Alright! Are you ready for the last piece of the pricing puzzle?
wholesale/retail price + additional fees like those charged by paypal & etsy (and shipping and applicable taxes) = the price that a customer should pay
Etsy charges 3.5% off the top of each item I sell. There is also a $0.20 listing fee for each item (if I post 4 of the same items, there are 4 listing fees). A listing expires after three months.
Paypal charges 2.9% off the top of each item I sell.
This means that, if the listing price for a product is x, the amount that comes to me is y where y =0.936x – 0.20 (and perhaps minus another $0.20 if I have to list an item more than once.)
From that, I also pay $20.00 a year for my domain name, and about $10 a month for website hosting.
Shipping charges are added on top of the listing price. So far, establishing shipping feels a bit like a guessing game since the rates vary state to state, and go up exponentially for international shipping. For smallish, light packages, I have read that USPS is more cost effective than Fedex. I decided to price my shipping according to the USPS Flat Rate boxes even though I know that I can usually do a bit better sending it regular priority mail where the pricing is done according to weight and distance sent. Once I get a better handle on the system, I may be able to lower my rates. The guessing game starts all over again when customers buy multiples. I know it will cost less to ship them together than separate, but how much of a discount can I offer and still make sure that it covers my costs for every multiple purchase combination? Again, something I think I will get a better handle on as I do this more.
[As of today (June 7th, 2010) I admit I have absolutely no idea how taxes play in to all of this. That is something I still need to research.]
OK….so are you ready for the bottom line? When looking at the price I should charge, I calculated both the suggested retail/profit margin of 100% of the break-even cost (break-even cost x 2) and and a retail/profit margin of 50% of my break-even cost (break-even cost x 1.5). This gave me a range within which I felt my price should fall. I would really prefer not to let my retail/profit margin drop below 50 %.
Next I chose some numbers that I thought might work for prices and plugged them in (as x) in the formula y =0.936x – 0.20 . This told me if charging that price would keep my in the range I desired to be in after etsy and paypal took their cuts. Here are the crunched numbers:
Premium Playmat Purse
|Break-Even Cost||195.83||Break-Even Cost||59.38||Break-Even Cost||80.78|
|50% profit margin||293.75||50% profit margin||89.07||50% profit margin||121.17|
|100% profit margin||391.66||100% profit margin||118.76||100% profit margin||161.56|
|Etsy Price||350||Etsy Price||109||Etsy Price||139|
|“My” Share||327.40||“My” Share||101.82||“My” Share||129.90|
Remember that “My Share” covers web-hosting, my website domain, the break-even cost of production, future business expenses, growth, retail marketing, and promotions.
I hope seeing these figures helps you to understand why my items are priced as they are. I hope you do not feel like I am ripping you off. I am not looking to get rich with SnugasaBugBaby.com, although I DO hope to make a serious dent in my school debt and offer our family a bit of wiggle room between bills.
While I like formulas, figures, and calculated answers…this is, in reality, a process of trial-and-error. We’ll see how it goes. I know that these prices are too high for many of you. To be honest, they are too high for me. (Remember this post in which I compared the prices of diapers down to the fraction of a penny?) However, I constantly revert back to the fabulous wisdom of a good friend of mine when I gaulked at the high prices which hand-made items like mine often go for. I said, “I’d wouldn’t buy it at that price”…to which she replied, “you are not selling to yourself.”
If I see, after a few months that these prices just aren’t working (i.e. I am not getting any sales), I will–of course–try lowering them. I see this as a better problem than setting my prices too low and getting more sales than I can handle without adequate compensation, and then wanting to raise my prices. Others might see a flood of sales as a sign of success. I am not willing to stretch myself thin at the expense of time with my family under the guise that it is somehow for them. The truth is, I don’t want booming…I want to sell a few things here and there and make a fair profit doing so. My goal is to find the highest price that people are willing to pay. Am I starting to sound like a business woman? Good. Because that is what I am 🙂
Still, I have lots of ideas for future products which will bear significantly lower price tags.
- I want to design a diaper bag which takes less time for me to make (11.5 hours at $12 an hour is a significant chunk of the price tag which I believe I can cut). I have lots of ideas in my head for how to do this.
- I want to look into online venues for purchasing fabrics and see if I could buy materials at wholesale to cut down on materials costs.
- I want to make some smaller items like bibs and burp cloths which naturally cost less than big purses and bags.
- I want to experiment with different methods for all products which are faster and easier for me (and therefore cost less for you). I have a few ideas up my sleeve….like rolled hems on my serger instead of pressed ones, setting snaps instead of cutting and stitching velcro, eliminating the need for hand stitching with different designs, and NO ZIPPERS.
- Perhaps I could sell patterns for DIY-ers. One reason I don’t like to pay high prices for things is that I’m a Do-It-Yourself kind of gal and I’d rather, well, do it myself. For others like me, I could make it easy for them, and cut out almost all costs.
- Along the same line, I could sell DIY kits. I could send you everything you need to make this exact bag…but you wouldn’t have to pay me to do it. (Although there would hopefully be some takers on patterns and kits, I also think this would validate the higher price for those who would rather pay me to do it when they start to think about all of the work involved.)
What do you think? What would you like to see in my SnugasaBugBaby shop?
If you’ve been following all along…have you noticed any holes in my thinking for this whole pricing fiasco?
Thanks for sticking with me!
If you haven’t been in on this all along, here are the previous steps I have followed in setting my prices:
Adding in Fees: Establishing the Final Price (You are Here)