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Pricing Your Products

Many small based wholesalers struggle with how to price their product. For starters, they often neglect the retail cost and only think about the cost at wholesale, which is the cost for the retailers. Unless you solely do craft shows and such, this is not an effective way to price your product. Determining the price at retail that your products will be is an extremely important step in your overall marketing strategy. There are many factors to consider when doing this and all need to be evaluated thoroughly to ensure that you are making an educated and strategic decision on your final price points.

Cost of Supplies

The first thing you need to consider is how much the actual cost is to make your product. This includes every raw material used from start to finish to produce your goods. If you are not buying straight from the manufacturers themselves but still buying retail prices to produce your products, this should be something on your immediate to do list so that you can help control your overall costs.

Packaging

How you present your product will make a big influence on both the retailers you pitch your product to as well as consumers who may or may not purchase your product. It can be tempting to spend a lot of money on packaging since there are so many exciting options, however you want to be realistic with who your target market is, what your competition is doing for their packaging, and how much you can afford to invest in this. You should, however, not skimp out on these details since it is a valuable selling tool. Once your packaging costs are determined, make sure to consider this in your overall price decision for your product.

Your Time

If you ask me how much I’m worth an hour, I’m going to tell you way more than you would probably be willing to pay me. However, if you ask me how much I charge an hour, I’m going to give you a number based on my skill-set, my competition, and what the market rate is for my services. That said, you need to determine how much your time is worth and consider the realistic demand for what you are providing when determining your cost of time. This influences how much you can really add to the value of your product when considering final purchase price.  Be realistic with yourself, with the competition, and with the marketplace. This is not the place to get greedy.

Marketing Tools

Whether you hire someone to create your Buyer’s Packet or plan to advertise, you need to consider all costs that are involved in your marketing strategy when determining your price point. While it’s true that it takes money to make money, it’s fair to consider all of your costs upfront. This may also be an opportunity for you to review how you can cut costs to help improve your overall budget.

Location, Location, Location

In a perfect world, it would cost us nothing to find the space we need to produce our products. Rent should be free, right? Wrong, unfortunately. For some you, you are fortunate to be able to produce your products in your own home, however many of you need to rent space for the production of your goods. Take the cost involved in this, if necessary, and consider this in your final price point.

Labor Intense

If you are paying someone to help create your product or for any other reason, you need to consider these costs in your pricing. Make sure to be realistic both with how much you are paying someone as well as how much of this you can put back into the cost of the product at retail. Remember, as your business grows and changes, so will your cost strategies and pricing strategies.

Competition

Like it or not, our competition does have some control over us. Unless your product is so unique or one of a kind that competition does not matter, you will have to consider it when pricing your product. The fact is that consumers have a choice in what they buy, so you need to make sure your product’s price point can compete with what is already in the marketplace. There are thousands of other reasons that consumers make their purchasing decisions besides just price, however it is certainly among one of the top decisions. Make sure your price competes in the marketplace.

Wholesale vs. Retail

Now that you have multiple factors to consider when determing the price of your product, make sure to remember that if you plan to sell your product to retailers, you need to offer them a wholesale cost that will then typically double for the retail cost. This mean that if you determine something to cost $10, then at retail it will cost about $20. So if your wholesale cost does not reflect the cost your product should be at retail, you need to re-evaluate your pricing. I find that many small based wholesalers are not pricing their products according to retail, but rather according to wholesale since this is what they take home once they sell it to the retailer. You need to understand that once it’s sold to the retailers, you will only get reorders if your product sells from them. In addition, you don’t want your retailers to be forced to sell your product on sale if it doesn’t sell on it’s own, so pricing smart upfront will make a big difference down the line.

Final Cost

While the above factors are suggested to consider when pricing your product, make sure to include any details that may be specific to your product, production, product launch, and more. Ultimately the cost at retail should reflect the quality, the construction, the demand, and the desire of your product in addition to the necessary details such as cost of supplies, labor, and all other factors that went into creating your product. It takes time to establish a true product comfort level in many ways, including pricing, so be patient and realistic with yourself if you need to reconsider the different attributes to pricing on more than one or even a hundred occasions. As your business grows and changes, so will your pricing considerations. It will always be another check to do on your never ending to do list.

Comments

  • Mckenna
    December 13, 2011

    Very nice article, Nicole. Covers some basics – especially for newbies. I would recommend ONE small change to your retail mark-up from your wholesale price formula: keystone (doubling the price) is almost extinct. I sell to about 50 small businesses and have sold to many more in my 20 years with my line and my surveys (and quick looks at their on line shops) shows a distinct trend towards 2.5 mark-up and rarely less than 2.25. Some even triple the WS price. This is ESPECIALLY true the lower the costs are. So a $10 item will usually sell for $25.00. Just unpacking the shipment and creating sku and then tagging and then displaying will take so much time per shipment that there is virtually no profit. On the other hand, if you are dealing with higher end items and a shipment is 10 items at $100 per and the time to tag and display will take a fraction of what the 100 piece order of $10 mixed widgets, you might only price the more expensive items at 2.25 so it would retail at 225.00.

    This pricing formula has been deeply influenced over the years by the trend to have several sales per year to bring in buyers. If a retailer has a bit higher mark-up, they have “room” for all the “sales events” that are so prominent in the marketing strategies of this century.

    Meanwhile, I want to underline something you said that is VERY important: don’t buy your raw materials at retail! The biggest mistake ever. You cannot buy a plain white coffee mug at full retail and then hand apply some decoration and then sell it wholesale for more than it retailed. No matter how cool your embellishment, it can’t sell for wholesale and be marked-up in any way or amount. So you can experiment with stuff from retail sources, but the long-term plan MUST mean securing raw materials from the manufacturers.

    And finally (sorry, but I can’t help myself)…. no need to be coy about what is needed for your time and how much we MUST charge per hour when in our studios. This is usually NOT (I have consulted and helped launch many many small studios into the real world of commerce) a place where most are greedy! Quite the reverse – most artisans and small studio businesses think that $20 per hr. is a good number and I have been quick to point out that they cannot work/create product 40 hours a week and still “run” the rest of the business. I am lucky to get in 20 hours a week in my studio. Those 15 to 20 hrs must must must bring me my income. I don’t get paid to update my website, photograph new work, create email blasts or do other marketing activities, or follow-up on leads… There is a myriad of activities that must be done to get everything TO MARKET. So to your readers I say: if you can only work 20 hours a week, what do you need to sustain your livelihood and have money left over to grow your business? YMMV – but no one should consider less than $60 an hour. I live in a very expensive part of the world, so I actually charge a great deal more than that!

    So while this is more than my 2 cents, I hope you will consider some of these points. They can save some people from making serious start-up blunders and that could be priceless.

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