Pricing your products is hard, especially when you're starting out. There isn't a one-size-fits-all solution. But I'll give you three approaches to get you going.
Finding your pricing formula
I’m not going to claim there is a magic formula. There isn’t a secret solution to stick a price on your product and be done with it. Product pricing is different for everybody. It can even be different for you now than it will be in two years. And initially, it requires a bit of elbow grease to set up a pricing structure.
Every pricing strategy we’ll discuss has a different level of complexity. You can use them as they are, or take them as a starting point and tweak them to your needs.
The first approach is the most basic, and the one you’ll want to use if you’re starting out. The second is a level up and adds more detail. The third approach is for when you know the ins and outs of your business very well. It’s about finding where to improve and squeeze more out of what you already have.
By the end of this series, you’ll be able to price your products with confidence. No matter if you’re starting out or selling for many years.
Common pitfalls and mistakes
In our research over the years, we saw people make the same mistakes over and over again. Especially when starting out, there is a tendency to undervalue products. And it has a lot to do with confidence.
To make you aware of those pitfalls, we’ve created a small list with the most common ones. The Five Commandments of Product Pricing if you will.
1: You are not IKEA
Replace “IKEA” with whichever multinational is dominating your line of business. What I mean is, don’t match your price point with that of large corporations. Your product is way more valuable than what they are selling.
I’m not saying IKEA makes terrible things. Their products are generally well-designed. But they are not unique. They are not hand-made. And they aren’t created with the same love and attention to detail.
Recognise your added value. There is nothing wrong about your prices being many times higher than the IKEA of your industry.
2: You are not your competitor
Of course, you should test your prices against your competitors’. Are yours much higher or lower than the average in your industry? If so, you’ll have to investigate why.
The point is that you shouldn’t copy what others are asking. Or even try to match theirs if it doesn’t make sense. You don’t know if they are using sub-par or superior materials. You don’t know their production process. Nor do you know their overhead or other factors that influence their price. They may even have pulled prices out of thin air. You’ll never know.
By copying the prices of others, you’re crippling your business.
3: You are not your customer
If you are, that’s ok. But it’s not a given. Many makers we worked with throughout the years are not able to afford their own products. And that’s the case more than often.
In short, don’t lower your prices to make your product affordable for yourself. There is a market for everything. Make an effort in finding your customer.
4: Don’t treat yourself like a beginner
It’s perfectly fine to be a beginner, that’s where everybody starts. But that’s not a reason to set a lower price. You should always charge a realistic price. If you’re feeling like an imposter, ignore that feeling.
Setting your prices too low to “get you started” is a dangerous route. It’s not only damaging to your business, but to that of others as well. In the long run, you’ll want to raise your prices anyway. Because you’re no longer “getting started”.
Lowering your prices because you’re impatient will ruin business for everyone. Including yourself.
5: You’re creating a business, not a hobby
There is a time for your business, and there is a time for your hobby. They don’t mix. Sure, you can build a business from what you love doing, that’s quite common actually. But it’s a decision you have to make upfront. Are you doing this to make money or for fun?
To quote Wikipedia:
A hobby is a regular activity done for enjoyment, typically during one’s leisure time, not professionally and not for pay.
The reality is that if you want to sell your products to make money, you need to be self-employed and pay taxes. You’ll also need to make a profit to be able to pay the bills and put food on the table. That’s called running a Business.
If you want to create a hobby, then, by all means, do it. But think twice when you’re tempted to put your items up for sale for fun. Sell to make a profit, not because you want to recover the cost of materials.
Gathering the ingredients
To get started, you’ll need to do some homework. It may feel overwhelimg at first. But once you have the hard work done, you can use, update, tweak and reuse the same information over and over again. It’s well worth the effort to spend a few hours gathering the ingredients. We’ll go into detail in the next post of this series.