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Keystone Pricing Definition
This is the practice of selling merchandise at a rate that’s double its wholesale price. Retailers use the keystone pricing formula because it’s simple and it usually covers costs while providing a sound profit margin.
The concept of keystone pricing popularly known today originated far back as 1896 from jewelry trade. It started from a Keystone magazine, a predecessor of Jewelers; Circular-Keystone, after subscribers had complained about the showing of dealer costs in a publication that customers might see on jeweler’s counters.
Streamlining one’s initial pricing approach will be a good decision in small businesses as a small business owner has several things to give attention to. For the sake of avoiding cumbersome arithmetic, keystone pricing makes it simple to calculate your profit. Just double the price and you’re there. While rent, utilities, supplies, insurance premiums, taxes, and employee wages will always take a bite out of the profits, keystone pricing works to your advantage if you’re a one-store owner. As a matter of fact, keystone pricing may just be the difference between keeping your doors open and finding a new line of work.
Keystone pricing can be explained in several ways. Some of them are given below:
It refers to a pricing method, where the price is doubled at every level of distribution; In the simplest terms, implies marking your saleable items for double the price they cost you. This simply means for instance, that your customers pay you “2x” dollar for what you purchased at “x” dollar.
According to the Business dictionary, keystone pricing refers to Gross margin that is 100 percent of the cost price or 50 percent of the sale price. Any item selling at twice the price for which it was purchased or produced is said to have a keystone pricing.
To summarize, when pricing your merchandise with the keystone pricing technique, you double the wholesale price of that product.
If you’re in retail, keystone pricing is a pricing technique that you should be familiar with.
Keystone pricing is the retail pricing rule-of-thumb and also goes beyond just face-to-face retail businesses to retail e-commerce. Keystone is a simple pricing strategy to apply, but one needs to ensure that the Keystone profits will cover ones operating costs.
Most often than not, retailers and e-commerce sellers use Keystone pricing as a base markup on most goods, then apply higher markups or discounted pricing to certain items based on demand, volume, and competition. Keystone pricing is usually considered as an Ultimate Pricing Strategy Guide for Small Businesses. However, it is important to know that it does not guarantee the success of the business as keystone pricing may be too low, too high, or just right for your business.
Perhaps, being aware of the key considerations that are associated with the keystone pricing technique might be very helpful in order to make the most out of this technique and utilize it effectively and efficiently to achieve one’s business goals. Amongst others, the important considerations include: the Perceived Value of one’s products, Using Keystone Pricing for the Right Departments, etc.
The “grab and go” or “sound bite” here perhaps, will be that you don’t have to apply keystone pricing to every product in your store. Analyze each department separately and apply this technique only where it is applicable.