Accurately pricing your products is an essential part of running a successful on or offline business, but the process is often miscalculated leading to low or no profits. Undervalued work is often a factor in the amount of sales you achieve and price isn’t always the deciding factor as to if someone is going to buy when they come across your products. However, if it’s too low, this can have a negative effect in the mind of the potential buyer.
Understanding the complexities on how to work prices out can often be helped by using a product pricing tool and the figures you enter are based on a formula which can really open your eyes as to the price you should be charging for your work.
If the figures calculated don’t match the figures you estimated based on your market area and how much you think you could get for your work, you can then look at theses figures and decide how and where you can make efficiancy savings to get closer to the figures you actually want to sell for and still be making the profits you need to make a living from your work.
A product pricing formula is not the only factor you should look at when calculating the selling price of your work. It doesn’t take into account all of the factors you need to consider, such as market saturation and competitor pricing, however, basing your pricing strategy on a mathematical formula is a good way to start and helps you determine if your prices are reasonable and making you a profit.
A formula is not the ‘be all and end all’ of product pricing, it is merely a guide to be used for you to make an informed decision about the prices you should be charging.
WHY SHOULD I USE A PRODUCT PRICING FORMULA?
- See at a glance how much you should be charging
- Guesswork is eliminated and accurate prices are calculated
- Opportunities to make savings, reduce waste and earn more profit can be spotted
DO NOT UNDER VALUE YOUR WORK
It’s common sense really; If you don’t value your work, why would a potential buyer? Large online craft marketplaces are a goldmine of underpriced handcrafted pieces and the size of the marketplace can be a deciding factor as to how much a seller charges for their work. All too often a seller will look at a competitors pricing structure and decide to either sell for the same or undercut them without taking in to account how much it all costs to produce the items. This leaves it completely to chance as to if they’re making any money. More often than not, they aren’t!
There are plenty of factors that cause jewellery and craft makers to under-value their work.
It’s easy to:
Miscalculate the costs for making, marketing and selling your work
Misjudge how long it takes to make a piece
Underpay yourself by not allowing a fair wage for your time.
An accurate product pricing calculator can help correct these mistakes.
DISADVANTAGES OF USING A TOOL TO PRICE YOUR WORK
Simply entering numbers into a product pricing tool without considering other factors won’t cover all of the issues around pricing.
However, you need to start somewhere, and a tool provides an excellent starting point. In the early days of building your business (and even the later days!), a tool that simplifies the pricing process can help you become more confident and help you to trust your pricing is correct and on the road to profitability.
Once you’ve calculated your potential prices, you can then take in to account all the other factors associated with your target market and competitors prices.
HOW MUCH!? I’LL NEVER GET THAT FOR MY WORK!
A common reaction! The first time you use a product pricing calculator, you will be shocked as to how much you need to charge for your work.
Just because you consider the prices high and more than your competitiors charge, it doesn’t necessarily follow that your customers will be put off. It also doesn’t mean that you should completely dismiss the figures.
THE FIGURES CALCULATED BY THE TOOL GIVE YOU IMPORTANT INSIGHTS INTO YOUR BUSINESS
The formula gives you an objective estimate of what you need to charge for your products to build a business that is viable and has room to grow.
It doesn’t tell you anything about what your customers expect to pay, the perceived value of your work or the current market for your product.
If the amount you need to charge to earn money is well above the amount you think your could sell your work for, then you need to take a serious look at your products and market.
If the pricing calculator tool prices seem too high, there are a few things to consider:
- Why is the price so high? It could be the cost of your components and materials, your hourly rate or you may be taking too long to make the products.
- What can do to change those factors that make the price higher without reducing the quality of your product? For example, find a better price for your materials, open wholesale accounts, use more ready made components or make the process for making your products more efficient to make them in a shorter time.
- What can you do to increase the perceived value of your items without increasing costs significantly or time taken for each piece? Often luxurious packaging will increase the perceived value, or invest in fantastic product shots for your website.
In short, don’t just dismiss high prices, instead, take the time to consider ways to reduce them or do things to add value to justify them to ensure your customers will be willing to pay them.