How Should I Price My Products?
How much is your time worth?
A good place to start is to calculate how long it takes for you to make each product. This should include any time you spend acquiring your ingredients or components (like driving or taking a bus to the store), setting up to make your product, making the actual product, and any clean up you need to do after. Obviously as you grow and acquire better equipment, you will be able to work faster, but it's best to calculate this at your current abilities now, rather than when you might have certain resources. Divide the time it takes between however many finished items you're able to make in one session.
Once you calculate how long it takes you to create a product from start to finish, you need to decide how much your time is worth. For example, if it takes you one hour to create 6 items from start to finish, then each item takes roughly 10 minutes of your time. For arguments sake, let's say the minimum wage is €12 per hour, then you know you have to add at least €2 per item on top of the product cost. This is especially important as you want to make sure that if in the future you need to hire people, you can afford to pay them fairly, without cutting into your profits. If the product you make requires a level of skill, education or training that you need to invest your time or money into first, then you should charge more accordingly.
How Much Profit Should I Add?
At this point, you should now add how much profit you want to make. Depending on how you market your brand, you can really charge any price. A good benchmark is the wholesale price point - wholesale pricing is usually 50% the RRP (recommended retail price) and so you need to make sure that at a 50% cut of your RRP, you’re covering your costs and are making enough of a profit.
Keep your target audience in mind - if you’re aiming for a wider audience and have competitors, then you don’t want to make your price too high. If you’re going for a smaller pool of wealthier pockets, then a higher price point can actually be attractive.
It's not always about Supply & Demand
Many sellers find it hard to understand what makes a good price. Some theories would say the more demand there is the higher the price you can establish. Others say that the value of what you do is determined by the amount of work and materials that go into your production. In practice it's way more complicated.
Just calculating the cost of production is not enough. You also have to think about your brand value, the type of product you make and the type of customer you want to provide for. Imagine a brand that sells a basic and cheap product to a broad audience of customers. It will propably focus on selling as much as possible and rely on the economies of scale with small profit margins. There's usually a big variety of sellers in this category, and since most of the products are similar, low prices are necessary to compete with other sellers. On the other hand many luxurious brands focus on selling their products to a smaller group of customers. A cheaper price could actually work against them, because people often subconsciously think that cheap means bad quality. When you decide who your customer is, do some market research. You want to see the price of products you'll be competing against in your niche.
Finally, marketing is paramount. You have to understand that the hype surrounding your brand may be worth even more than the product you're selling. What makes your product stand out? Why will anyone choose your brand rather than one of your competitors? Try to answer these questions and then find a way to reach customers who are willing to pay your price. There are countless little known brands that produce great products that struggle to find customers, but when Supreme drops a new collection people queue up for days to buy a t-shirt for $200. The difference is not in the product quality, but the brand that sells it.
Discounts can hurt or help your business in drastic ways. You don’t want to use discounts so often that customers never get used to paying full price, but discounts can be a great way to attract a huge influx of orders in a specific time period. We've noticed too many small businesses that begin trading with the promise of discounts, free items etc, and it can come across to the customer as desperate - which they will then leverage against you. We have been contacted by store owners that say, “people want to buy from me, but only if I lower my prices or give a steep discount or add freebies”. These types of people are not your ideal customer! The reality is, if they can’t afford it, they are not the customer you want. Individuals who just want ‘free stuff’ and don’t respect the costs for you to make your products shouldn't even be described as customers. It's always useful to have a discount code on hand that offers 10% off at most, for people who ask for a small discount on their basket, especially those that shop regularly with you.
If you made it this far, we'd like to reward you with a 10% discount code of our own. Use the code CART10 for a one time discount!