Hey Thrivers, Jess here! I’ve got a special treat for you today. Over the next 3 weeks, my friend Cassie Lee is going to be sharing a series of posts with us on the topic of pricing – Street Smart Pricing, to be exact. I love this post, and I can’t wait to share the rest of the series with you! Keep an eye out for Part 2 + 3 over the next few Wednesdays. Now I’ll hand you over to Cass…
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Pricing has always been a tricky subject when it comes to running a handmade business.
Almost every business owner struggles with it at least at the beginning. Some managed to get it right after a few attempts whereas for others it is still very much an evolving process.
How often are you caught up in this situation?
You checked out your closest competitor and noticed that her products were priced significantly lower than yours.
You find it quite puzzling.
You did your homework and know that there is no way you can sell your wares at that price and still make a decent profit. You begin to worry that if you do not lower your price or at least match it, your potential customers will desert you.
Doubts begin to surface in your mind
My prices are incorrect. Are they too high or too low?
Looking at my prices makes me feel like vomiting. Who’s going to pay that price?
How do I get my customers to continue shopping with me and be happy to pay whatever price I set?
I have some good news and some bad news.
First the bad news. There is no easy answer to the above questions as it does take a bit of effort to find a solution that best fit your purposes.
The good news is you will find a way to price your products at a level that suits your situation, be proud when slapping on the price tag and get your customers to happily pay you.
Today, let’s talk about whether you have priced your products correctly.
Start with an easy and basic pricing formula especially if you are a newbie.
Cost Price (labour + price of materials) x 2 = Wholesale
Wholesale x 2 = Retail
This is a popular one and Jess has talked about it in here and here.
You know how to put in the numbers, do the calculations and arrive at the recommended retail price. It is pretty straightforward and you don’t need me to teach you the math.
Instead, I am going to highlight 3 areas that you may have overlooked and have therefore lead to incorrect pricing for your products.
Do an audit on your production process
This may seem like a fancy term but it is merely for you to take a closer look at your making process, from the moment you touch your first tool to listing the finished product in your store.
Are there any steps that you can eliminate or be more efficient in? Think of smart short cuts that you can implement immediately.
For example, is it quicker for you to cut out pattern pieces for 5 cushions before you turn to your sewing machine compared to cutting out pattern pieces for 1 cushion, sew and complete before moving on to the second one? Take into account other tasks that you can perform in batches such as product photography, item description writing, purchasing materials, advertising and promotion.
Effect on your pricing calculation:
Inefficient use of labour resources will lead to increase in labour costs. As handmade is quite labour intensive, your aim is to minimise costs without compromising the quality of your product.
Purchase your supplies in bulk
Are you able to purchase most of your materials in bulk or take advantage of wholesale pricing and quantity to save money? It requires a bit of planning and admittedly some (or maybe a lot of!) self-restraint as it can be hard not to get distracted with other stuff that your supplier may try to flog in front of you.
Time your purchases wisely to ensure that you only buy supplies during a certain period such as once every month instead of 3 times a week. Make a list of your favourite suppliers and visit them frequently. You may be rewarded with loyalty discounts or special promotions when the supplier notices your continuous support.
Effect on your pricing calculation:
Using smart tactics, you can save heaps on the cost of materials and therefore reduce your overall materials costs.
Check your calculations (again!)
Are you adding up the numbers correctly? Let’s say you need approximately 1.8 meters of fabric for making a cushion. You bought 2.3 meters worth because you wanted to include the sewing of a cute coin purse for cousin Sally using the same fabric. Bear in mind that you should only use the cost for 1.8 meters in your calculation and not the whole 2.3 meters.
Here’s another example – It takes you approximately 3 hours to make a cushion from start to finish but that time includes a few 10 minute breaks to check on Facebook, to make a cup of tea, to stop the kids from doodling on the walls, to let the dog out, etc. What is the true amount of time spent on making the product? Make notes on this for the next 3 sessions. Take the average and use it as a basis for a more realistic estimate of your labour cost. If you perform your tasks in batches, your labour cost will be different as well.
Effect on your pricing calculation:
Your price should reflect a true estimate of the time and cost involved of the finished product for sale. Inaccurate costings will lead to pricing error and thus, giving you a false impression that your business is not profitable.
Over to You!
Take a rational look at your pricing calculations.
Are you using realistic numbers or have you overlooked certain crucial elements that have an impact on your end price?
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Cassie Lee helps entrepreneurs to boldly punch their inner critic in the face if it gets in the way of having a rewarding business.
