Promote Your CDS Doll Shop Online
Chapter Four - Pricing
How to Price Your Products: Meeting Business Goals
Pricing your product is probably the hardest job to do. However, if you're serious about having a for profit business, pricing is one of the items you will have to have a handle on.
Get Clear about Making Money
What do you want to achieve with your pricing strategy? The obvious answer is that you want to make money; that's why you own a business. Otherwise, you are just doing this as a hobby.
Of course, having a hobby is fine. Some people are content in creating totally for their own pleasure while giving no thought to what the public might purchase. For these people belonging to a place like CDS is primarily to assure their work will be seen and they will get some feedback. After all, every designer here is an artist first, and artists need accolades to spur them on to do more or even better work. But you need not read on if you're in that category because that is not the shop owner I am addressing here.
Profit: Move past just covering costs
Making money means generating enough revenue from selling your products to not only cover your costs, but to also take a profit, and, for some, to perhaps expand your business.
Let's turn our attention to a very important factor you must be aware of - the risks that accompany making poor pricing decisions. There are two main pitfalls you can encounter, under pricing and over pricing.
Under pricing
Pricing your products for too low a cost can have a disastrous impact on your bottom line, even though business owners often believe this is what they ought to do in a down economy. Many businesses mistakenly under price their products attempting to convince the consumer that their product is the least expensive alternative. These businesses hope to drive up volume; but more often than not it simply makes customers perceive their product as being cheap.
Cheap is something that will turn off clients who seek couture doll designs. Remember consumers want to feel they are getting their money's worth, and most are unwilling to purchase from a seller they believe to have less value. Businesses also need to be very careful that they are fully covering their costs when pricing products. If you are giving away your product by reducing prices far too low, this will not be in the firm's best interest in the long run.
If you're having a problem moving particular product or reducing end of year inventory, a sale can work out well for you and your customers; in fact, some customers may even look forward to such an annual event. A constant, on-going "sale" fools no one, however, and works against your overall business ethic - so it's definitely not recommended!
Over pricing
On the flip side, over pricing a product can be just as detrimental. No one likes to overpay when others are getting the same quality at a more reasonable price. Remember, the buyer is always going to be looking at your competitors pricing. Pricing beyond the customer's desire to pay can also decrease sales.
One pitfall is that some people will be tempted to price too high right out of the gate. They think that they have to cover all their expenses as well as make their maximum profit at the beginning, so they price according to what it takes to do all that. However, you may have to be willing to take a lower profit at the beginning. Your goal profit may not be possible if that's not what the market currently bears.
Besides that you'll have to work up to your goal profit by putting out consistent good quality outfits and knowing the price point your customer base will allow. Demanding top dollar when you have never sold before usually won't work.
How to Price Your Products: Factors to Consider
There are many methods available to determine the 'right' price. Successful firms use a combination of tools. but know that the key factor to consider is always your customer first. The more you know about your customer, the better you'll be able to provide what they value. and the more you'll be able to charge.
Know Your Customers
To analyze who your customer is and what price the are currently paying for like items, you need to ask yourself what would be a fair price to you. This will require you doing some homework. Watch what people are paying for like items on venues such as Etsy. and follow final bid prices on eBay. Begin a first to know list when you have as few as 5 customers, and remember to invite every single person who buys or makes an inquiry about your items to join.
If you're confident enough, you could even initiate little surveys from time to time with two or three questions, and one of them could be whether your pricing is fair. You can do this easily enough by quizzing your first to know group, or you could simply throw out some questions on a doll board or Yahoo group. Nothing ventured, nothing gained.
You also need to target your research to identify a few distinct groups -- the budget sensitive, the convenience centered, and those for whom status makes a difference. Then figure out which segment you're targeting, and price accordingly.
High priced
Of course, the status hounds are going to bring the highest price, so they would be a natural fit for those of you who produce high-end, OOAK or one off items.
Convenience centered
But there is also a place for the other 2 customers - especially the convenience centered. This customer's price point is not always known. This is the customer who often buys on impulse, so they frequent shops that carry inventory consistently. Any time they want to go over and purchase an item, they want/need something to be available for them to buy! If you don't have anything, you lose!! Why not at least offer a few accessories if your high priced or budget items sell out consistently. Decide how important this group is to your sales and act accordingly.
Budget Sensitive
I have seen shop owners who design their fashion specifically with this customer in mind. It's not necessary to call your designs budget; people will get the idea. And it's even possible to have a budget (called something else) line show up in a higher priced shop. It's all in the presentation and the pitch!
Even the best, couture line doesn't call for every design to be manufactured in the highest priced fabrics. Rather, the prerequisite is that you use the best quality fabrics. There can be a wide gap in the pricing of silk vs. cotton, and there can also be a wide gap in the pricing of many materials if you are able to catch some on a fantastic sale. Use these fabrics/sales to your advantage to occasionally make something anyone can afford, and tote it out there for your ftk group just as you would for the higher priced items. Who knows, you may gain a fan who will be saving up next for one of your higher priced items.
Besides making additional profit for the high end seller, some may find the budget sensitive customer to be right up their alley. To really appreciat this customer you'll want to check out sellers who consistently begin their eBay auctions at a certain low price point. You might do well to test your price points for some garments in this same way. Then when you list like items on your website you will know exactly what group your garment belongs in. Some designs are bound to hit this category, so make fewer of them if you prefer - but if they are selling, you might consider offering a few.
Remember, knowing exactly what to make in the beginning can be very hard. If we knew what the public was going to buy automatically, that is all we would make. So, we have to be willing to make different styles in different fabrics so we can determine what we really want/need to do to turn a profit if we want to stay in business!
Know Your Costs
A fundamental tenet of pricing is that you need to cover your costs and then factor in a profit. That means you have to know how much your product costs. You also have to understand how much you need to mark up the product and how many you need to sell to turn a profit. Since we don't usually do production line work, the how many isn't really a factor, though.
Also, you need to remember that the cost of a product is more than the literal cost of the item; it also includes overhead costs. Overhead costs may include fixed costs like machine depreciation, website fees, and variable costs like shipping or stocking fees. You must include these costs in your estimate of the real cost of your product.
Know the Formula
Here’s the favorite formula of the Etsy management team::
Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail
This is a good formula because it ensures your profit is properly accounted for. However, remember the factors above that qualify your profit. Now let’s go through every part of this formula and break it down.
Materials
Make sure to cover all your material fees. Often forgotten: the little things like the cost of thread, and the bigger things like the cost of packaging. If you’re going to “guesstimate,” err on the higher side!
Labor
If someone wanted to hire you and they offered you $7 an hour, what would you think of that deal? Be a good boss to yourself, do a bit of research, and be realistic. Then you are sure to come up with a realistic labor cost.
Expenses
Bubble wrap, elevated postage, and other items you have to purchase to maintain your business are all examples of expenses that must be considered.
Here’s a way to do that:
Jot down every expense you can think of — for example, include your listing fees, office supplies, etc. IRS deductibles should also be considered - -including rent or utilities.
Next, come up with the number of items you’d like to sell a month. Divide that number into the total expenses.
Tip: Start doing two things to help you come up with an even more exact price:
1. Track your expenses carefully so you can come back to this as you learn more about selling! You can use a program like Microsoft Excel or other free online accounting tools.
2. Start figuring out the big investments and work yourself down the list. How many items can you get out of that sewing machine? How long will that postage printer last before it needs to be replaced?
Profit
Think hard: where do you want this business to go? Do you want to quit your day job? Do you want to pay off a personal expense, or buy something new - like a simple purchase of a new doll for a model to buying yourself a more expensive sewing machine with all the bells and whistles? Accounting for profit now will help you get there.
Remember, this number really depends on what you are selling, so use the tips in this article about profit, analyze your costs, and then come up with a reasonable amount for profit. When in doubt, don't go for a low ball number!
Bringing It All Together
All right, this gets us to our wholesale price. Some of you might wonder if you can use the wholesale price in your CDS shop. Wouldn’t this be a great way to offer your work at an affordable price? No, no, no. Here’s some important reasons for you to double your wholesale price and sell your work at a true retail price:
1. Selling your work at a wholesale rate undervalues those who price their work at the proper retail price. When the majority of sellers in a category price their work thoughtfully, the entire category benefits.
2. Customers will wonder, “Why?” Why is your work so much lower than everyone else? Is it because it’s not handmade? Is it because you’re using cheaper materials? All could be okay, but let customers know the difference. Your price tells a story: make that story a good one!!
3. You’re also putting yourself at a disadvantage using your wholesale price for retail. Let’s say a company (your dream!) finally reaches out to you and says, “We’d like to buy 10 of these items! Please let us know what your wholesale prices are.” This is a big opportunity! But since you're already at your wholesale price you cannot give them a lower price, so it's become an opportunity you can’t afford to take.
After taking all of the formula into consideration, did you just come up with a price that you are sure the market won’t respond to? How do you fix this?
Here’s the trick: if the item is priced too high for the market, sometimes it’s not the price you need to alter, it’s the design or the way you produce your work that needs to be altered. Get creative and see how you can adjust the item to reduce your costs, then you can make a better assessment if your price is too high.
Consider the following things as well as some things hyou may also think of considering relative to your product. Can you design a collection using just a few fabrics or colors, enabling you to buy your materials discounted in bulk? Can you produce the work in a way that reduces the labor? Can you add some staple, budget sensitively priced items that will make it possible to bring down the price of high budget items just enough to bring them in line? Don’t take the easy way out by simply slashing your prices!
Remember, the right prices will allow you to reach your small business goals.
One of the main things I want you to go away with after you read this is under pricing or over pricing doesn't help you or your community to sell couture doll designs.
Under pricing can give you bragging rights that you sell everything -- but at what price? You not only lose $$, you also devalue yourself and your work.
Over pricing can definitely cost you in lost sales if the public perceives your prices unfair. However, if your designs catch on, you'll begin to know when you can nudge those prices up - especially with OOAK or designs you offer just a few of. Believe me, people expect your prices to be what some would call over priced if they consistently sell out. For sure, your high end buyers do not consider them over priced if they continue to snap them right up!! So go for it!
Pricing your product is probably the hardest job to do. However, if you're serious about having a for profit business, pricing is one of the items you will have to have a handle on.
Get Clear about Making Money
What do you want to achieve with your pricing strategy? The obvious answer is that you want to make money; that's why you own a business. Otherwise, you are just doing this as a hobby.
Of course, having a hobby is fine. Some people are content in creating totally for their own pleasure while giving no thought to what the public might purchase. For these people belonging to a place like CDS is primarily to assure their work will be seen and they will get some feedback. After all, every designer here is an artist first, and artists need accolades to spur them on to do more or even better work. But you need not read on if you're in that category because that is not the shop owner I am addressing here.
Profit: Move past just covering costs
Making money means generating enough revenue from selling your products to not only cover your costs, but to also take a profit, and, for some, to perhaps expand your business.
Let's turn our attention to a very important factor you must be aware of - the risks that accompany making poor pricing decisions. There are two main pitfalls you can encounter, under pricing and over pricing.
Under pricing
Pricing your products for too low a cost can have a disastrous impact on your bottom line, even though business owners often believe this is what they ought to do in a down economy. Many businesses mistakenly under price their products attempting to convince the consumer that their product is the least expensive alternative. These businesses hope to drive up volume; but more often than not it simply makes customers perceive their product as being cheap.
Cheap is something that will turn off clients who seek couture doll designs. Remember consumers want to feel they are getting their money's worth, and most are unwilling to purchase from a seller they believe to have less value. Businesses also need to be very careful that they are fully covering their costs when pricing products. If you are giving away your product by reducing prices far too low, this will not be in the firm's best interest in the long run.
If you're having a problem moving particular product or reducing end of year inventory, a sale can work out well for you and your customers; in fact, some customers may even look forward to such an annual event. A constant, on-going "sale" fools no one, however, and works against your overall business ethic - so it's definitely not recommended!
Over pricing
On the flip side, over pricing a product can be just as detrimental. No one likes to overpay when others are getting the same quality at a more reasonable price. Remember, the buyer is always going to be looking at your competitors pricing. Pricing beyond the customer's desire to pay can also decrease sales.
One pitfall is that some people will be tempted to price too high right out of the gate. They think that they have to cover all their expenses as well as make their maximum profit at the beginning, so they price according to what it takes to do all that. However, you may have to be willing to take a lower profit at the beginning. Your goal profit may not be possible if that's not what the market currently bears.
Besides that you'll have to work up to your goal profit by putting out consistent good quality outfits and knowing the price point your customer base will allow. Demanding top dollar when you have never sold before usually won't work.
How to Price Your Products: Factors to Consider
There are many methods available to determine the 'right' price. Successful firms use a combination of tools. but know that the key factor to consider is always your customer first. The more you know about your customer, the better you'll be able to provide what they value. and the more you'll be able to charge.
Know Your Customers
To analyze who your customer is and what price the are currently paying for like items, you need to ask yourself what would be a fair price to you. This will require you doing some homework. Watch what people are paying for like items on venues such as Etsy. and follow final bid prices on eBay. Begin a first to know list when you have as few as 5 customers, and remember to invite every single person who buys or makes an inquiry about your items to join.
If you're confident enough, you could even initiate little surveys from time to time with two or three questions, and one of them could be whether your pricing is fair. You can do this easily enough by quizzing your first to know group, or you could simply throw out some questions on a doll board or Yahoo group. Nothing ventured, nothing gained.
You also need to target your research to identify a few distinct groups -- the budget sensitive, the convenience centered, and those for whom status makes a difference. Then figure out which segment you're targeting, and price accordingly.
High priced
Of course, the status hounds are going to bring the highest price, so they would be a natural fit for those of you who produce high-end, OOAK or one off items.
Convenience centered
But there is also a place for the other 2 customers - especially the convenience centered. This customer's price point is not always known. This is the customer who often buys on impulse, so they frequent shops that carry inventory consistently. Any time they want to go over and purchase an item, they want/need something to be available for them to buy! If you don't have anything, you lose!! Why not at least offer a few accessories if your high priced or budget items sell out consistently. Decide how important this group is to your sales and act accordingly.
Budget Sensitive
I have seen shop owners who design their fashion specifically with this customer in mind. It's not necessary to call your designs budget; people will get the idea. And it's even possible to have a budget (called something else) line show up in a higher priced shop. It's all in the presentation and the pitch!
Even the best, couture line doesn't call for every design to be manufactured in the highest priced fabrics. Rather, the prerequisite is that you use the best quality fabrics. There can be a wide gap in the pricing of silk vs. cotton, and there can also be a wide gap in the pricing of many materials if you are able to catch some on a fantastic sale. Use these fabrics/sales to your advantage to occasionally make something anyone can afford, and tote it out there for your ftk group just as you would for the higher priced items. Who knows, you may gain a fan who will be saving up next for one of your higher priced items.
Besides making additional profit for the high end seller, some may find the budget sensitive customer to be right up their alley. To really appreciat this customer you'll want to check out sellers who consistently begin their eBay auctions at a certain low price point. You might do well to test your price points for some garments in this same way. Then when you list like items on your website you will know exactly what group your garment belongs in. Some designs are bound to hit this category, so make fewer of them if you prefer - but if they are selling, you might consider offering a few.
Remember, knowing exactly what to make in the beginning can be very hard. If we knew what the public was going to buy automatically, that is all we would make. So, we have to be willing to make different styles in different fabrics so we can determine what we really want/need to do to turn a profit if we want to stay in business!
Know Your Costs
A fundamental tenet of pricing is that you need to cover your costs and then factor in a profit. That means you have to know how much your product costs. You also have to understand how much you need to mark up the product and how many you need to sell to turn a profit. Since we don't usually do production line work, the how many isn't really a factor, though.
Also, you need to remember that the cost of a product is more than the literal cost of the item; it also includes overhead costs. Overhead costs may include fixed costs like machine depreciation, website fees, and variable costs like shipping or stocking fees. You must include these costs in your estimate of the real cost of your product.
Know the Formula
Here’s the favorite formula of the Etsy management team::
Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail
This is a good formula because it ensures your profit is properly accounted for. However, remember the factors above that qualify your profit. Now let’s go through every part of this formula and break it down.
Materials
Make sure to cover all your material fees. Often forgotten: the little things like the cost of thread, and the bigger things like the cost of packaging. If you’re going to “guesstimate,” err on the higher side!
Labor
If someone wanted to hire you and they offered you $7 an hour, what would you think of that deal? Be a good boss to yourself, do a bit of research, and be realistic. Then you are sure to come up with a realistic labor cost.
Expenses
Bubble wrap, elevated postage, and other items you have to purchase to maintain your business are all examples of expenses that must be considered.
Here’s a way to do that:
Jot down every expense you can think of — for example, include your listing fees, office supplies, etc. IRS deductibles should also be considered - -including rent or utilities.
Next, come up with the number of items you’d like to sell a month. Divide that number into the total expenses.
Tip: Start doing two things to help you come up with an even more exact price:
1. Track your expenses carefully so you can come back to this as you learn more about selling! You can use a program like Microsoft Excel or other free online accounting tools.
2. Start figuring out the big investments and work yourself down the list. How many items can you get out of that sewing machine? How long will that postage printer last before it needs to be replaced?
Profit
Think hard: where do you want this business to go? Do you want to quit your day job? Do you want to pay off a personal expense, or buy something new - like a simple purchase of a new doll for a model to buying yourself a more expensive sewing machine with all the bells and whistles? Accounting for profit now will help you get there.
Remember, this number really depends on what you are selling, so use the tips in this article about profit, analyze your costs, and then come up with a reasonable amount for profit. When in doubt, don't go for a low ball number!
Bringing It All Together
All right, this gets us to our wholesale price. Some of you might wonder if you can use the wholesale price in your CDS shop. Wouldn’t this be a great way to offer your work at an affordable price? No, no, no. Here’s some important reasons for you to double your wholesale price and sell your work at a true retail price:
1. Selling your work at a wholesale rate undervalues those who price their work at the proper retail price. When the majority of sellers in a category price their work thoughtfully, the entire category benefits.
2. Customers will wonder, “Why?” Why is your work so much lower than everyone else? Is it because it’s not handmade? Is it because you’re using cheaper materials? All could be okay, but let customers know the difference. Your price tells a story: make that story a good one!!
3. You’re also putting yourself at a disadvantage using your wholesale price for retail. Let’s say a company (your dream!) finally reaches out to you and says, “We’d like to buy 10 of these items! Please let us know what your wholesale prices are.” This is a big opportunity! But since you're already at your wholesale price you cannot give them a lower price, so it's become an opportunity you can’t afford to take.
After taking all of the formula into consideration, did you just come up with a price that you are sure the market won’t respond to? How do you fix this?
Here’s the trick: if the item is priced too high for the market, sometimes it’s not the price you need to alter, it’s the design or the way you produce your work that needs to be altered. Get creative and see how you can adjust the item to reduce your costs, then you can make a better assessment if your price is too high.
Consider the following things as well as some things hyou may also think of considering relative to your product. Can you design a collection using just a few fabrics or colors, enabling you to buy your materials discounted in bulk? Can you produce the work in a way that reduces the labor? Can you add some staple, budget sensitively priced items that will make it possible to bring down the price of high budget items just enough to bring them in line? Don’t take the easy way out by simply slashing your prices!
Remember, the right prices will allow you to reach your small business goals.
One of the main things I want you to go away with after you read this is under pricing or over pricing doesn't help you or your community to sell couture doll designs.
Under pricing can give you bragging rights that you sell everything -- but at what price? You not only lose $$, you also devalue yourself and your work.
Over pricing can definitely cost you in lost sales if the public perceives your prices unfair. However, if your designs catch on, you'll begin to know when you can nudge those prices up - especially with OOAK or designs you offer just a few of. Believe me, people expect your prices to be what some would call over priced if they consistently sell out. For sure, your high end buyers do not consider them over priced if they continue to snap them right up!! So go for it!