than the ones before, you've found the ceiling — pass on half.
2
Ask whether your buyers can compare
If the same item, or an obvious substitute, is one search away at a known price, that price is the ceiling — and it doesn't move when your cost does. Products that stand on their own behave like Product A: your own brand, a distinctive design, a gift, a specialty item.
3
Never changed the price? Then this is your first data point
Add the dollar amount as a first step: it keeps your dollar margin, and it's never far from the best move. Give it four to six weeks, compare units with the same weeks before the change, and then decide whether to take the second step up to the full percentage.
4
Do it per product
A sitewide "10% on everything" is the same mistake as a sitewide
"20% off everything", in the other direction. The products without a ceiling can carry the full percentage. The ones with a hard ceiling can't, and they're the ones where you'll notice.
Sell Smart Price Optimization does this reading for every product in your store: it takes your Shopify order history, separates the effect of each past price change from seasons and promotions, and tells you what the best price is at your current cost.
Two exceptions that raise the answer
Everything above assumes that your buyers' options haven't changed and that your old price was right. Two common situations break those assumptions, and both push the answer up, not down.
→The whole market's costs went up. If a raw material, freight or an exchange rate hit your entire category, your competitors are raising prices too, and Product B's ceiling moves up with them. If they pass on the full percentage, so should you — even on a product with a hard ceiling.
→You were underpriced before. Then the best price today can sit well above even the "keep the percentage" number, because the old price was too low to begin with. A cost increase is the best moment to fix that: customers expect price changes when costs rise, and one change with one explanation beats two. Our guide to finding your optimal price without A/B testing shows how to spot the underpriced products.
The bottom line
→Your best price goes up whenever your cost goes up. Eating an increase is never the best answer.
→How much depends on the product, not on the increase. Half the dollars for buyers with a hard ceiling, the full percentage for buyers without one, in between for most.
→Read it off your own history. If later increases hurt more than earlier ones, you're near the ceiling.
→Don't know yet? Add the dollars, wait six weeks, then take the second step.
→If the whole market moved, move the full percentage. The ceiling moved with it.
About Sell Smart Price Optimization
Sell Smart Price Optimization analyzes your Shopify order history to estimate how price-sensitive each of your products is, and how that sensitivity changes as the price climbs. That same estimate tells you how much of a cost increase each product can carry — so a supplier increase becomes a per-product decision instead of a sitewide guess.
