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New year, new mentality! Cutting for Business readers, before we get this year rolling we need to have a heart to heart talk about pricing. Specifically, why your prices don’t have to be the cheapest.
5 Reasons Your Prices Don’t Have to Be Cheapest
- Does a cheap price mean a cheap product? It may or may not surprise you that studies have shown that many buyers equate cheap prices with inferior materials or lack of experience. If you are using high quality materials and you have experience making the product – price it accordingly.
- Work smarter, not harder. To explain this, let’s use an example:
- Sally and Betty both make tee shirts using heat transfer material. One of their designs is similar and they are both selling them on Etsy. Additionally, it takes both Sally and Betty 1 hour to complete the shirt from designing to packaging. Sally is charging $10 for the tee shirt and Betty is charging $15.
- For a net income of $200, Sally has to sell 20 shirts and invest 20 hours of labor. For Betty, she’s made the same profit after only 14 shirts and 14 hours of labor (it’s actually 13.3 shirts). Who would you rather be in this situation: Sally or Betty?
- Sally and Betty both make tee shirts using heat transfer material. One of their designs is similar and they are both selling them on Etsy. Additionally, it takes both Sally and Betty 1 hour to complete the shirt from designing to packaging. Sally is charging $10 for the tee shirt and Betty is charging $15.
- You don’t know what their supplies cost. You can’t compare your product pricing ‘apples to apples’ or ‘oranges to oranges’ because you don’t know what the other small business paid for the supplies. Perhaps, another business bought a large amount of supplies in bulk or has a deal with a supplier and paid much less than you. Or, maybe the crafter with the lower price has struggled selling the product and has a lot of supplies on hand. They could be trying to discount the product to recoup the money they’ve already spent.
- You don’t know their pricing strategy. Selling at or below your cost for an item is often used as a promotional strategy. If it doesn’t take long to create an item, some sellers will sell their items at near their cost to gain publicity, especially on social media. By gaining new social media followers, they ultimately gain more customers to purchase other items they are selling.
- Consider the long term. Anyone can beat your prices temporarily – for weeks or months. However, those that are in it for the long term will burn out if they aren’t making a decent profit. Let’s look at one more example:
- Sue and Jane both sell painted wood signs with similar designs on them. It takes Sue and Jane both 2 hours to complete a sign from design to packaging.
- Sue sells her signs for $36 and they cost $12 to make. Jane sells her signs for $48 and they cost $12 to make. Sue’s net income per sign is $24; while Jane’s net income is $36. In a particular week, Sue and Jane both sell 20 signs and work 40 hours.
- Sue has brought in $720 for a net profit of $480. Sue is working for $12 an hour.
- Jane has brought in $960 for a net profit of $720. Jane is working for $18 an hour.
- At this pace, Sue brings in $24,960 a year; while Jane brings in $37,440 a year. In the long run, it’s smarter to be Jane.
- Sue sells her signs for $36 and they cost $12 to make. Jane sells her signs for $48 and they cost $12 to make. Sue’s net income per sign is $24; while Jane’s net income is $36. In a particular week, Sue and Jane both sell 20 signs and work 40 hours.
- Sue and Jane both sell painted wood signs with similar designs on them. It takes Sue and Jane both 2 hours to complete a sign from design to packaging.
This year, I want you to make it your goal to stop obsessing over the prices that other craft businesses charge. Instead, set your own goals and stick with them. Need help pricing your handmade items? See this post.
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