By Toni Hetrick

If you are looking to run a successful business then you want to make sure that you are valuing your business appropriately.  It’s a common mistake to get caught up in the excitement of starting a business, and forget to sit down and really do your homework before diving in, head first.  It’s truly necessary to whip out the calculator and determine as accurately as possible what your total expenses are, in order to price a product for sale.  In the simplest of terms you want to make sure that you are turning a profit.  Remember your goal is creating a business, not funding a hobby.

You may have a natural business sense and find this post a little dull, but many people struggle with this for various reasons.  There are many people out there that fall in love with a business concept and don’t actually sit down to do the math to ensure they are pricing their products appropriately.  There is an overwhelming amount of information to research when starting a business, because of that, let’s look at a small scale business idea.   Imagine this scenario…..Sandy starts making jewelry.  Initially she makes some for herself and a few friends.  Before she knows it, she’s getting compliments everywhere she goes.  She can’t believe how people LOVE her jewelry.  Many admirers tell her she should sell her jewelry.  She’s quickly swayed into thinking this could be a lucrative business.  She rushes to the local craft store, stocks up on supplies and gets to crafting.  Sandy is filled with excitement and pride that people actually want to wear the jewelry she is making.  She takes a bundle of freshly made jewelry into work, her coworkers flock in like a pack of hangry seagulls.  The next thing she knows she’s overwhelmed by questions of, “how much for this one”, “oh and how much for these”.  She quickly answers $5.  In her mind she’s thinking it didn’t take her that long to make and that $5 is a fair price.  When in reality she has no idea how much it actually cost to make that specific bracelet.

Sandy may be fine with that price point, or she may have just made a mistake that is rather hard to recover from.  My suggestion is to try to contain that excitement and research before, like Sandy, you start quoting prices.  That research would include several aspects, but for the purpose of this post we’ll focus on pricing.  Unfortunately there is no one method on how to price products.  Personally I feel the most important task is to know your costs.  By costs, I mean the cost of ALL materials and labor, basically everything it took to make that product.  To break that down even further, if you are making a beaded bracelet you should figure out how many beads come in the pack and then how many beads it takes to make each bracelet. Use that to calculate the cost of each individual bracelet.

Next is a very difficult part, determining what you feel you need to make from that product.  Keep in mind, you may not make a huge profit off of one single item, and the profit will vary from one product to the next.  Sandy may have spent $100 total at the craft store on supplies.  She’s not going to make that $100 back on one piece of jewelry, but she will need to look at each piece of jewelry the amount of materials used to help determine a price for each and every item.  By the time she is done there should be a profit on that total $100 spent.  Depending on the type of product you make there is a reality that some things you just can’t recoup financially on the amount of time it takes to produce an item (EX: Quilting, Knitting, etc.).

While researching, get to know your competition.  Chances are, unless you offer something that NO ONE else does, your customers will compare pricing with the competition before purchasing.  You also need to have a good feel for the market in your area.  In some places, the market is much higher and you’ll see items selling for considerably higher prices than what you can seem to sell for in your area.  There’s definitely a learning curve with this.  You may need to adjust as time goes on, but it’s a fine line to walk.  You don’t want to undercut your prices and take a loss from the beginning, but you also don’t want to be so overpriced that people are steered away from your company for good.  Fortunately in today’s age it’s possible to do a little market research easily on social media for FREE.  You could always post examples of some of your products and ask or take a survey asking if people would feel comfortable paying however much for it.  This should help to some degree. 

I also want to caution you as far as offering discounts to people.  It’s very tempting to do, but I say BEWARE!!  If you sell someone an item at “cost”, or even take a loss on the item just to be nice, many times they will expect to get everything at that price and for all eternity.  You might be ok with that, and that’s completely fine.  I just offer cautionary advice because it can get overwhelming and it’s really hard to then raise prices and have to explain why later on.  Believe it or not, even close friends or family members can get huffy when they suddenly are expected to pay for something.  Crazy I know, but I’ve heard so many people complain about this.

I’m sure your head is spinning at the thought of all this.  Just know that you aren’t alone.  We’ve all been there.  If you have any questions feel free to comment below, or send an email.  If you liked this post please click the little heart below to show some love.  As always thank you for visiting the website.