Nothing is more confusing as a handmade maker than creating your prices! On one hand, you may feel compelled to compete with prices at bix box stores. And it may be confusing to value your hourly time.
At Pop Shop America, we’ve created our own goods in house, we’ve sold other people’s goods, we’ve hosted festivals and longer term pop ups. Through all of these experiences, we’ve learned how many hidden costs you may not be considering. Those hidden costs may limit your ability to grow your business. Or worse, if many present themselves at once, they could sink your business.
We’re not a fan of that standard and old school way of determining wholesale price and retail price. You know the one where you double your wholesale to get to your retail? It’s Crazy. And it’s Dead Wrong. Honestly, I think it’s the fastest way to go out of business. I don’t know how any business could cover things like rent, electricity, packaging, gift bags, employees etc. on just doubling a wholesale price.
And don’t even think about advertising! So here’s our answer to this formula of how to determine your cost of goods, wholesale prices, and retail prices. And read below to find out why.
Determining Cost of Goods
The biggest thing I have to say about determining the cost of goods is don’t undervalue your time. It’s easy to overlook the research phase or the amount of time that you spent sourcing materials. Don’t. Especially if it’s going to take the same amount of time in the future to source those same goods.
If your goods are mounted, packaged, or presented in a professional way, be sure to include that in the cost. We’ve included even more costs under “retail prices.” Whether you add them under the cost of goods or retail, just be sure that you add them somewhere! Of course, adding them now in the beginning is your best bet.
If multiplying your cost of goods by 2.5 causes the wholesale price to be too high, consider ways that you could save on time and save on materials. Don’t put yourself on thin margins. Use this as an opportunity to find ways to save so that you can grow your business long term.
Consider this scenario: what if you grow to the point that you need multiple employees. And what if in hiring those employees, just for them to communicate with each other or understand the work that needs to be done, your process takes longer, what will you do?
This extra .5 that you are using is to help create a buffer for when something goes wrong or when something moves slower than usual. This is a way to prevent those things from hurting your business.
Here’s a quick list of materials and things you may not be considering in determining your prices: time it takes to sell the items, packaging like tissue paper, cute bags, and business cards. Or any freebies like stickers you use to promote your business.
If you sell out of a storefront what about the cost of rent or your bills. If you participate in pop ups, what about the cost of participation. And how about the time it takes you to travel to the pop ups? Have you considered the cost of those things?
Speaking of driving, if you ship your items from online, what about the cost of labels, boxes, and driving to the post office?
And when working online, be sure to include the cost of your website, the hosting, and the merchant services. If you are selling on Etsy, be sure to consider the cost of both listing your items and the percentage of sales that Etsy takes.
Marketing & Sales
The goal of including all these expenses in the cost of goods and determining your prices is to create an opportunity to grow. Of course having the ability to advertise, is always great. But let me present one more scenario.
What if your goods are not selling? Will you be able to discount your wholesale prices to move the items at the wholesale level? And will you be able to discount your retail price to move the items at the retail level?
If the answer is no, you need to raise your prices.
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