Pricing merchandise is one of the key functions for anyone who sells online, whether you have a few items for sale on eBay or Amazon, or whether you operate a full-featured store with a 1000-item catalog.

Assigning the right prices and staying competitive with those prices can be a frustrating and time-consuming proposition. You want to make a profit, so your price has to be higher than what you paid for the item you’re selling (unless, of course, you’re unloading inventory that never sold in the first place). But it needs to be either the lowest available or at least very close to the lowest when compared to your competitors.

The difference is often a matter of a few cents–or even one cent. Take a look at one of my own books, which you can find on Half.com. It’s kind of painful to look at the prices being offered when you consider that the book sold for about $24.99 retail when new. But this is an old edition and out of print.

If you can’t read this, I’ll tell you that the four prices for this brand new book are (sigh) $1.89, $1.00, $0.99, and $0.97. (You wonder why I don’t write books for a living any more?) Let’s suppose that, for some reason, you wanted to buy this particular edition of this book. Would you pay $1.89 when you can pay $1.00? Would you pay $0.99 when you can pay $0.97?

That’s the problem lots of businesses face, but on a much larger scale. I just spoke to the owner of a company in Wisconsin who has hundreds of items in his product catalog and who sells on eBay. He and his employees used to scan through listings manually and adjust prices so they were the lowest. But the manual route is extremely time-consuming.

“Even if you factor only 2 minutes per product with 200 products you’re talking about over 13 hours a day of work if you do it twice a day,” says the businessperson, who asked to remain anonymous. “Never mind the fact if you tried to pay someone to do that all day every day they would be burnt out before the first week is over.”

Once you get past 100 items in your catalog, it pays to pay a little money for a pricing tool. This sort of tool can be configured to search for items similar to yours and make sure you have the prices you want. You can tell the tool you want to be the lowest, second lowest, or third lowest. You can tell the tool to make sure your items are one cent lower in price than those of your competitors. Here are two such tools:

  • In ECommerceBytes recently, editor Ina Steiner wrote about a pricing tool for Amazon.com sellers, Teikametrics.
  • I just interviewed the developer of a pricing product for eBay called PriceSpectre.

I’ll be writing about PriceSpectre in more detail after that article comes out. The point is, no matter how much you sell, once you put your items online, keep checking prices against the competition to make sure you’re positioned correctly–especially if you are in a super competitive field like electronics, digital media, or books. Whether you do it manually or use an automated software program, you’ll end up with more sales. Even if your profit margin is a little lower than it would be otherwise, you’ll be better in the long run because you’ll have more loyal customers and hopefully more repeat business.

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