HINTS ON PRICING - Part II of III

In the last article - Part I of HINTS ON PRICING, you were learning to calculate "Real Cost" pricing. Here we cover how to calculate the cost factors of each individual item you produce.

Reading The Discipline of Strategic Pricing at the Strategic Pricing Group site will give you more insight into pricing strategies and why focusing on your customer is important.

PER ITEM CALCULATION

It is important to know the cost of each item you manufacture to arrive at a profitable price. The following shows how to arrive at a calculated cost for each element:

COST OF TIME

To calculate for one item, time yourself while constructing five or ten "like" items through the full process. Divide the time by number made to find the time spent making one item.

POSTAGE/DELIVERY COSTS

If you buy a dozen wood cut-outs, pay $1.40 for shipping and handling; each item costs an additional twelve cents to make.

MATERIALS COST

Each item must be assigned a "materials cost" figure. Keep track of and count all paint, wood, ribbon, glue, etc.

COST OF SELLING

Cost of time must also be figured into the per item price. For example: time spent selling at craft shows, time used to travel, to set up and tear down a booth, plus the total hours spent at a show.

INDIRECT COSTS

There are indirect costs not figured as a part of manufacturing costs. These are: rent, utilities, advertising costs, booth rent, business cards, gasoline, or loan interest - the daily costs of running your business.

For more help, read an article in Crafts Report Price Points to Profits by Paul Gebhards. He describes more on pricing terms and concepts.

PRICING USING PSYCHOLOGY

Another tip: when buying an item, would you rather pay:

• $14.99 or $15
• $59.99 or $60
• $99.99 or $100

There is a psychology to pricing and pricing at even zero cents is not wise. One penny less than a whole amount "sounds" less expensive.

Many customers are collectors looking for that unique piece to add to the collection at home; a collection that fits an emotional need. Again - they are looking for quality and value that fits with what they are "feeling."

The colors of your items can also affect the selling price. When you use "in" colors, the customer is willing to pay more to be current with the trends.

WHOLESALE PRICING

A retail price should be calculated before determining a wholesale price. A wholesale price that will give you a profit can be calculated with the formula:

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