Are my prices too high? Are they too low?
One of our biggest business decisions with the most question marks was setting the prices for our Boldlie & Co products. Pricing is one of those fickle elements of a business that feels like guesswork most of the time. On one end, it’s tempting to lower your prices in the beginning to try and undercut your competitors in order to bring in your first few sales. But, at the same time, pricing is a reflection of you, the maker.
The truth is, there’s a lot more to finding the right price. For some shoppers, affordability is the most important factor. For others, quality, reputation or convenience trumps all.
But, you deserve to be paid what you’re worth, no matter how much you love your job.
Let’s find that pricing sweet spot…
(P.S. you can download our pricing formula tool below to figure out how much you should set your prices).
Start with your expenses
The first thing you need to figure out is how much it costs to create a single item in your shop – your product cost. Without your product cost, you can’t really know how much you’re making and whether your sales are profitable or not. It also means that you can’t set a strategic price for your products that reflect it’s true value.
These are the 6 expenses you need to note down for each individual item you make:
- Materials and production
- Shipping and courier services
- Marketplace or payment gateway fees
Materials and production costs
This includes the materials and equipment that you’ve purchased to make your item. If you work with production partners or suppliers, factor in the cost of getting your product made.
Our costs. Most of our costs are coming out of the local printer that we use. Eventually, if we choose to buy our own printing equipment – the paper and ink will factor in as a cost.
How much time goes into making your product? How much is your time worth? Is your shop a hobby or a career path? Do you have employees? Depending on where you sit, you might want to factor in the price of labor into your product cost. And if you do, make sure you pay yourself a reasonable wage.
Our costs. Labor has been a once-off expense so we haven’t counted it into each item. Ash spent a few hours designing each print. But once that was done, we can print and sell each design infinitely.
Mailing boxes, tissue paper, coupons printed on postcards and bubble wrap – it all adds up. Don’t forget to consider your packaging costs, especially if your product requires more unique packaging for deliveries. If you sell digital products, you can count this one out.
Shipping and courier services
How much does it cost to ship your item within your country? What about overseas? What about expedited shipping? Play around with your postal service’s rates and write down all your shipping costs. You’ll need a scale and a ruler to get the most accurate rates for your items. This is important to know if you want to include the cost of shipping in your prices. Even if you charge shipping separately, it’s still useful to lay out all your shipping rates.
Marketplace or payment gateway fees
Etsy is well known for charging a small commission of 5% per sale and a $0.20 re-listing fee after a transaction. Payment gateways such as PayPal and Stripe also charge small fees. Take a look at your pricing policies for each platform so that you know the exact amount you’re paying per sale.
If you’re paying rent, guzzling up excess electricity or you’re subscribed to software to run your business, then you can add these costs to your items.
Our costs. We’ve left out overheads for now since we’re only running Boldlie on a part-time basis.
Can you cut down your expenses?
A quick way to improve your profits is to cut out expenses. What happens to your prices if you remove a specific material or if you replace parts of your labor with a production partner?
We started selling digital versions of our prints alongside the physical items. That allows us to cut out printing, packaging and shipping costs. It’s a HUGE deal for us and we’re able to add a much cheaper alternative to our shop.
Add your retail markup
Your markup is the difference between your product cost and the full retail price of your product. Basically, your markup determines how much profit you will make per item.
Markups can range anywhere from 40% to 400%+. Choosing your markup depends on a few factors and how you want to position yourself against your competitors. Here’s how to find the right markup for your product.
Research your competitors
Bust your browser open and start exploring similar items on a range of handmade marketplaces and Google Shopping. You’ll start to get a feel for what other shops charge. Set yourself a price range to aim for. When you set your prices, simply make sure that the markup you choose falls within this price range. If it doesn’t, it’s worth seeing how you can adjust your expenses.
Consider your brand positioning
Next, think about where you want to position yourself within your competitors. Do you want to be the affordable option? Do you want to have a reputation for amazing service and high quality goods? Are you selling your items to poor students or brides with money to spend? Going back to your customer persona profile can help you come up with an ideal markup.
Recommendations. If your product is perfect for penny pinchers, you’ll want to keep your markup under 50%. You don’t really want to go under 40% because this doesn’t give you much room to move if you want to host a sale. If you’re going for the luxury market, you can pretty much set crazy high markups above 100%. Remember, elements such as your materials, branding, packaging and service should reflect your markup, too.
Decide on your discounting strategy
If you’re big on discounts, consider raising your markup to cover seasonal discounts and promotional campaigns. We’re experimenting with adding frequent sales because you can filter them in Etsy search functions. We’ve added an extra 20% to our markup so that we can offer more sales, more often.
Recommendations. Depending on how many sales you want to run, how often and how big the discounts, you want to adjust your markup. If you’re running consistent sales, consider an extra 20% to 40% on top of your markup. If you run seasonal promotions, it’s worth keeping your additional markups below 20%.
Offer multiple tiers of pricing
A multi-tier pricing strategy lets you introduce different price points for products variations. The most common businesses I see using this strategy are software companies who offer three tiers of pricing. The more expensive the tier, the more features you can access. I can see this working for handmade products, too.
We’ve introduced cheaper priced, digital versions of our prints. Shoppers who still want the experience of unboxing a print on high quality paper can still have that. But, for those looking for an economical option, our prints can be bought and downloaded digitally.
Offering your products in packs and bundles let’s you increase your overall transaction value while delivering better value to your customers. Customers can own more of your items while paying less for each one. We do this with related prints, bundled as a set of 3 prints. Eventually, it’ll also be worth looking at encouraging shoppers to buy multiple items for a discount or even offering related products like picture frames.
While this doesn’t really affect your markups, it’ll help with increasing the value of your orders.
Would you rather buy an item for $40 and pay $10 for shipping? Or would you rather pay $50 with shipping included? Even though one option is more expensive, you’re also getting something “free” with it. Okay, okay, so there’s actually no such thing as “free shipping” because someone is paying for it at the end of the day, but it’s a great way to make your product more compelling. Would you consider adding packaging and courier costs to your product price markup?
Try it yourself
Download the free pricing strategy spreadsheet. This is the formula we used to decide on our product prices. You can download the sheet and put in your own numbers.