It is now week three of our pricing discussion, and by now you should have been revising how you are pricing your crafts and handmade items for sale. So far I have presented two methods to you: the cost plus a wage and the cost plus a wage plus a margin. This week we will look at:
Costs Plus a Wage Plus a Margin Plus a Commission
You see if you are going to start a fully fledged business, chances are that longer term other people will be doing some of your sales for you. This may be because you wholesale your products to retail stores, use an agent or other people sell them in their online store for you. Whatever the situation is, you are going to need to be able to remunerate these people for their efforts and support. So ultimately you need to be able to pay for your costs, plus a wage, plus some margin, plus remunerate your sales team which could be up to 100% markup. Lost? Don’t worry here’s an example which will hopefully clear it all up.
You make beautiful baby quilts. And you identify the following components to your price:
Wages $70 (You charge yourself out at $20 an hour and it takes 3.5 hours per quilt)
Profit Margin $22.50 (25% on top of the costs of materials and labour)
Seller Margin $132.50 (Don’t ask me why, but most retailers sell things for double what they paid for them, I think it’s easy for their maths!)
So what should you be selling that baby quilt for? $265.00
And I bet most of you were selling it for $60!
If $265.00 scares you – ask yourself why. Can people buy baby quilts cheaper at their local department store? Yes. Is it Handmade with quality materials? No. Is it a unique one off design? No. You see quite often the problem isn’t the price – it’s how we value what we do. You can sell the quilts for $265, you just need to convey the value the customer receives for their $265.
Now obviously you don’t have to go from charging $60 to $265 overnight. But identify your end goal, and slowly work towards it. If you dream of being free of your day job, and being able to craft all day and make a serious living – then be prepared to act the way a successful business acts.
It may take you a while to find your market, and to learn to communicate the value of your product to them, that’s ok. Just keep trialling and testing. If you don’t you will never have a successful craft business as you will be donating your time.
Next week we will discuss the Rolls Royce of pricing methods! You won’t want to miss this one! If you want to make sure you receive it straight to your inbox, hot off the press, be sure to subscribe via email or RSS in the column on your right.
If you want to review any previous Pricing Strategies: