You're the Boss: Part 4

First of all... the winner of the Munchkin Things and Strings giveaway:

Yay!  Alissa of Rags to Stitches is our winner!  I will bring you your prize tonight.

Now, for Part 4 of the series I have been working on, You're the Boss.

I have gotten some great comments from my fellow business owners about this series... please keep them coming!  At the end of the series I will be sure to include all of your fabulous advice!

So today we are talking about

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Make Sure the Price is Right
Price your products reasonably, but don’t undersell yourself!  Remember to account for your supplies and your time, and leave room to grow into paying for labor costs.  If you can’t do all this… you probably shouldn’t be selling that product.

I'll be honest... when I first started selling my calendars I chose a random number out of the sky that I thought was fair, and that was my price.

I did not really know what my costs were.

I did not think about long-term strategy.

I just chose a number.

Nathan thought I was crazy.

He said that in this economy people would never pay that much for a calendar.

As it turns out... I chose wisely.

Nearly 600 people have not thought my price was too high, and it has allowed me the room for a marketing budget, to pay my employees, and to still make some money for myself.

Now, had I been strategic about my pricing {which is what I am suggesting that you do}, I would have taken these things into account before settling on a number:

1. What is my cost to make the product?

This is the most obvious and most important factor in determining your price, and yet most women that I talk to really do not have a very good idea of what their cost is.

You need to take everything into account: printing ink, packaging supplies, postage, thread... anything and everything that goes into making your product needs to be accounted for.  This can be tricky, especially when you are talking about something like printing ink, but do your best to estimate.  I started tallying pages when I had a new ink cartridge in my printer, and by the time that cartridge ran out, I had a pretty good idea of how much each calendar cost me to print.

Keep in mind that your costs will change, and you should be aware of any adjustments that need to be made.

When I first started making calendars, my costs were very high because I had to outsource binding and laminating.  I now own my own binding and laminating machines and have invested in a laser printer, which has greatly reduced my per calendar cost, but I do have to keep in mind the cost of the machines and their maintenance.

I read once that if the price of your product can not be at least 10 times your cost, you should not sell it.  I'm not sure that this is realistic with a handmade product, but I would say at least 5 times your cost would be a wise place to start.

2. Can I afford to hire help?

When I decided that I needed help with my business, I knew I had to figure out a way to be able to pay my friends.  {Although, admittedly, Brooke did work for free for quite a while... if you can find a friend like that... she's a keeper!}  Before I started selling calendars, I had worked for a brief stint at J.Crew.  I loved that job, but at $10 an hour, after paying taxes, arranging childcare, and purchasing a "retail sales wardrobe"... I was basically paying J.Crew to work for them.  I figured that paying my employees $10 was more than fair considering they can work in their pajamas, can bring their kids to work with them, can set their own schedule, and get to have a super-lot of fun doing it!

At first, I thought we would just keep track of Brooke's hours, and I would pay her $10 an hour.

The problem with that strategy was that we are often interrupted by children squabbling, or having to run to school for pick up, or a very important discussion of the latest One Tree Hill episode.

I needed a system that would be fair for both of us.

Now this is going to sound complicated and maybe a little overwhelming, but in the end this system has worked out fabulously for us.

I went through each step of the calendar-making process and determined how long it takes to complete.

I then assigned a dollar amount to that task, based on the notion that I would like to be paying the girls $10 an hour.  

For instance, putting tabs in the calendar takes about 12 minutes to complete, which means that in an hour one should be able to tab 5 calendars.  So "tabbing" is paid $2 per calendar.

Sometimes the girls are on fire, and can jam through their tasks super quickly.  There have been days that Brooke has made $30 an hour, which is fine because that just means that we have received enough orders to be able to pay her $30 an hour that day.  There are other days that work is slow, and we are more interested in chit chatting or eating, and the girls end up making only $5 or $6 an hour, but ultimately it evens out and ends up being fair for both of us.

One side note: I did end up giving the girls a little raise at Christmastime last year {and I do mean little}.  In addition to the money they earn for each task I now pay them $2 an hour.  I did this to help account for the times that they are doing a task {like preparing a package for shipping} that we have not assigned a dollar amount to.

3. What would a similar product cost at a local retailer?

This is kind of where the rubber meets the road for Hand Crafters.  The reality of handmade products is that they are more expensive to make, and therefore should be more expensive to purchase.  Unfortunately, some people just do not understand that concept.  Although I do believe that more and more people are willing to pay the extra cost to support small businesses these days, and those people will be your customers.

If you go to Staples you can purchase an 8.5" x 11" simple, plastic-covered Day Planner for about $20.  I sell my 8.5" x 11" blank Calendar Templates {which have a plain cover and no tabs or lettering on the months} for $28.  The Staples brand product has either week-at-a-glance or month-at-a-glance layouts, not both and uses a very cheap quality paper.  Mine include both week-at-a-glance and month-at-a-glance in one calendar and I use very high quality paper in my printing.  I also color code the holidays... a nice touch that you won't find at Staples.

You also won't find hand-decorated, hand-stamped, tabbed, personalized calendars at Staples.  But if you compare my fancy calendars to the closest match, like a bound Day Planner or something like the MomAgenda, they are very similar in cost.

However, let me emphasize... do not try to beat the local retailer's price!  Like I said before, a handmade product is more expensive to make and should therefore be more expensive to purchase.

The right customers will understand that.

The most important thing to keep in mind when determining your cost is:

Do not undersell yourself!

It makes me so sad to watch a Hand Crafter that is too busy to see straight and wondering where all their profit is going.  A good friend of mine told me once that she would rather have fewer clients that are willing to pay her higher prices than bargain pricing her products just to sell to the masses.

It was some of the best advice I ever got.

Lastly, remember that you can always change your price.  Do not think that just because you start out at one price means you have to keep selling your product at that same price.  You can raise or lower your price, depending on your circumstance.

When I first started selling invitations my minimum price per invite was $2.

I made no money.

Every few months I would raise my minimum price, until I finally came to an $8 minimum.

Now I actually make money selling invitations and the bonus is that I only get clients that really appreciate a quality, handmade product.