I often get asked how a product and service is priced, because of my professional background in fashion retail and buying. So, in this post I am going to cover some basics, which you can apply when you price goods to sell, whether wholesale or retail.
Please note, all figures used are for figurative purposes only and are not reflection of what is out on the market. This post serves the only purpose to be your basic guidance where you do not know where to start from.
In service-based businesses charges are based on delivered result per hour. Let say, you are a greeting card design consultant and your area of expertise is to consult the trends of the season, colour ways, new product releases etc. You would normally charge £30.00 per hour as you know this is the norm. However, to bring more business you offer a package, where the consumer is charged for 10 hours delivery but you give them 1 hour extra. You can offer a certain consultancy cost per hour and a more value-for-money option if the client subscribes or uses your service on a regular basis. If you are in the creative industry, you can start with fairly good example of charges per hour at the Artists Association and People Per Hour and continue to shop around the web.
However, getting the price right of a product is slightly different than a service and it is really important as it is where your profit lies. As my business is within the greeting card industry, my examples will be for cards, but I’ll throw some some fashion retail knowledge too.
When you price for wholesale you can do ‘bottom up’ or vice versa and in this post we will cover the 1st part and in part 2 we will cover ‘top down’ pricing.
Let’s assume you are a supplier and embellish handmade cards and you can make a batch of 10 per hour to sell to shops. We take the handmade cards as an example as by nature they are time consuming to make, although materials are relatively cheap. Let say it will cost you £4.00 to make the cards, your hour is worth £10 and you put overheads (rent & rates, water, travel, electricity, insurance) of 10p per card, just to simplify things. You wholesale price will be:
Materials + Time + Overheads = Wholesale Price
£4.00 + £10.00 + £1.00 = £15.00
To obtain the price per card you divide the total by 10 and your wholesale price is £1.50. You have to be able to sell the cards for more than £1.50 as you can see that we have not added any profit in the equation.
You can also make a much more complex calculation and this time you assume you make 1000 cards per month, all different designs but taking roughly the same time to produce. Again, please, note, the numbers are just for visualisation purposes and they do not intend to reflect a precise calculation. You can further change them to reflect your situation, i.e. charge more per hour, have more or less profit, add VAT @20% etc. but the principle will be just as outlined below:
|What makes your product
|Production per month
|Labour: 100 hours @ £6
|National Insurance + Public Liability Insurance
|Materials: envelopes, cello bags, embellishment etc.
|Sundries: stationery, postage etc.
|Overheads: electricity, heating, phone etc.
|Marketing: rent at fairs, brochures, business cards etc.
|Total Wholesale Cost
|Wholesale Price Per Card
So, if you go to a craft fair and sell your cards at the retail price of £2.99 you are making a good profit. On the other hand if you sell the same cards at £1.50 to a retailer, so they can sell them at £2.99 you will have to sell an awful a lot of cards to make a viable business.
Hope these examples were useful. If there is something not clear, just let me know, happy to answer any queries.
In the next blog post I will cover the approach of working out your wholesale cost when you know the retail price and also how retailers achieve their retail price. You might be a bit surprised what you will find out.