You have developed an amazing product - You have picked your business name - You are ready to sell... Or are you??
Pricing retail items that you have created is not an easy thing to do, but there is a strategy to help! The first thing you need to do. it break down how much each item costs you to make. You do this by breaking down your costs per component. My advice is to get a journal and write each component like this:
Components for A Candle:
- Soy Wax
- Essential Oil Blend
- Colourants - Label - Warning Sticker - Any Other Additives - Box - Bag
Once you have broken down everything to make the product, you can start writing down the costs (This is not my. actual cost chart for my business, it is just an example):
Components for A Candle:
- 8oz Soy Wax ($185 *including shipping* per 45lb)
- 0.64oz Essential Oil Blend ($3.75/oz)
- Colourants ($12/oz) - Label ($24/100 Sheets) - Warning Sticker ($11/500 Stickers) - Box ($17/100 Boxes) - Bag ($108/200 Bags)
Once you know what these items cost to purchase you can break it down further to get your cost on each amount you actually used to create one product. Also, I like to add my shipping costs to my most expensive item to ensure that it is accounted for in my price breakdown.
If you have any trouble doing the math in the next section please DM me I will be happy to help you with it at this step.
Components for A Candle:
- 8oz Soy Wax ($185 *including shipping* per 45lb) = 45lb x 16oz = 720oz in a Box = $185/720oz = $0.26 per oz = $0.26 x 8oz = Cost of $2.08 Per Candle
- 0.64oz Essential Oil Blend ($3.75/oz) = $3.75 x 0.64oz = $2.40 Per Candle
- 5 Drops of Colourants ($12/oz) = $12 / 591 Drops in 1oz Bottle = $0.02/Drop = $0.02x5 = $0.10 Per Candle - Label ($24/100 Sheets) = $24 / 100 Sheets = 0.24 / 36 Labels Per Sheet = $0.006 Per Candle - Warning Sticker ($11/500 Stickers) = $11 / 500 Stickers = $0.02 Per Candle - Box ($17/100 Boxes) = $17 / 100 Boxes = $0.17 Per Box - Bag ($108/200 Bags) = $108 / 200 Bags = $0.54 Per Bag
Total: 2.08 + 2.40 + 0.10 + 0.006 + 0.02 + 0.17 + 0.54 = $5.31 Cost Per Candle
Now that you know what it costs you in materials to actually make and sell your product you can use this number to come up with a fair price point. In most cases you will want to take your costs and multiply it by 3 or 4 times. In our example if we were to multiply these candles by four times that would be $21.24 or by three times would be $15.93.
This is when you will not need to use your judgement to make a decision. Does it take you a long time to make your product? If so you may want to price a few dollars higher as people will recognize how much work goes into your product to make it so complex. Is your product unique and sought after? This will also allow you to price higher. Are you competing in a market that is oversaturated with items like yours? In this case it is best to go for a lower price.
Another really important factor is your clientele and how much they are used to spending on items like yours. For myself, I live in a smaller town and do most of my sales in this town. For that reason I choose to sell my 8oz candles (Which are incredibly unique and time consuming to make) for just $17.00. I do this because it just makes the most sense for my clientele and business model. If I lived in a large city like Toronto I would price my candles higher as the average discretionary income in that area is also higher. Take a step back and have a good look at the people you will be selling to most often.
At the end of the day, you will have to choose what is best for your company but you can certainly use the COG (Cost of Goods) model to help guide you in the beginning. If you are really unsure even after doing the model, you can just do three or four times the COG and see how your audience responds. If you get a lot of "Wow thats expensive" or "Wow what a great deal" when people find out your prices then you can always adjust them. And don't forget, in the beginning your COG is going to be much higher than when you have established yourself and are buying supplies in larger quantities so you may want to start off lower priced as your COG will be reduced as you grow.
I hope this helps and like I mentioned if you need any help with the Math part of this model you can always DM me and I will be happy to help. Please leave me your thoughts in the comments & as always love you lots!
Karleigh Jennifer
The Biggest Wick Candle Co & Million Dollar Mom Blog
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