Last week we tackled the big topic of strategies for pricing. We talked about how we must stop undervaluing ourselves and our work. Another of my key points went a little against what the textbooks advise – In setting your pricing, you must check in internally with ‘how it feels’ or how it ‘resonates’ with you. Whether you believe that its your gut instinct or your heart or an energy field, or even if science tells us its all from our Limbic brain, it doesn’t really matter. The key is to trust yourself, to tune in and listen.
Perhaps I overwhelmed you with a lot of ideas last post, so this week I want to keep it to the point and simple. What’s the best formula for pricing? Firstly, every industry is different, this is definitely a factor and there are different ideas on pricing for different professions. Lets start with a strategy for pricing artisans, or people who make things; jewellery, artwork for example.
Formula: – Materials + Expenses + Labour + Profit = Wholesale x 2 = Retail.
So lets break this down:
Materials:
Ensure that you cover all of your materials that you use. Some materials will be basic as you use the whole item in your product, however some will be more complex. If you use some thread or ribbon for example ( lets say you use 1 metre from a 60 metre roll ) you will have to do some basic math to get your price per 1 metre. You want to make sure you are working as accurately as possible.
Expenses:
You may be wondering how you can incorporate all of your expenses into your pricing. Your paypal fees, your electricity, phone, post packs. Here is an easy way. jot down everything you can think of as your monthly expenses, heres an example:
Paypal Fees $40
Office Supplies $30
Internet $79
Web Hosting $26
FB Advertising $150
Phone: $80
Total: $405
Now come up with the number of items you would like to sell per day, for example:
2 products sold daily x 31 days = 62
Now divide 62 into your total expenses to get your expenses cost per item, 62 divided $405
=$6.53
Labour: This is you pricing your time. If you’re not sure, what would the hourly rate be for your skill? For example if you were a seamstress, what would the hourly rate be? Now is the time to be kind to yourself and value yourself in this process. If you find this tricky, What would you be paying someone to do the same job per hour – if you’re unsure start here to get a number.
Profit: Now I can hear you thinking profit? why would I put this here. Well this is important. You’re in business to make some money, you deserve to make a profit. What do you want to achieve? do you dream of buying a studio one day or a warehouse or a piece of machinery that will make your process easier? now is the time to build it into here. This figure is personal. If you have years of experience or a unique talent and skill, then make sure that this is reflected here. – Remember check in with how it feels for you.
Now bring it all together. This is your wholesale price. Best practice is then x 2 for the retail price, but check your industry, it may be more. If you have calculated your first part of the formula correctly, x 2 will work well.
If you’re struggling with this and you want to sell at the wholesale price you came up with, my suggestion to you is to resist. If a big company comes and asks you to buy 150 items or some customisation on a bulk order, you will have no room to move.
If you are an artisan that has a unique product then set a standard in your industry. When artisans price correctly, the whole of your industry will benefit. How does this price feel for you, where does it resonate, $275 might be whats on paper, but perhaps you sense that $249 is the best price, then make a shift in your formula.
Lets say you have come up with a price that your market doesn’t respond to, it doesn’t mean that you need to slash your price. Think of other ways you can make some changes. Can you get materials in bulk? Is there a better way to produce your item that is more time efficient? Don’t change your price until you have adjusted in other ways to account for the change.
Is your marketing and communication reflective of your quality? Have you told the story of your product and process? All of these things set tone and framework around your product and price.
Adjusting for your industry:
When I was making hampers, Some gifts were quicker to make up than others. We adjusted for this by working out an hourly rate for our gift makers, that we divided by the time each hamper took and added this figure for our labour.
If you’re in a service based industry, you will have less raw materials, but you will have time to consider. If you’re a a copy writer for example, or a social media writer, you will need to put some hefty hours into research, or photography because you need specific imagery. This then becomes your materials, and you can price and value your time for this cost.
This post has gone longer than I expected so perhaps we will need to do part 3!
If you have any questions we would love to hear them and answer them for you the best we can
Until next week
Andy x
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