Setting your price strategy isn't a hard and fast answer and it isn't a guess. It falls somewhere in between. With a little practice, flexibility, and adjustment, this lesson offers you a strategy to set the right price for your product so that you can maximize your profit.
Video Time: 3 Minutes 22 Seconds
In this video we will discuss what kind of insurance you may need to get your small business up and running, what it will cover, and where to look to find policies.
Creating Your Product Price Strategy
Pricing your work takes a bit of thought. If you're putting a lot of work into your project then your creations aren't just soap, but also art, and these kinds of things can take on a premium price. Being a soap maker means that most of your products are small ticket priced items.
There are pros and cons to selling a small ticket price item.
The first and most obvious pro is that a small ticket priced item that looks attractive is easy to sell quickly to a large number of people. In general, people are far more likely to spend money on an impulse purchase for 5 dollars than something for 50 dollars. This gives you the chance to sell your item , and then gather a customer base of buyers who will come back to you once they start to recognize you.
The obvious con is that you have a much smaller profit margin with each sale, and in fact you are really getting down to watching pennies when it comes to costs and prices. Your individual bar of soap can be made for as little as 35 cents a bar on the low end and as much as several dollars on the higher end. Not all soap products can be priced the same depending on the recipe you choose to use, so it really isn't about pricing your product in comparison to some general standard.
Another con to setting your price so low it that you may be undercutting the perceived value of your product. There are cheapo bars of soap at the grocery that you can buy for 80 cents. If you set your prices closer to a cheapo product, your customers might associate the quality of your work with a cheapo product, and then it will be less desirable over all.
There is no hard and fast rule about pricing your product. There are some variables that come into play that will personalize your price for your craft. For example, what part of the country do you live in? How many expensive butters and oils are in your product? Do you have access to a market where lots of people will pass by?
Fortunately, there is a strategy that you can try that will allow you to experiment with the price of your product and let it settle into the correct selling point for the people to whom you want as your customers.
First, and most obvious. You can't end up upside down on your project, so you absolutely must figure out the cost of your product down to the penny. You can do this by calculating the entire volume of your supplies or you can break the cost of your supplies down to the ounce, and then tally the cost per ounce into each recipe. Once you know how much you are spending per bar, you can't sell your bar under this price for any reason. The math just won't work. Now, if you sell your product for the cost of supplies, you are 100% in a hobby and not a business. Any money you make will equal the amount of money you need to restock your supplies, and you will never have a profit. That is a hobby.
If you want to get past the hobby stage you will have to work in your profit and justify your time and effort and consider other costs like tools and equipment. You can start to see just how personalized this can become, but there is not one factor that is the same across the board.
Another thing to keep in mind is that you can only sell your item for what someone is willing to pay for it, and this is where you need to explore. In order to get a good balance between the practical math and the willingness of your customer, we have to rely on the magical powers of the free market.
Strategy Break Down
First, you need to have access to a sample of customers so you can get feed back on your price point. If you don't have a place to make sales you can't get the data feed back to analyze your data. This may be an online platform that has plenty of traffic, or it could be at a market table face to face.
Next, choose your ultimate lowest bast price. You do this by figuring out the cost of making your product, and then do a bit of research to find out what the same product with relatively the same ingredients is selling for either on Etsy, Amazon, or even at your grocery store. Once you get a general ball park idea, set your price.
Let's say, for example, you sell your package for $5 a bar and you quickly discover they sell very well. There's a good chance that if you are selling home made soap for 5 dollars a bar in a region that has a high end grocery store nearby, you will find eager buyers because shoppers quickly realize that natural hand made soap fetches a price at almost twice the amount of your base price.
Let's say, you sell 100 bars at your local market on a Saturday afternoon at your base price. If this is the case, when you go back the next week you need to raise your price by one dollar and asses the sales volume of your product. If you sell the same or nearly the same amount you can safely keep your price at 6 dollars.
Continue to raise your product price until your revenue has dropped below 10-15% between any single dollar increments.
Therefore, if you make $200 dollars on week 1 at $5 a bar and make $190 on week 2 at $6, then you can safely keep your price at 6 dollars on week 3. However, if you make $140 on week 2, you may need to roll back to $5 on week 3.
You can keep increasing or decreasing until your sales level out .
If on week 2 you make the same amount (or more) as you did one week 1 +/- 10% then raise your price to $7. You can continue raising your price and watch the response of your costumers to see where the market will place your product. If you don't experiment with the market, you may be under selling your work and loosing money.
In some places it is easy to sell a hand made bar of soap for 7 dollars, while in other places people have a hard time justifying spending 5 dollars for a single piece of soap. So, its good to have as many platforms as possible, and experiment with the market in your region so you know exactly what your product is worth.
It is very common for people who work in cottage industries to feel inhibited about raising their prices. There can be emotional ties to setting your price, and it is common to be emotionally connected to limiting the price you set to what you are willing to pay for it. This is a common mistake in business. Let the free market control your product's price and not the boundaries in your imagination.
Its better to leave your emotions to the creativity in your artwork, and leave the math of price to the people who appreciate your work.