Very quick ‘bloggette’ this week as we’re going to build on a few of these elements over the next few weeks – there’s some homework at the end!
We often hear about Costing our products and the Price of our products but do you know the difference?
In its most simplistic the difference is this:
Cost = cost of materials + cost of overheads + cost of time (hourly rate * number of hours taken) + delivery to customer (if this isn’t a separate charge).
Price = Cost + margin or mark-up.
Two common misconceptions are:
- Your hourly rate is your profit – not true!
- Your margin is your profit – also not true!
- Your hourly rate is your wage not a business profit. Your wage is based on the amount you need to live on, divided by the number of hours you actually work producing items (not doing admin!) – bearing in mind the latest minimum wage, you need to pay yourself at least this amount!
- Your margin needs to cover reinvestment into the business, marketing, commissions paid to stores/galleries etc.
Here are a two ‘golden rules’ to Costing and Pricing
Your Cost price is your information
Do not discuss it with retailers etc. as they may (in 90% of cases) try to reduce your price to get nearer to this figure to earn more profit for them! – remember your cost has zero profit for you and if you sell at this price it means you can’t invest in your business!!
You can have many different Price points
- Wholesale or Trade Price – this is the price you sell to retailers at, bear in mind they usually want to at least double their money as they have overheads too.
- Gallery Price – this may be your trade price PLUS the commission percentage charged by the gallery.
- Retail Price – this is the price you want your retailers to sell at – therefore bearing in mind point a. it needs to be at least double the Trade price. This is also the price you sell on your website so that you don’t undercut your retailers – it gives you a higher margin and enables you to make special offers etc.
We’ll get into a bigger discussion on the whole area of pricing and market pricing in the next few weeks – it can be quite a heavy subject!!
Take a look at some of your items and see what your costing and pricing amounts are. How do they compare with what you’re currently charging?
Do what you love and be kind to yourself.