Do you struggle with putting a price on what you do and often downplay the value you add to other people’s lives? You’re not alone.
It can be tricky to establish your own value and acknowledge the effort you put into what you do, which is why most people have so much trouble pricing their products right. But without appropriate pricing, you won’t be able to create a profitable business…
Lucky for you, we’re here to walk you through everything you need to consider to price your products the right way. Let’s get started!
Factors to consider:
This is an obvious one. Make sure you add up all your material costs (down to the cost of your tools) for each product you make. Step one – voilà!
The time it takes you to make a product
Do not downplay this one, we repeat, do not downplay this! This is often the most overlooked aspect, and people tend to not factor in their own labour costs.
Well, we’re here to tell you this: you matter, and your labour (tedious or not) costs money. Time equals money.
If it helps, take yourself out of your business equation and count yourself as an employee instead.
How many hours did you spend on making your product?
How much are you worth per hour?
Packaging includes everything from dressing up your product in a nice outfit, to wrapping it up in a safe and secure way to prevent any shipping damages.
Ever added something to cart and abandoned because there was a shipping cost you didn’t want to pay? If it’s a yes, then you’re part of the 50-80% who do. These numbers do change depending on the type of products and industry, but that’s still huge – eek.
To prevent this from happening, we always recommend working your shipping costs into the final price of your product.
Marketing is everything from running Facebook ad campaigns to offering discounts in exchange for your customers’ email addresses. Make sure you factor in these costs when you determine the price of your products – you don’t want to put in all the effort and end up making a loss.
You make money, you have to pay taxes.
Not much room to wriggle here unfortunately.
How much you have to pay will depend on multiple factors (your total turnover, the country or state you’re in, whether you’re trading as a company or a sole trader, etc.), so best to check with your accountant or relevant taxation department. Have a chat to our partner and Calculator Queen Julie-Anne if you need help.
In Australia, businesses are required to register for GST and pay an additional 10% once they reach a 75k annual turnover.
Even if this doesn’t apply to you yet, we still recommend to factor these 10% in from the beginning, so you don’t have to change your pricing or suffer 10% once you hit that milestone.
→ All of these combined make your total cost of product.
Even if you don’t want to think about selling your products to shops yet, or are not intending to, we encourage you to factor this into your pricing. The general rule-of-thumb is to take all the aforementioned costs and double them to create your wholesale price. This allows you to still make a 50% profit.
3. RRP (Recommended Retail Price)
The standard rule is to take your wholesale price and double it again to create the RRP. This is the final price that the customer will pay, whether they buy from you directly or through a third-party store.
4. Profit & perceived value
The difference between a hobby and a business is whether you can support yourself with the earnings and set aside savings, whilst maintaining and growing your business, or not.
Generating enough profit is the magic ingredient here. Profit is the money you can set aside and don’t have to use to pay bills or your salary. You should be able to stash it away in a separate bank account and keep your business running without it.
Do your wholesale price and RRP generate such profit?
If not, go back, take your costs and add a percentage (say 20%), or a dollar value (say $30) before you calculate the wholesale price.
What you also want to consider is the perceived value. This is basically how much value a customer sees in your product and is therefore prepared to pay for it. A good example is the price of two identical paintings but one’s by an unknown artist and the other one by Picasso.
Do some research to see how much others charge for similar products. Make sure you are crystal clear about the benefits of your products and what’s in it for your customers. What makes your product special? E.g. a unique solution to a common problem, a need, a limited production count, rare materials, celebrity endorsements, purpose-driven aspects, your reputation, etc.
If you can, speak to potential customers to find out what they really care about and why they would pay more for your product.
At the end of the day, the more you can charge, the better!
- When you hand-make products, your costs – and therefore the final price – are naturally going to be higher.
- If you’re not able to offer free shipping or advertise your products, revise your pricing.
- Think about how you can communicate the value of your products, so the price becomes irrelevant to the right audience.
- People will always pay for something they value and that solves a problem for them.
There’s no growing a business if you don’t price your products right.