How Pricing Impacts Inventory: A Guide to Setting Profitable Product Prices
How Should I Price My Product?
You’ve worked hard to create that beautiful, useful, and unique product…and finally, it’s time for it to hit the market! But it’s no surprise that when it comes to retail, the biggest factor that goes into deciding whether or not to purchase a product is how much it costs.
After all the work that you put into getting that final product, you might just feel like your product is priceless—unfortunately, the market likely disagrees with that assessment! So where do you start, when trying to determine the right price for your product?
While there’s no perfect one-size-fits-all formula to setting a pricing strategy, there are a number of factors to consider before finalizing that price tag. While there are a number of pricing guides out there that dig deep into the economics of the equation, our straight-forward guide focuses on the more tangible elements that go into the process, so it feels less textbook—and more human.
Below we dig into all the factors to take into consideration before pricing your product, so you find your profits in the black and your excess inventory in perfect balance.
Key Factors to Consider When Determining Your Product’s Price
When it comes to setting your product pricing, research and clarity are your best friends. Grab your calculator, P&L, and demand plan—it’s time to look at both costs and customer behavior.
1. Production, Storage, and Shipping Costs
First, you need a clear baseline for your unit economics.
At a minimum, your price needs to cover:
Raw material cost
Production cost (manufacturing + labor)
Packaging costs
Storage cost (warehouse, 3PL, or in-store inventory carrying costs)
Shipping cost
For most retail and DTC brands, there are actually two shipping costs to factor into your pricing strategy:
Shipping from your vendor or manufacturer to you (inbound freight)
Shipping from you to your customer (outbound freight), especially if you offer “free” shipping
If free shipping is part of your value proposition, make sure it’s planned for—not just absorbed. Consider:
Setting a free shipping threshold that aligns with your average order value (AOV)
Building a portion of shipping into your pricing and margin structure
Using your demand plan and historical sales to understand how shipping promotions impact unit velocity
These cost components don’t dictate your final price, but they do set the floor. From there, you layer in margin, positioning, and strategy.
2. Value Perception
Next comes perceived value—how your customer experiences the product relative to the price.
Founders often (understandably) overvalue their products because they’re so close to them. But your retail pricing strategy has to be grounded in how your ideal customer sees the product, not just how you see it.
Ask:
Is this a luxury or everyday product?
Is it disposable, refillable, or long-lasting?
Does the quality, packaging, and experience match the price you want to charge?
If you’re pricing as a premium or luxury brand, your product, branding, and customer experience must support that positioning. If it’s an everyday or “no-brainer” item, the price should feel easy, intuitive, and aligned with what your customer is used to paying.
This isn’t just branding—it’s directly tied to your inventory management. If your price is misaligned with your perceived value, you’ll see slower sell-through, lower inventory turnover, and more units at risk of becoming dead stock.
3. Your Customer’s Buying Power
Even a well-loved product won’t move if your price point doesn’t match your customer’s actual budget.
As you refine your pricing strategy, consider:
Who is your core customer (demographic + psychographic)?
What else are they buying in the same category?
What do they typically spend on similar items?
If your price lands consistently above what your ideal customer can afford—or what they’re willing to pay—you’ll see slower demand, higher weeks of supply (WOS), and inventory that lingers.
Effective demand planning always ties back to realistic pricing assumptions. If your demand plan assumes “premium” volume at “luxury” prices, you’re likely to overbuy and tie up cash in inventory that doesn’t move.
4. Marketing Strategy and Selling Costs
Your pricing model also has to account for how you plan to sell the product, not just produce it.
Ask yourself:
Will you invest in paid advertising (Meta, Google, influencers, affiliates)?
Are you planning brand photoshoots or content creation?
Are you paying platform fees (Amazon, marketplaces, wholesale margins)?
Do you run regular promotions or discount periods?
These costs affect your true margin, not just your theoretical one. If your product requires heavy education or aggressive marketing to sell, your gross margin needs to be healthy enough to support that.
Your pricing needs to work not only on a spreadsheet but also within your go-to-market strategy and customer acquisition model.
5. Competitors’ Prices
No retail pricing strategy is complete without competitive context.
Even if your product is differentiated, customers will naturally compare:
Price vs. alternatives
Perceived value vs. alternatives
Size, ingredients, quality, or features vs. alternatives
Competitive research helps you:
Anchor your price within a believable range
Decide whether you’ll compete on value, quality, or experience
Understand what “fair” looks like to your target customer
If you plan to price significantly above competitors, you’ll need a clear value story—ingredients, quality, sustainability, mission, convenience, or performance—to justify it. If you’re far below competitors, be sure you’re not unintentionally sending a “cheap” or “low-quality” signal that hurts both sales and brand perception.
How Pricing Impacts Inventory (and Cash Flow)
Once you’ve considered all of the above, you’ll have a rough range for your product price. But this is where a lot of brands stop—when they really need to go one layer deeper and ask:
“How will this pricing decision impact my inventory, cash flow, and demand plan?”
Some examples:
Price too high → slower demand, lower sell-through, higher weeks of supply, more excess inventory and cash tied up
Price too low → higher demand, but compressed margin, less cash per unit to reinvest in inventory, marketing, and team
Price not aligned with promotions → margin erosion when you layer discounts on top
Good pricing doesn’t just “sound right”—it works in harmony with your inventory planning, demand planning, and financial model.
Digging Into the Numbers
The qualitative factors help you choose a pricing zone. The numbers help you fine-tune your final price and make sure it supports your profitability, inventory health, and long-term growth.
Here are key numbers to factor in:
Product Costs
In addition to core production expenses, make sure you’re capturing:
Raw materials
Packaging
Any specific compliance, testing, or certification costs
Together, these flow into your cost of goods sold (COGS). Your retail price has to be high enough to cover COGS and still leave room for overhead and profit.
Operating Costs
Your product doesn’t reach the customer in a vacuum. Consider:
POS or e-commerce platform fees
3PL or warehouse costs
Merchant fees and transaction costs
Customer service and returns handling
These may not be tied to a single SKU, but they still influence how much gross margin you need your pricing to generate.
Vendor Minimum Order Quantities (MOQs)
If your vendors require minimum order quantities, those MOQs affect your risk and your inventory strategy.
Higher MOQs mean you:
Commit to more inventory upfront
Need your demand plan and pricing to be accurate enough to move that volume
Have less room to “test” into a price that might be off
When MOQs are large, pricing mistakes get very expensive, very quickly.
Overall Gross Margin Goal
Finally, zoom out and ask:
What gross margin do I need at the product level?
What margin do I need at the category and total business level to cover overhead and hit my profit targets?
Your retail pricing strategy should ladder up to your margin goals—not fight against them.
Ready to set your price?
Determining the right price for your product is both art and science. It may take a bit of testing, recapping, and reforecasting, but staying objective is critical.
Price too high → inventory builds up, sell-through stalls, and cash flow tightens.
Price too low → demand may surge, but margin erodes and you may struggle to fund future inventory or growth.
Either extreme can create serious inventory issues and weaken your business over time.
If you’re struggling to see how pricing connects to your demand plan, inventory forecast, and profitability, that’s exactly where Boon comes in.
We help product-based brands:
Build demand plans that reflect real pricing, promotions, and sales velocity
Align pricing strategy with inventory planning and cash flow
Use sales recap data to refine price, margin, and buy quantities over time
👉 If you want support building a pricing strategy that actually works with your inventory—not against it—reach out to the Boon team to set up a call. We’ll help you make the math “math,” protect your margins, and avoid costly inventory mistakes down the road.
