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The delicate balance in pricing products

One of the hardest things to do is correctly price your products. Many will feel a twinge of guilt and fear when it comes to correctly price their wares. I know a lot of people just wing it (I did!) for a long time. Or they'll look at their competitors and try to find a median (I did!).


Obviously, these are not effective pricing strategies. So what kind of pricing strategy can work for your business?


Here are some tips on what you need to consider when pricing your products:

1. Raw cost materials

Okay yes, easy enough to figure that one out. But how much is that fabric really costing you per shirt? Would it be cheaper for you, in the long run, to bite the bullet and buy in bulk? (As long as you're certain you can use it. Bulk materials don't do anyone any good if they sit there and collect dust) Bulk/wholesale purchasing is where the most cost-effective purchasing happens. Avoid retail costs at all..um…cost. It may be cheaper now to pay $1.99 for a pound of sugar for your scrubs, but if you use 4oz of it for 1 jar, that bag will only get your ~4 scrubs. The moral of the story is that you're going to need to buy more, and quickly if you want to make more than 4 scrubs. Look into what's more cost-effective for your business.

2. Packaging costs

Maybe a no-brainer, but are you taking into account the cost for the labels? What about ink? Do you have gift boxes that are included?

3. Your salary

YOU. NEED. TO. PAY. YOURSELF. Business is not charity and your credit card companies probably don't accept quartz earrings as payment. To run a business effectively you need to include costs for your time. Make sure you pay yourself an hourly rate that includes: setting up/cleaning up, mixing or creating the product, packaging the product, and any marketing or promotion that may entail (like putting it up on etsy)

4. Overhead

This one is probably the most tricky (for me, at least). For all products, you need to include the costs that it takes to have the physical business, even if it's in your home. Rent, utilities, insurance, these should all be figured into your costs. It's hard to put down a definite rule of thumb on how much they should be. To err on the safe side, I include 1% of the monthly costs for my overhead into each batch of product. It calculates to about $9.00 extra so it's not that much. But it is per batch and needs to be included.


Here's a quick runover of a sugar scrub that I make (this was a test batch, so it was only 3 jars):

  • Raw ingredients (sugar, pumice, herbs, essential oils, additives) $2.85
  • Packaging: $2.83
  • My salary @ $15.00/hr: $18.75
  • Overhead (rent, utilities including internet, insurace): $8.56
    Total batch cost: $33.04
    Total cost per scrub: $11.01


Taking the cost per batch and mutiplying it x1.5 gives me a wholesale price of: $16.52
Multiplying the wholesale cost x2 tells me that I should be selling these at: $33.04/jar.


I could lower that by upping the batch size and buying more of my ingredients in bulk but at least for this small batch, we have an idea of what it's costing me to make this and what I need to sell it for to sustain the company.


Want help getting your pricing right? Give my PRICR spreadsheet a go!
 

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