When we started KozieKidz, a brand offering trendy accessories for children, determining our ROI and pricing was a challenge back in 2010. Here’s some information we put together to assist any artisans having challenges.

So let’s get right to it! Pricing too low can make or break your business, yeap!

If your prices are too low

• You won’t earn enough to stay in business
• You risk running a loss because you can’t pay for marketing
• Customers could have the perception your products and brand are cheap – poor quality – low value

If your prices are middle of the road

• It will be difficult to make enough money to grow your business.
• This pricing structure creates that cycle of creating, selling, creating, selling, but never selling more to wholesale, grow you business, hire staff- as you’ll need have time or enough money for more

If your prices are too high

• You risk of losing customers, unless you can offer something no one else can.
• Pricing yourself out the market – no sales

Here’s an easy/peasy formula to use:

Example.

Say it takes 15 minutes for you to make a pair of earrings and your hourly wage is $20. Your time spent to make these earrings cost $5 ($20 divide by 4). The beads and findings for the earrings cost $0.85. We’ll use a 2.5 markup.

$0.85 + $5 = $5.85 (Item Cost)

$5.85 x 2.5  = $14.60 (Wholesale Price)

$14.60 x 2.5 = $36.50 (Retail Price)

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What is a “markup”?

Your markup is where your profit fits in the picture. But don’t confuse this with money you pay yourself with.

Profit is the money you spend on growing and investing in your business, such as with:

• buying materials and supplies
• buying new tools
• attending business conferences
• taking an online marketing course
• hiring help
• paying for apps and software

You can set your markup to more than 2 times if you want, as long as your market can bear the higher prices!

Most pricing formulas would advise on a 2 times markup from wholesale to retail pricing, but I’m suggesting you use 2.2 times markup because this will appear more attractive to your wholesale prospects.

It’s the norm and expectation with seasoned retailers and brick and mortar shops.

Even if you’re not going to sell wholesale, account for it

You never know what might change your mind a few years down the road, so you want to be set right off the bat.

So many artists forego the wholesale markup so they can price more affordably in the beginning.

But when they want to grow their business, sell in galleries or brick and mortar stores, or do a daily deal (or any other kind of sales promotion), they find their pricing isn’t adequate and it’s impossible to expand because you wouldn’t be making any money!

So even if you just want to do this as a hobby for now, don’t box yourself in. Assume this is a serious business, because it might turn into that soon!

Coming up with your prices includes surveying your competitors and being aware of how much money your customers can afford to give until they stop buying.

There’s a sweet spot, and for that you can definitely call this an art.

Credit: Creative Hive