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Pricing Like A Pro



Why you should price like a pro

You're a business, so you're selling something to make money.

Whether providing a product or a service, there will be an amount of money that you will receive in exchange for it.

Since running my own small business, I’ve seen so many products that are not priced correctly and usually it's that they're too cheap. 

As well as undervaluing their skill or product, it also means that those businesses are missing out on sales and, more importantly, profit. 

And, if you don't make a profit, then you can't run a sustainable business. 
 

thinking about your own business, are your products or services priced like a pro? (be honest!)


What was your answer?

For many, the biggest fear is that it will look too expensive and no one will buy it, that their product isn't worth that much. I've fallen into that camp of self-doubt.

But it can work the other way too.
I've seen a product fail online because it was perceived as cheap by the customer.
Without being able to see the fantastic value until they had committed to buying it, then received it, they decided the cheap price = cheap quality.

Still confused? Yeah, I would be too.

Want to know how you achieve that elusive 'right price'?

Oh go on then, I'll tell you.


5 steps to the right price

There are 5 steps to calculating price:

& one sanity check:

I'll walk you through each element and show you some examples.

Want to calculate it simply & effectively?
Skip straight to the Pricing Calculator.


Product CostS

Stage One.
List out ALL of the materials you use to make a product and their costs.
Costs include the materials AND any fees attached to their delivery,
e.g. Shipping cost, taxes for import.

So for each product ask yourself some questions, for example: 

  • How much fabric did I use to make that cushion?

  • How much ink did I use for my print?

  • How much was the packaging?


+ HERE'S A HANDY EXAMPLE

To make my cushion I need:

  • Fabric (2m @ £10 per metre) + £2.95 Shipping Cost = £22.95
  • Pom Pom Trim (3.5m @ £3 per metre) = £10.50
  • Thread (4m @ £2 for 10m) = £0.80
  • Cushion Pad = £4.50
  • Packaging for delivery to the customer = £0.50

So £39.25 is the total PRODUCT COST of your cushion.


Production Time

Time is always really controversial. 

I see so many products that are obviously priced WITHOUT taking into account the HOURS that were spent creating them.

But it is key.
Just because this is your business, doesn't mean you should be working for free.
Would you expect someone to fix your tap without charging you for their time?

Think about your hourly rate; how much would you pay someone else to make your product? Are you paying yourself at least the National Minimum Wage (in the UK) of £7.83? 

Time (pardon the pun), to factor it in.
(Lecture over).


+ HERE'S A HANDY EXAMPLE

It takes me 2 hours to make my cushion.
My hourly rate is £10 per hour.

So £20.00 is the PRODUCTION TIME cost for my cushion.


 

Overheads

Overheads are the costs of running your business.
They are the supporting elements which allow you to deliver your product or service.

They will include costs such as:

  • Rent (if you have an office space, for example)

  • Utility bills, (gas, electricity, phone)

  • Office (website costs, software, accounting, receptionist)

  • Marketing

  • Research

  • Equipment & depreciation

  • Maintenance

  • Travel & Entertainment

In a 'true' pricing calculation, you should add an overhead 'cost' to each product you make.

To do this, add together all of your business costs & divide them by the number of sales you'll make in the same time. You now have a cost per product.

If you're starting out, take a view on how many products you can make during your available working hours & how many you will sell.
 


+ HERE'S A HANDY EXAMPLE

  • Rent:
    £700 per month
  • Utility Bills:
    £200 per month
  • Accountancy Fees:
    £360 per year (£30 per month)
  • Marketing:
    £10 per month
  • Website Costs:
    £18 per month

Want to see how to refine this further by calculating your overhead percentage per product?

You'll find some bonus Insight when you buy your Flourish Pricing Calculator.


It is essential to understand overheads. So you can make the right decision for your business, there is a FREE Overheads calculator included when you buy the Flourish Pricing Calculator.
Add up all of your costs and see what the impact would be on your selling price.
Review it against your competition and decide if you want to include it in your pricing model.


Profit margin

It's the 'P' word again, and it's an important one.

Why?

There’s no point in selling something for £20 if you’ve slaved over it for 6 hours, spent £15 on components and ended up with no profit in your pocket.

Remember, Sales are Vanity, Profit is Sanity.


+ HERE'S A HANDY EXAMPLE

I've calculated three of the elements of price for my cushion:

Product Cost: £39.25
Production Cost: £20.00
Overheads: £15.97

So £75.22 is the TOTAL COST of the cushion.

I've decided that I want to make a 20% profit, so now I can work out how much I need to sell it for.

£75.22 / 80% (100% - 20% required margin) = £94.03

So £94.03 is my SELLING PRICE.

I like round numbers, so i'll sell it for £94.

My CASH PROFIT is £18.78 (£94 selling price - £75.22 cost price).


FEES

Fees can be broken down into two types:

SELLING PLATFORM FEES
These are what you pay when you sell through a third party
(e.g. Etsy, Notonthehighstreet, eBay).
The platform usually takes a percentage of your total selling price (this may also include your postage cost).

TRANSACTION FEES
What you will pay if you use a payment provider (e.g. PayPal, Stripe, iZettle).
Again, this will usually be a percentage of your total selling price (so may include your postage cost).

Fees are where it gets interesting and is why I built the Pricing Calculator.

Because of course, there aren't standard percentage fees for all platforms, or all payment providers.

So what does that mean?


+ HERE'S A HANDY EXAMPLE

You've calculated the selling price of your cushion:

£94

I'm going to sell it on Etsy, eBay and Notonthehighstreet (NOTHS).
The postage cost is £3.45.
So my TOTAL COST is £97.45.

My fees for selling my product will be:

  • Etsy
    5% of total cost + £0.13 listing fee
    = £4.83
  • eBay + PayPal
    10% of total cost +£0.10 listing fee
    2.9% of total cost + £0.20
    = £12.87
  • Notonthehighstreet (NOTHS)
    25% of selling price
    = £23.50

That means my total income (excluding the postage) will be
(Selling Price (£94) - Fees):

  • Etsy = £89.17
  • eBay = £81.13
  • NOTHS = £70.50

Oh.
That's a bit of a difference.
What does it do to my profit?

(Selling Price - Cost Price - Fees)

  • Etsy
    +£13.95
    +16%
  • eBay
    +£5.91
    +6%
  • NOTHS
    -£4.72
    -5%

Eeek.
That's not the 20% profit I wanted.

How do I get back to that elusive 20% AND keep my prices the same across all my platforms?

I'll show you.


You have to add the fees into your Selling Price.

As the 4th element of pricing, it is essential to include, as it impacts your profit.

But hang on, if I increase the selling price, then my fee percentage will increase.
Hmm.

That means I have to add the fees into my selling price, then recalculate my fees, then see what the margin is, then maybe add a bit more, or take a bit off and....repeat.
Oh.

OR you could use your FLOURISH PRICING CALCULATOR to work it out for you.
(*It uses a fancy formula to take out the hard work and save you time. Winning!)

Alas, there's no way of making all of the fees flat, so there WILL be a difference if you sell on more than one platform / use different payment providers.

BUT, if you use the fixed selling price calculator (included for FREE!), you can compare up to four different combinations and see what your cash and percentage profits will be.
Making sure you aren't out of pocket.
Phew.


I would advise that you generate your selling price based on your main platform.

For example:

My main selling platform is Etsy, but I also sell on NOTHS.
I set my selling price on NOTHS to break even or make a small profit.
On Etsy, the same selling price will give me a profit margin of OVER 20%.
Why? Because of the difference in fee percentages.

Platforms are an added complication. Please do ask me if you need any help!


Competition

You've done a brilliant job getting all of the 5 elements calculated, and now you have your perfect selling price. Hoorah!

There's one final 'sanity check' which you should always consider.

Competition.

Understand where your product sits in the market. Is it a premium product, with a Unique Selling Point (USP) or an entry price product offering great value to the customer?

Based on this, look at comparable products.
Who are your competitors? What do they charge?
Are they undercharging for their product or skill (which you'll now be able to spot at 10 paces), but if not, is the selling price similar to yours, or much more?
Remember what I said earlier, cheaper isn't always best!

  • Reviewing your competition is an ongoing exercise.
    You need to keep a watchful eye on your sales, competitors, and customers to stay one step ahead.


+ HERE'S A HANDY EXAMPLE

When I looked at the pricing for my Baby Mobile Kits, I did the exercise you've just worked through. I also looked at other comparable products.

What did I find?
There were some similar products, but no one else was offering an all-in-one, PRE-CUT kit, (no faffing with scissors and templates), with the right amounts of thread, stuffing and accessories.
This check showed that the selling price I had calculated was the right one for the product, even though it was a little more.

What if it had looked expensive?
I would have had to look at either saving costs (materials or time), or consider taking a hit on my profit margin.

What if it had looked REALLY expensive & I couldn't sell it for less?
This is a good test to see if it is worth selling that product.
If it isn't going to generate enough profit, then perhaps you have to walk away.
OR, you can look at the benefits of Range Planning to see if overall you can balance a lower margin with a higher one.


The quickest & smartest way to get the
right price for you

Now you understand the 5 steps that you need to get to the right price,
would you like to see the quickest way to calculate it?

Thought so.