January 24, 2008.
Deciding what to charge for your product is a very tough thing for any entrepreneur to do. I mean, this is your "baby" you are putting out there for all to see, all your blood, sweat and tears wrapped up in that thing. I have touched on this before, and I am sure I will talk about it again.....with the economy down and gas prices rising - prices are going to have to increase.
Jennifer Sauselein, owner and artist of Titania & Puck asked in the comment section, "How did you finally decide what to charge for your products in terms of retail/wholesale pricing?"
Wholesale vs. Retail*
*Just for the record if you sell a product wholesale to a sales channel, the sales channel has the power to double or even triple the price. I know this can be hard for artisans to understand, but it is the way it works. We worked with a number of gift catalogs a few years ago and not only did they triple our price (we sold for $10.00 and they priced it at $30.00) but they also waited 90 days to pay us.
Those that sell direct and those that sell wholesale have their own opinions on the subject. Some are very adamant about NOT going the wholesale route for fear of losing the rest of their profits to a sales channel, others refuse to sell direct. Truth is I do both, I have always done both. I make no apologies for it and I am happy with my decision. That being said a few things that would not have happened, had I not decided to sell wholesale:
- I would not have my products featured on the Ellen DeGenneres Show, The CBS Early Show, ABC's Extreme Make Over Home Edition, The Wall Street Journal, Country Living Magazine, The View from the Bay, The San Francisco Chronicle.....need I go on?
- I would not have had the opportunity to work with so many amazing entrepreneurs that agreed to re-sell my products. My products are sold all over the country.
- I would still be hand painting my products, alone in my garage/studio and invoicing and delivering or shipping products all alone.
- I saw my sales double year after year, due to wholesale, not direct.
- I never would have had the advertising dollar, the customer base, or the knowledge to grow my business year after year doing it direct.
- You would never know who I was, or care to read this blog.
This is just me - but this is the truth and I can say it is the secret to my success (or over saturating the web, you pick!). Wholesale has put me on the map - direct sales are great, and I tended to be a hit at certain parks ("oooh were you the one that knows Vicki Bodwell?") I come from the Software/Gaming Industry and I used to work with some amazingly talented artists and designers. Now I might not have always got along with them (shut up, I know shocking you thought I was soooo easy going), I still had respect for them and it was a very, very creative environment to work in.
The last company I worked for had over 200 employees (if my memory serves me right) at our Fremont campus. I would interact with 15 to 30 people on a daily basis. I like interaction with people, I like to talk and I like to work with lots of different people from all over. I like feedback, I like developing products with input from others - working in a vacuum does not work for me.
The Price is Right
Oh, figuring out what to charge can be a tough thing - but not really when you look at the facts. My husband forced me to do this with one of our latest products - it was not a fun process, let me tell you. It is painful to look at these numbers, let me take you on a journey and show you what I mean.*
*And know I made these numbers up for argument sake, this is not what I do, or what I pay - but really, raw goods cost money!
- The raw material you put your art on (wood, canvas, ceramic tile, toilet paper): $3.00
- Any added "details" like ribbon, rhinestones, glitter, etc. : $1.00
- The paint you use (acrylics, oil, spray, water colors, finger paints): $2.00
- The time it takes you or your artist to make it (let's say 1 hour): $10.00 an hour (this would be a $20.00 an hour job if you live in California or New York)
- Packaging you have around your product (it has to be shipped or delivered): $1.00
For arguments sake you are already out $17.00 for making the product and that is minus profit. So do you double that and sell it at $34.00 wholesale, meaning it will probably retail for $65.00 or $70.00? Those would be pretty good margins right? But wait, what if you find competitors selling the same "type" of thing for $50.00? Ore even $40.00? Is that company taking less profit? Are they buying in bulk, saving 1/2 of the raw materials you bought at the local craft store? If you think your product is really worth $70.00 but no one is willing to pay for it....I get it, I know how hard you work on it, but um, you have to see what the market is willing to pay. I believe that the store owners, catalogs and website owners deserve the other 50% they get for advertising, stocking, and marketing your product (but again, that is just me).
The best advice I can give is you need to do your research and charge what others are charging. Now if you say no one does what you do, or has anything like what you have - my initial response is really, um that is doubtful - no idea is original, even I know that. I am sure you can find something similar out on the old Internet (pssst...use Google). If your margins are anywhere from 30% to 50% or higher-you are lucky. If you are in the camp of "not charging enough" then you need to charge more. Go find ways to save money, on inventory, raw supplies, shipping, salaries - do something. Go on line - buy in bulk, buy your raw goods wholesale too - that craft store is ripping you off!
I started off charging way too little for my products, I was so not paying attention to margins. I was also doing everything and not paying anyone so I was like - woo hoo $80.00 dollars! Now that was waaaaay back in the day, and I have learned, oh I have learned my lesson. Selling on line and selling all over the country and seeing what others (just a few at the time and no ceramic letters even existed back in 2002) were selling personalized products helped me price my products. Then as I got more savvy I started to look at all my costs and realize I had to raise prices and I could not get by on $4.95 for shipping and handling......another blog post (I strongly believe in - handling fees!)
If you would like more information on this topic, you can get a great book at Amazon - it should help. Or, well you know - shoot me a comment and give me some feedback....you know how I love that!