In this wonderful world of business, one must know the product they are selling. They must know how to market, price and sell it.
Many at-home, home start-ups, and handmade shops struggle with the pricing part of this equation and in failing in pricing, tend to fail in selling. They have no problem knowing their product and how to market it. Well, maybe a little struggle in the market, after all how can you market a product that you don’t know the price of.
Anyway, I found a great place that mentioned how prices came about in retail shops and though I need to model that more closely. There is still leeway in the formula where you can control the price of your product, but it gives you a more formal, solid way of looking at prices.
What is this fantastic formula you may ask? well I’ll tell you. The formula for pricing should look like this:
Cost of material + Labor = base/break even price
For instance, the yarn cost me $5.00 apiece and I used 2 balls of yarn. it took me 4 hours to make and I charge $10/hr. Base Price would be: $50. For a whole sale price, the price that you would get if you sold your items to a store for resail (not taking into account the 20-30% consignment shops would take of the product once it sold, that is another blog entirely), any way, wholesale price would be:
(material + Labor)X2
That would be (50)x2 or $100. so for $100 the store could purchase what ever product cost me $50 to make.
Retail price, the price you are suppose to charge customers (but I never do as it seems expensive, but again if I were a shop like walmart and these were the costs associated with making the product, this is what the customer shopping at a retail shop would be spending to buy the item),
Wholesale x 2. so the retail price of this product would be $200.
Most individuals that make homemade goods, never get close to charging retail price, although there are a few that are even higher than retail (maybe they include shipping, taxes, or other additional fees that are negotiated). Whatever the reason, individuals never feel that their products are worth retail. When you compare a shirt made by your own hands to a shirt you picked up at the store just on price yea there is a significant difference. But there is also as significant difference in longevity, personalization, quality, etc..
I may not yet charge retail for the goods that I produce, but I at least have a grasp on how I should be pricing. For me, that’s good enough for right now.