Do you struggle with coming up for prices for your products? Not sure how to charge what you are worth and make a profit. The perfect pricing strategy include 3 major elements: cost, your rate, and profit. To grow a successful business you need to make a profit that is just for your business this should be the last figure in the pricing equation. Go ahead and tell me right now what are comfortable with 20%? If you are a new business you may find it hard to justify more but at least give your business a 20% profit margin- this is where you be able to fund future expansions. And claim you have a net worth of $X.
Now you need to calculate what your hourly rate should be. This may vary based on the specific project you are working on but you need definite numbers if you are going to properly price your products. Let’s say all you do is one thing and you want to see $20 an hour. This is very modest rate and you may see yourself worth much more- than be sure to reflect in your rate.
Next you will need to break down your costs- this is much more than per product. This needs to include your overhead costs as well. Let’s say that you spend $20 a month on advertising, $10 on hosting your website. This is assuming that you do not pay rent on the space you are using and do not use major tools. If you do you need to factor those into your monthly overhead rate also.
Next is the breakdown of your supplies for each product- be exact. Down to every pin and button. All of those little things do come with price tags- you to account for everything to have a fair and accurate price.
Now let’s put the numbers together.
Product costs: 10/product
Overhead: 30/month or 7.5/ standard 40 hour work week
Let’s say that you create 10 products per month and spend 40 hours.
10 products x $10 = $100
40 hours x $20 = $800
Overhead = $7.5
Profit = 20%
$100+$800+7.5= $907.5 x .2= $181.5
$907.5+$181.5= $1089/10 products
You need to be charging $108.9 per product
Again this is a very modest number but it guarantees that you will be paid and your business will be paid. I know that for many small business owners, especially crafters, they have a very difficult time charging what they are really worth and end up not making a profit. While doing what you love is great, if you are not making enough to keep the lights on then you will have to find something else to do to supplement your income and your passion will be the one that suffers in the end.