Pricing is something that every small business owner struggles with. No matter the product or discipline, if you are in the business of selling something, pricing is on your mind. There are no shortage of theories on how to price your good and services. A pretty standard one, that I'm sure you have seen is the formula:
Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail
I like this formula, and used it when I first started Zelma Rose, to help me establish a baseline to my prices. It is a helpful little formula and reminds us to include all the necessities, like our materials, overhead, a living wage for ourselves, and a profit. I also like the ease of determining a retail price. Just multiply x 2. Easy!
Currently I'm working on developing my own pricing formula. Right now it looks something like this:
Cost + Uniqueness + Perceived Value + Experimentation = Price
It's a little outside the box. Let me break it down for you. Building off a more scientific formula, like the first one I mentioned, the above formula considers an accurate price based on costs and labor and ADDS the perceived value of your unique and desirable product. Considering the value of your unique and desirable product is allowing the market to play a part in deciding your price. I add the experimentation, because it takes some going up and down price wise to find that sweet spot.
Allow me to explain. With online sales, because it is impossible to physically place your product in a customer's hand, you are actually selling the idea of a product and not the actual product. Outside of product descriptions informing the customer of size, weight, color, materials, lead time and shipping times, Product descriptions must also seduce your customer and support your price. To support your asking price your product descriptions must tell the customer:
- Why your product is unique
- What special technique or level of skill went into making it
- Why it will make their lives better
- Why they need it
Etsy success-story and friend Tina Albin-Lax of Better off Wed and Jitsoo Business Strategies recommends that the key to following this line of pricing is to distinguish your product from a commodity. A sign that customers are viewing your product as a commodity? You receive countless emails from potential customers asking for discounts and saying that your custom fees are too high. If this is the case, Tina suggests going back to the drawing board and attacking your product descriptions and photography to raise the perceived value of your work.
And, please give some thought to burn out factor. If you are making 60 sales a week of $10 earrings then you are making 60 pairs of earrings per week. That's a lot of work for your hands, not to mention your mind, going through all the shipping info and packaging. Consider how life might be different charging $20 per earring set. You would only have to sell half as much, making your product look less like a commodity, and you wouldn't be running a pace that is really hard to keep up with.
I'm currently in the process of experimenting with the price of my most popular item. EEEEEK scary! It begs the question, is it my most popular item because I found the sweet spot, or do people think it is unique and they will pay any price to have it? I'm about to find out!
Here's where the experimentation comes in. This is the hard part, especially for all of us overachieving super geeks out there. Experimentation takes time, guess work, and geeking out to Google Analytics. Photographer and friend Sarah Deragon of Portraits To The People and Knot Shots is a seasoned pro when it comes to pricing. Sarah recently raised her prices for photo sessions to that magical point that made her stomach flip. The price hike was successful, but she realized she lost certain clients along the way. In an effort to offer a lower rate and fill up some weekday slots that were not as busy, Sarah offered a small discount for customers who book during the week. It took some time for her to figure out what that sweet spot was in terms of the weekday discount, but the process was worth it, and now her weekdays are filling up. Nice job Sarah!
If you are just starting out, or even adding a brand new product, I suggest starting with a basic cost formula, like I provided at the beginning of this post. Etsy has some in-depth blog posts using this formula, if you are looking for more information. If you are a seasoned seller and looking to boost revenue, I recommend giving the second formula a try. I'll be working through it over the next few weeks. Let's do it together! Let me know your successes and totally embarrassing moments :0