|
Pricing Your Product ::
Determining the cost of your product:::
The first question that you should ask is;
Aside from the enjoyment, will this be your
livelihood or a hobby? If it's your livelihood,
the monetary return certainly needs to be
greater. First thing to determine is what it is
you expect to earn for a salary. On top of
this, you would add the cost of medical
coverage, personal life insurance and maybe
even a few dollars for retirement. Add to this
your operation cost. This would be comprised of
cost of your working space, (mortgage or rent,
insurance, property taxes and maintenance)
heating, lighting, electric usage and tools
(purchase, repair, replacement). This total is
what needs to be attached to each product you
produce. A formula that some use would be to
take this yearly cost, divide by 52 weeks time
40 hours and use this as an hourly rate. Next
time you stop at an auto repair center and see
the $40 or $45 dollar an hour rate, you'll
have a better feel for why it's that high. Now
that you know your hourly rate, track how many
hours it takes to complete a project, add to
this the cost of the materials you have
consumed and you now have a cost per unit. If
this is a hobby and overhead costs are not a
factor, determine what you feel your time is
worth, add to it the cost of materials and you
have a unit price.
How to sell your product:::
There are a number of options here;
Direct Sales; Wholesale; Craft Shows;
Consignment; Space Rental.
Direct Sales is where you opt to sell
your products in your own shop. Here you would
need to consider the cost of space, with the
usual overhead costs. In addition, you need to
consider costs for advertising, display,
customer service, (packaging, delivery etc.)
and the fact that time spent selling, is time
that you're not spending creating your product.
Wholesale is where you sell your product to
either a retail establishment directly or to a
middle man who will do it for you. If you
wholesale directly to the retailer, you will
still be involved in the selling transaction.
This is time you won't be spending making
product so don't forget to consider this cost
in your final cost. The typical retailer, will
double the wholesale cost to establish the
retail cost. Some retailers are now starting to
use a 2.2 and even a 2.3 multiplier, to
establish retail cost. You now have to ask
yourself, will your product have a market at
this price? The other option is to sell to a
wholesaler. This has the advantage of keeping
you out of the selling game. The wholesaler
typically has a broad network of outlets at
his disposal to provide a broader market for
your product. This service comes with cost to
the tune of an additional cost to your product
which in turn raises the cost to the retailer.
Again the question is; Will the final cost of
your product put it out of the market, which in
turn makes it undesirable to wholesaler and
retailer outlets.
Craft Shows is another avenue where you
are your own retailer. This can appear
lucrative in that there doesn't appear to be
any additional product costs. What you sell it
for, you keep. You need to consider in the cost
of your product; Cost of the booth; Set up and
tear down time; transportation costs as well as
the number of hours you will be at the booth.
Again, time at the booth is time you are not
using to create product.
Consignment is where a retail outlet
will sell your product for a percentage of the
sale price. The percentage that the average
retailer takes is 50% on average with many
shops now moving into the 60% range. Fewer
retailers are willing to get involved in this
type of operation however, due to the
administrative costs. In addition what happens
is the person making the product will sometimes
be in a show, and the show price will undercut
the price in the retail store. This puts the
retailer in an position of justifying their
price and makes the integrity of the product
offering suspect to the consumer. Consignment
has it's advantages. For the retailer, they
aren't laying out dollars for inventory. For
the producer, it provides them an outlet for
their product that they might not have gotten
otherwise, if the product isn't established,
with a proven sales record. The consignment fee
provides the incentive for the retailer to want
to sell the product. The fee covers the
retailer for the expenses of overhead etc.
associated with retailing a product. Again
instead of trying to sell your product, you can
spend time making it.
Space Rental is where you rent a space
in a retail outlet. The space is charged by the
square foot. This translates to a monthly fee
to the storeowner for the space you are using
to sell the product. If you have confidence in
your product's sales ability this method has
it's advantages. Your sales cost become fixed
(monthly fee) and all income above that comes
to you directly. The retailers incentive is to
keep you renting space and it's not directly
related to how much of your product gets sold.
Again your cost becomes fixed. You pay your fee
independent of selling anything. This minimizes
liability for the retailer because their
operating costs will be met independent of
product sales.
Summary::
There are a number of sales options.
You need to decide what's the best one for
your product and financial needs. The tough
questions that need to be asked are; Will your
product bear the price you need to ask? Can you
afford to sell your product for what the market
will bear? If you answer no to either one, you
need to decide on what it is you're going to
change and should you maybe change your product
offering, to something you can produce with
lower costs.
More information::
Woodshop News
is a great source of information on the
business end of woodworking. It's filled with
information on the major craft shows as well as
what's hot and what's not on the retail market.
The Crafts Report
is an excellent source of information an all
craft mediums. It answers questions from both a
retailer and producer level.
Woodworkers Journal
Not only an excellent
source of shop tips but information from Master
Craftsmen as well. |
