Pricing looks easy from the outside. Pick a number, stick it on a label, job done. Then, a few weeks in, you notice you’ve been selling at a loss the whole time. Or you’ve gone so high that nobody’s buying, and you can’t work out why.
Almost everyone gets this a bit wrong at the start. That’s fine. You don’t need the perfect figure on day one. You need a sensible starting point and the willingness to keep tweaking it.
Know What Everything Actually Costs
Obvious, yes. But loads of people skip it, or scribble a rough version on the back of an envelope and cross their fingers.
Materials first. Say you make candles. That’s wax, wicks, jars, labels, fragrance oil, plus the box you post them in. Work it out per candle, not per batch. And don’t stop there, because materials are only part of it.
Your time costs money. Even if nobody’s paying you a wage yet.
This is the one people leave out, and it bites. Picture a candle that takes you an hour, costs £8 in materials and sells for £12. You’ve just worked an hour for £4. That isn’t a business. It’s a pricey hobby.
So pick an hourly rate you could actually live on. Build it in.
Then overheads. These don’t belong to any one product, but they still need paying:
- Rent, or a slice of the household bills if you work from the kitchen table
- Insurance
- Website hosting and whatever software you subscribe to
- Packaging, postage, delivery
- The accountant
- Marketing, even if that’s just boosting an Instagram post now and then
Total them up for a month. Divide by roughly how many items you think you’ll sell. Add that to each product. It won’t be spot on, and it doesn’t have to be.
The Cost People Forget
Then there’s the real cost of accepting card payments. Hardly anyone pays cash anymore. It’s card or phone, and every one of those transactions carries a fee. Usually a percentage of the sale. Sometimes a fixed charge on top. Some card machines want a monthly rental as well.
A couple of percent sounds like nothing, and on one sale it is nothing. On a few hundred sales a month, it’s a proper chunk of your margin gone. Price it in from the start. Better that than opening your first statement and wondering where the money went.
Have a Look at the Competition
Got your costs? Good. Now go and see what everyone else charges. You’re not copying them. You just want to know what customers in your area, or your corner of the market, are used to paying.
Have a nose around local shops, Etsy, Instagram, the Saturday market, wherever your sort of product turns up. Jot down prices for things like yours. Then be honest. Is yours better made? Handmade, where theirs comes off a production line? Do you post faster, or wrap it nicer?
If your costs push you above most of them, that’s not automatically a problem. You just have to be clear about why you’re worth it.
One warning. Don’t try to be the cheapest. The big retailers buy in bulk and will undercut you every time. As a small business, that’s a race you lose.
Choose a Pricing Approach
There’s no single right method. A few are worth knowing, though.
Cost-plus pricing is the simplest. Add up your costs, stick a percentage on top for profit, done. You’re covered. The catch is it ignores what customers would happily pay, and that might be more.
Value-based pricing comes at it from the other side. What’s this worth to the person buying it? Price from there. Works well for anything personal, handmade, or that fixes a genuine problem. Someone buying a bespoke wedding gift isn’t thinking about what the materials cost.
Competitive pricing is sitting close to what similar businesses charge. Handy in a crowded market. Risky if your costs are higher than theirs.
Most people end up mixing all three. Your costs are the floor. Competitors give you a rough ceiling. Where you land in between comes down to what you offer.
Leave Room for Profit
Breaking even isn’t the point. You need a margin, enough to put back into the business, get through the quiet months and, at some stage, pay yourself properly.
How big depends on what you sell. Some businesses scrape by on thin margins and shift loads. Others sell less at a bigger markup. Here’s a rough rule if you ever fancy selling wholesale to shops: your retail price has to be high enough that you could give a stockist about half and still make money.
Also, discounts eat into profit. So do special offers, and the odd thing that arrives smashed. Run on a tiny margin, and there’s no room for any of it.
Keep Reviewing Your Prices
Your first prices aren’t set in stone. Honestly, they shouldn’t be.
Costs move. A supplier puts prices up, postage gets dearer, the energy bill jumps. Leave your prices alone, and every one of those increases comes out of your pocket. Look again every six months or so. Sooner if something big changes.
Watch how customers react, too. Stuff flying off the shelves and people telling you it’s a steal? You’re probably too cheap. Interest drops off a cliff? You may have overshot.
Putting prices up feels awkward, especially when you know half your customers by name. Most people get it, though, as long as you’re upfront. A quick note saying materials have gone up usually does the trick.
Summary
It gets easier the more you do it. Know your numbers. Keep half an eye on the market. Charge what your work’s worth, and don’t apologise for it. Then check again in a while, because what’s right today might not be right next year!
