Why is it that starting a business is an easier decision than pricing? Generally, work at home artisans start their businesses because they either love what they do or what they do is very popular. Either way, the decision to take what might have been a passion or hobby to the next level is often not very hard. How to price those handmade bits of goodness can sometimes be paralyzing though. There are many, many great articles out there that outline pricing calculations and formulas. I’m not here to redo the work that’s already been done and that you have already most likely read. (Although I’ll link you to several later just in case you haven’t.) I’m here to talk about the nuances to pricing, some common pitfalls and mistakes work at home artisans make, and how the consumer factors into pricing decisions.
Pricing doesn’t have to be hard, but there are some things you have to take into account to ensure that you are priced correctly in the market. Let’s take a look at some common first-timer mistakes made in pricing. Many who are new to the business side of their craft think it’s good to start off priced low for entry into the market. Some feel that if they price low they can generate large amounts of sales quickly. Both of those thoughts are true, but they are also full of potential problems.
Entry level pricing should never be the bottom of the market, if so it can be challenging to raise prices to where they should be to compete. When starting out it is wiser to price accurately and then if you are new to your craft, lower prices a small margin to account for learning, or market the correct price, noting a “grand opening”, or similar, discount.
If you price low to generate sales, and plan to price low long-term, remember that low-priced options often signify lower quality in the consumer mind. Most work at home artisans are proud of their craft and put a lot of time and energy into their products. If you are proud of your product, why would you price it so low that the consumer isn’t proud as well? It’s never a good idea to be priced too low for that reason alone. Not to mention it devalues the market as a whole. Now, you may not mind that you are under pricing your competition, thinking that you will get increased sales since you are less expensive and that will compensate for the lower price. While that’s true for the short term, it’s not a viable long-term strategy. Lower pricing sets an expectation in the market that you are cheaper, note the use of the word “cheaper” rather than “less expensive”, and cheap is not what you want to be. Having a true sale, one that is marketed as such and runs for a short period of time, can be a great way to move product and boost sales, but it’s just that, a sale, not a long term pricing strategy.
This is an excellent article outlining the hard core facts about how low prices can undervalue your time as well.
So that still begs the question, how does one price correctly? Probably everyone knows the general rule of thumb is to take all the material costs for an item (don’t forget all the little things like printer ink, packaging materials, business cards, etc), double that and you have a solid base for wholesale pricing. Double that price and you should have a good base for retail pricing. But what if your business doesn’t do wholesale, or you have a very labor-intensive product? What if your competition is under-, or over-priced compared to you? That’s where pricing gets scary.
Now that you have a good base for pricing, you need to look at your market. That includes a long hard look at your competition. Now, by long hard look I mean look at the price of every competitor, not looking at every thing being done by only the core competition. You must look outside your micro-market. If you sell wool interlock longies, you need to look at the price of other interlock longie makers for sure (that’s your micro-market), but you should also look at knit longies, fleece longies, the cost of another diaper cover and a pair of pants, etc (the entire competition). Look not just at your core competition, but the alternatives to your product as well. After all, if your customer doesn’t buy your longies, they will still be buying something to put on their babies legs. Finding out alternatives to your product can be helpful, as it will give you a better picture of the thought processes of your consumer.
And last but not least, don’t forget to price to ensure you make a fair wage. The term “fair wage” is wide and varying, based on the cost of living at your location, the labor involved in making your product and your current financial need. Look at all the factors and don’t sell yourself short. Don’t forget that products priced too low often devalue the market and the product itself. A quality product should be priced as such.
Yes, pricing can be scary. It’s a lot to consider. The material costs, the prices of rest of the market and a fair wage for your time and effort all play a role in determining an accurate price for your product. The best advice, take them all into account equally and make sure the pride and care that you put into your products is also put into the business side of your company.
Just getting started? Check out these great pricing articles:
http://marketingteacher.com/lesson-store/lesson-pricing.html
http://www.fluentself.com/blog/biggification/the-art-and-science-of-pricing/
http://www.netmba.com/marketing/pricing/
http://www.ohboydenterprises.com/HowToPriceHandmadeGoods.html
My Better Earth 