How you should be split testing your price
Before you start to set up your split test, you need a clear goal as to what you’re trying to achieve. For most people when split testing the price their goal is to increase their conversion rate or their revenue earned over a specific time.
Make Your Tests Count
Don’t waste your time with tests like the colour of your button. There is no solid proof that a specific colour converts better than other colours. It is the overall experience for the shopper that makes the difference.
To run a split test means to change one factor. If you are testing more than one variable, it now becomes a multivariate test.
If you document your changes it's a lot easier to know which variable increased your conversion rate. Otherwise you'll reach a point where Version B did 36% better than A, but you'll have no idea why.
Only Your Results Matter
The most important thing about split testing is that your results matter only to you, your website, your product, your price, and your customer.
Someone may claim to have a 446% increase in sales by adding $50 to their price. This may be disastrous advice if you were to apply it to your product.
Before you make any changes to your site based on someone else’s results - test it!
HOW TO SPLIT TEST YOUR PRICE CORRECTLY
1) Set up an A/A test first
Before you want to start testing different variables at play, you’ll want to set up an A/A split test first. This makes sure that the playing field is level before you begin. You want to avoid the possibility of skewed results at all costs.
2) HavE a small difference between prices
We all get a little bit greedy when we’re deciding on a higher price to test. We’d love it if our customers paid more - but too big of an increase might scare of your customers.
Test sensible increments that are relative to your price. If your product is $5, test it at $6. If your product is $100, test it at $120. If you sell your product for $390, try it at $490.
These are only examples so don't feel you have to use these exact numbers.
3) SHOW EITHER VERSION - NOT BOTH
Displaying both price offers side by side will confuse your shoppers and alters them to the fact that you're split testing.
The A/B Split Test app for Shopify automatically hides Version A or Version B. This is because the site visitor is automatically added to either Group A or Group B.
4) Offer more with the higher price
This step is optional but safeguards you against any shoppers that might have an issue with you split testing your price.
We recommend that if you increase your price, you should add something to the product to make it appear worth more. You might include a special extra, a longer warranty, a small gift card or a related product.
5. MEASURING THE ELASTICITY OF DEMAND (ADVANCE)
Split testing price, especially over time, allows companies to accurately measure demand elasticity, or the percentage change in demand per percentage change in price.
In a nutshell, this number simply represents how much demand changes depending on how much you increase or decrease the price.
Working out your ideal price
You can work out what your elasticity of demand is on this page which also goes into a bit more details about what the number represents.
The reason this number is important is because it's a crucial piece of information to determine the price point that will maximize profit.
Once you know your elasticity of demand. You simply plug it into the following formula and that should tell you what your maximum profit price is.
Where P is ideal Price. MC is marginal cost, and Ed is the elasticity of demand (that you can work out from the previous link). Want to know more about this formula? Read this article.
1. Firstly, set up an A/A test first to make sure everything is running as it should.
2. Then test price differences sensibly and relative to the original product price.
3. Only show either Version A or Version B - not both.
4. Lastly, add some extra value to the higher priced version of your product.
5. Find your ideal price point with the Elasticity of Demand formula
Remember to avoid the worst mistake - making final changes based on somebody else's split test results. Your results relate to you and your product alone. Test everything.