How To Price Your Product

I know that many, many Yes and Yes readers are craft devils with Etsy shops and side businesses.  And I'm lucky enough to know the terribly business savvy Laura Nelli.  Sometimes we co-work in her awesome loft and play with her dog and then drink margaritas.  Laura has been kind enough to share some of her hard-earned business smarts on the monthly with us!

Background: Laura founded her accessories line Nelle in 2004. She started with a sewing machine from a second hand store and sewing book from the library. Since then, it’s been featured in InStyle Weddings, Brides, Redbook, “O” The Oprah Magazine, and Martha Stewart Weddings. Amazing, no?!

Here's what Laura has to say about pricing!

Pricing your product correctly is one of the most important things you can do as a small business owner. You want your pricing to be competitive in the market place, but you also need to make sure your margins are large enough to financially keep up with your businesses growth and development. Far too many small business owners undercharge for their services or products, only to find that when they need that capital to infuse into their growing business it isn’t there.

From the start it is vitally important to price your product at its true value.  Once you have set a price it is relatively hard to increase it more than 10% annually. This increase can usually be explained to your customers as an increase in material costs or a more effective/sustainable production method.

You can escape these growing pains by following a standard pricing formula and adapting it to your needs.

What’s the prevalent pricing formula used by many small businesses?

Cost of materials + Cost of Production x 3 = Wholesale Price
Wholesale Cost x 2.2/2.5 = Retail Price

As a small business manufacturer your wholesale price must cover all material, production, and overhead expenses. In a perfect world, after all of these expenses are paid, approximately one third of your product’s wholesale price is pure profit. If you’re selling your goods directly to the consumer you would want to sell them at the retail price to cover additional overhead expenses like customer service, packaging, and marketing.

You may find that after using this formula your product is priced higher than your competition! That’s when your true creativity kicks in and you source more affordable materials, cut down on your overhead costs, and develop marketing efforts that explain the cost difference.

Pricing your product for market is ultimately your decision. The pricing formula is a wonderful starting point and can be adapted to fit your own businesses needs or growth strategy.

Do any of you struggle with pricing your goods or time too low?  I always, always undercharge!  Bad form, self!

price tags in photo available here