Pricing Your Goods

Everyone agrees that you have to price your goods competitively enough to sell but dearly enough to clear a profit. However, that is where the agreement ends. There's a lot of debate over how to price your goods.

Some businesses, including many wholesalers and distributors, want to price as cheaply as possible preferring to make their money on volume sales. These wholesalers have to leave room for the end seller to make a profit on their items.

Other businesses, such as high end designers who work with exquisite materials, want to charge as much as possible, going for low volume sales with a high profit margin on each sale.

Still other sellers just apply the 'sweet point' principle. The sweet point is considered the highest price you can sell at without negatively impacting profits. This sweet point will be effected by many factors, but especially by the availability of the item you are selling.

A wholesaler selling Bali silver will have a lot of competition and will have to price accordingly. Someone working with custom made designer beads will have very little, if any, competition and can charge much more for each individual piece or bead.

Thanks to the popularity of online auctions, there's a fourth pricing philosophy: start the bidding to cover your costs and see what the traffic will bear.

This method works extremely well for jewelry designers who use hard to find vintage beads. It would not work as well for someone selling readily available goods.

Regardless of what pricing philosophy you employ, you must first calculate your your base, or lowest possible, selling price.

The first thing to determine is your 'cost of goods sold'. The cost of goods sold (cogs) includes all expenses incurred in readying the product for market. For example, the cogs of a bead kit would include price of beads, findings, threads, baggie to hold the components, labels, instructions and labor to assemble the kit.

Once you have determined your cogs, you are ready to determine your base selling price. There are two different formulae applied to cogs to determine the base selling price. One school of thought says to double your cogs - this is the standard 'keystone' markup which has been used by retail stores for decades. Others triple their cogs. They justify this formula by saying that the base price breaks down to: 1/3 cogs, 1/3 overhead (rent, advertising, utilities, etc) and 1/3 profit.

However you decide to price your goods, be sure to allow room for future expansion. If you assemble your own kits, assign yourself an hourly assembly rate and pro rate that cost over the number of kits you can assemble in one hour. When you grow large enough to hire assemblers, be sure their labor rate does not cut into your profits. If you currently work out of your home, apply an equitable cost for rent, phone, etc. When you expand, you'll be glad you did.