You're probably making at least one of these five handmade product pricing
mistakes that can cost you sales,
attract the wrong customers to you and maybe even cause you to go out of
business.
So keep watching so you can fix your product pricing and avoid all of that nasty
stuff from happening. Hey,
my name is may and I help makers,
artists and designers create a consistent income selling their handmade products
online.
The first mistake is when you don't use a pricing formula.
I believe every PO price needs to follow a two step process.
The first step is you need to follow a formula.
My formula is taking your materials costs at your time spent making your
products,
then multiply by two that gives you your wholesale price and take your wholesale
price and multiply by two again to get your retail price. Now,
even if you never sell wholesale,
it's healthy to include it any way and what that does is adds an extra layer of
profit for your business that keeps you sustainable.
Sustainable to me means paying you the right amount of money for every sale you
make so that you stay in business for longer cause that's the goal, right?
You want to stay in this for the longterm, right?
If you need more information about that product pricing formula,
go and watch my other video talking about this.
So your PO price needs to start with a formula and then once you have a number,
the second step is tweaking it to account for the more art side of pricing.
Like considering the value your product gets to your customers,
where you want to position yourself in your market or niche and among your
competitors and your product.
Pricing tells a story about what your product is like.
If you want to learn more about what I just said,
I have another separate video talking more about the art of pricing that you
might not be considering,
but that you need to in order to price your products at an optimal number.
But at the start of it, your pricing starts with a formula.
If you don't start with that,
you're not going to have a number that properly accounts for your costs,
time spent making your products or your other business expenses,
not to mention your business profit.
You also won't have a number that will sustain you or your business.
So even if you never ended up using the number for your price that a formula
gives you, it's a good starting off point.
Don't use just gut or intuition in the beginning. Start with fact first.
And don't just go and price your products at around the same or lower price than
what other people are doing with similar products because it's very likely that
they're not even pricing their products correctly.
And it's also often like comparing apples to oranges,
your competitors and other shops selling similar products as you aren't getting
their supplies and materials from the same shops as you.
They don't have the same process as you.
They don't take the same amount of time as you to make their products.
Now the second mistake I see people make is not marking up their product enough.
So I just talked about my pricing formula, right?
And remember how we talked materials, cost and labor.
Multiply that by two to get wholesale and take wholesale and again multiply by
two to get your retail price. We multiplied by two twice,
right? In other words, to simplify that, we are taking materials,
costs and labor and multiplying that by four. Let's use an example,
so say you make jewelry and your material costs are $10 and it took you an hour
to make a necklace and you decided your hourly rate to make the products is $20
that's $30 total costs that you then multiply by four to get to $120 retail
price. That is the price you charge your end customer.
That might sound like it's too much,
but this is healthy pricing when you don't Mark up your prices enough like the
mistake I see many people make is just marking up their products by two which in
this case means selling your necklace for $60 it sets your business up for a lot
of struggle.
There's a few reasons why I encourage marking up by at least four times.
The first is because it takes a lot of money to run your business and I get that
you want to charge less for your products because you think that lower prices
means more sales, but that's not even necessarily true.
Customers have learned to subconsciously equate lower prices with lesser quality
and they're less likely to buy.
So you need healthy profits coming in from every sale to keep your business
running. Number two,
it costs money to make sales and if it's not money in terms of your time spent
promoting on social media or reaching up to magazines or influencers,
it's money in terms of real money where you're spending on ads to acquire a
customer. There is no such thing as a free sale.
You have to work for that sale and you can't afford to not be paid for that
time. Number three, if you don't Mark up enough, it's just not sustainable.
Like I said before,
we didn't just start a business only to let it die a few months later.
Many of us who go into business for ourselves are doing it for
the longterm for years. Right,
and a lot of us have a goal or dream to quit our jobs and have our businesses
support us financially completely. If you want to get to that point,
if that's your goal,
you must Mark your prices up accordingly because it costs money to make sales
because it's expensive to run a business.
You will get burnt out so quickly or go bust really quickly when your prices
aren't marked up by at least that four times.
If you're enjoying this video and if you are finding this helpful,
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on YouTube and I thank you for doing that. All right,
moving on to mistake number three,
which might be a little bit of a doozy for you to follow,
but just try and stick with me, okay. Because when you get this,
this will open like a whole new perspective on your product pricing that you may
not even be aware of and might actually help you lower your product pricing a
little bit and I know that you might be thinking like, okay,
may you just said keep your product pricing high and now I'm saying to price
your products low, well, it's a balance, right?
Ultimately you want to price your products appropriately.
That means not too high but high enough to pay you in your business and to
sustain it in the longterm,
but also low enough that you're not turning away most of your customers who want
to buy from you but not too low that you start looking like a discount shop.
So remember my formula when you think about it,
as long as you are the person in your business making your products and you
haven't hired it out to someone else like I have,
I have a team of three people making jewelry for me.
You actually get paid twice.
The first time you get paid is as a tradesman for your time to make your
product.
That's the first part of the formula when we took materials cost plus your
labor, which is your time spent making that item right?
The second time you get paid is as a business owner through your profits,
when you multiplied your costs and time by for taking our previous example,
you got paid at $20 for your time spent as a tradesman and then you got paid $90
in profits as a business owner. Of course,
since it all goes into the same pocket, your pocket,
you can total that up and you've got $110 that you made from selling a $120
necklace where your materials costs was $10 so the mistake people make is
thinking that they only get paid once as a tradesman.
So when they hear that they're getting paid $20 for the sale,
it doesn't sound good, right?
So then people want to increase that hourly rate to something like $30 the
problem with that is when you use the formula,
now your product retail price is $160 that's $40 more than when you set your
hourly rate to $20 and I get that the motivation lies in wanting to get paid a
decent hourly rate, right? Because you have years of experience with your craft.
You maybe even have an education in it, you're good at doing it,
and maybe no one else can do what you do. And I agree with all of that.
You should get paid well for your products.
The mistake is in thinking that you only get paid once in reality,
you get paid a whole lot more and a bigger chunk of your pay comes from your
profits, not from your wage as a tradesman,
you are a business owner now, not just a crafter. Okay?
So my recommendation actually is to lower your hourly rate so that you can in
effect lower your retail price.
So let's say we use $10 as your hourly labor rate.
That's $20 cost to make your necklace multiply by four and now you've got a
retail price of $80 that's a lot more affordable than 120 or $160 necklace.
Right? But it's not too cheap.
So it puts you in a sweet spot for both your customer and you because you're
still getting paid a total of $70 when you sell that necklace.
The fourth mistake, I kind of touched on this a little bit earlier,
but stop thinking that cheaper pricing equals more sales.
That is absolutely not true. So across the board,
in all of my businesses when I started them,
I always priced really low at first because I didn't have confidence in my
products or services, and it's not because they weren't any good,
but because I didn't realize that other people valued what I created.
I talk about this in my salad a course a lot actually,
but your product pricing is so tied to a confidence. Anyway.
My businesses did not make more sales during the time I priced my stuff for
less. In fact, when I increased prices,
not only did I start making more sales, but I was more profitable.
I have more money in my pocket, which made it easier for me to get more sales.
Because remember, as I said before, it costs money to make money.
It costs time or money to make sales. Sales aren't free.
And I also was able to attract better customers that I loved working with so
much more and who respected me.
And just overall the relationship is so much more positive and healthier than
when I was serving customers who only bought from me because I was the cheaper
option. There's no loyalty in that. There's no relationship.
So I actually have a challenge for you today.
After you watch this video,
you should have a better sense for how to price your products better, right?
And it's likely you'll have to increase your prices because most people I find
don't charge enough, so it's going to be scary.
But I want you to increase your prices.
Now you may not see an instant increase in sales right away because all this
time you've been attracting an audience that expected a certain lower price
point from you,
but over time you will see that you will make more money or you'll be more
profitable in the long run.
Mistake number five is using costs alone as a basis for pricing.
This goes back to the first mistake.
There are two steps to pricing your products.
The first step is following a formula which is essentially using costs as a
basis for pricing,
but the mistake people make is even if they follow a formula,
they aren't doing the second step,
which is accounting for the value that your products give to your customers.
The position you want to put yourself in your market,
whether your products are in high demand and low supply,
these are all other factors that can influence the lowering or increasing of
your price.
If you have customers that really value and love your products and it's so
meaningful to them, you can afford it to increase your prices,
to reflect how much your products help them and the value it them.
Or maybe you decide you want to be priced super affordably because you want to
be competitive in the market, then you can lower your prices of it.
If you're the only one in your market doing what you do and you're overwhelmed
with orders and you can't keep up, that is a really good time to raise prices.
There is nothing wrong with any of that.
Increasing or lowering your prices are both legit strategies that can work
really well depending on your goals.
So don't make the mistake of pricing or products just based on the numeric
materials, cost and time spent to make your products.