Pricing products

[txsoaper]

Hello everyone! I have looked through the threads in regards to how to price your products and I just wondered if it is best to charge a straight % profit markup on all products, or should you take the total cost and mulitply by 4 for retail and by2 for wholesale?

If you price it by the 4X method, do you include only the materials included in MAKING your product, or do you include the cost of the container/packaging/labels, etc. then multiply by 4? I just feel for the area I am in that I am going to be asking too much if I charge 4X.

What do you all do?

 

[Lindy]

Everything that goes into the bar including labelling, packaging, everything.....

 

[sassey]

Thank you Lindy, now I thought of one more thing. I always see where people tell you not to forget to pay yourself, such as including an hourly wage like you would pay an employee who worked for you. If you take the cost of supplies, packaging, etc. needed to make the product and x by 3, do you add in the "pay yourself" cost to the total, or leave it off completely?

 

[agriffin]

You need to pay yourself.

Also...I take into account the fact that as I grow I'll be able to buy supplies in bulk and therefore cut down on the cost of my finished goods. So when I figure out pricing I use prices from 5 gallons of coconut oil I will be purchasing not the 16 ounces I purchased... that is 5 times the cost! Otherwise your pricing will be super high if you're not buying in bulk yet.

And to be real honest I price my stuff comparable to what others are selling at instead of going by just the calculations. I do make sure I'm making something on it and keep track of what it costs...but you really have to look at the market around you.

 

[Tabitha]

If you can make 50 bars of soap in 1 hour & you pay yourself $15.00 an hour, divide 15 by 50 which means labor to make that bar cost you .30cents.

Example:

.70cents oils cost per bar
.05cents fragrance cost per bar
.04cents cello bag per bar
.04cents per label

Then let's say you bought a fancy heart shaped mold for $8.00 because it's Valentine soap & you plan to make 30 bars. 8 divided by 30 is .27cents per bar.

.27cents for the mold
.30cents for your labor per bar

and if you are doing a craft show for valentines day that cost you $50.00 for the booth rental and you sell 200 bars, that is 50 divided by 200 = .25cents per bar.

.25cents per bar for location (plug in ebay fees, etsy fees, webhosting, shop rental, etc here)

...then there is electricity, cost of mixer, etc, etc. The list goes on, ink for the printer, ribbon you tie around the soap, advertsing costs, business cards, flyers, display fixtures, the cost of your yearly insurance divided by the number of bars you sell in a year EX) $300 insurance divided by 2000 bars sold per year = .15cents per bar for insurance.

.15cents per bar for insurance.

Let's add what we have though it's not a complete list.

.70cents oils cost per bar
.05cents fragrance cost per bar
.04cents cello bag for bar
.04cents label
.27cents for the mold
.30cents for your labor per bar
.25cents per bar for location
.15cents per bar for insurance.

Cost per bar $1.80

That is your true cost per bar.

Multiple your bar by 2 for wholesale and by 4 for retail.

The numbers above are fictitious and just used as an example.

The formula is:

supplies + labor + overhead X4 for retail

 

[txsoaper]

Great example Tabitha! You brought up some excellent points that I had not thought of and showed wonderful examples of how to break it down. I completely understand and thank you for taking time to explain in such detail.

 

[Wick's End]

Very helpful to me too, thank you.

 

[Lindy]

I do it pretty much the same way as Tabitha - it is important to keep that in your pricing so you can make sure you are actually profitable.....

 

[Stella]

That was good, Tabitha. How do you figure out how many bars you might sell in a year if you haven't started your business yet? I guess you are estimating the first year?

What about a mold you use all the time for soaping? If you think it will last 10 years, how is that factored? And if you bought a computer or printer; do you use the #bars per year x so many years you think you can use the equipment?

Hope I don't sound stupid; I just want to get really close before I start looking for a business grant or small business loan.

 

[babygirl]

That was good, Tabitha. How do you figure out how many bars you might sell in a year if you haven't started your business yet? I guess you are estimating the first year?

What about a mold you use all the time for soaping? If you think it will last 10 years, how is that factored? And if you bought a computer or printer; do you use the #bars per year x so many years you think you can use the equipment?

Hope I don't sound stupid; I just want to get really close before I start looking for a business grant or small business loan.

I was wondering the same thing.

 

[donniej]

All business plans start with a guess of how much business you think you could do. If you're seriously working on your soapmaking, going to craft fairs every weekend, selling a little on-line then 2,000 bars is probably a good ball park.

I'd say you should also factor in a percentage for loss (cracked, air bubbles, etc...) and free samples. I factor 5% for loss, which also includes end pieces. Sure, they could be rebatched but I donate them to local churches, non-profits & homeless shelters

 

[madpiano]

I wouldn't change pricing to bulk supplies. Count the costs at the amounts you buy now! Why? If you get a wholesale account and have a set wholesale price that is fine - up to a certain amount. Let's say 100 bars. After that the buyer will expect price breaks for larger amounts (just like we do when buying bulk oils). If your pricing is already tight, you wont be able to shift on that. But if you then recalculate that you will be able to buy in bulk if he orders 500 bars at a time, you can still compete and give him a price break.
Also look around you, there is a ceiling price on goods. Etsy is a good place to start, but you will also need to check out local supermarkets and health food shops to see what soaps they sell and at what price. All the x2/x4 calculations are great, but you can price yourself out of the market. I found that soap has pretty tight margins, there is a ceiling and I can't rally charge more, unless I marry an advertising genius. But there are other things I make where the profit margins are much higher and instead of using the usual formula I adjusted my price upwards to average the usual prices round here for the same product and make up any lost profit or lower profit from other items. I do have some items where I easily charge 8 times cost. Soap is more like 3 times, so if I get a wholesale order, there isn't much play-room. That is partially due to the crazy rents we pay here for houses/flats and the ever increasing electricity costs, so it may be totally different for you.

 

[Tabitha]

All business plans start with a guess of how much business you think you could do. If you're seriously working on your soapmaking, going to craft fairs every weekend, selling a little on-line then 2,000 bars is probably a good ball park.

I'd say you should also factor in a percentage for loss (cracked, air bubbles, etc...) and free samples. I factor 5% for loss, which also includes end pieces. Sure, they could be rebatched but I donate them to local churches, non-profits & homeless shelters

Interesting tid-bit: If you give soap away as samples, donate to a homelessshelter, etc you must pay the sales tax on that bar if you avoided paying tax on the materials to make it. When you buy supplies tax free you are agreeing to collect tax for that item from someone else, so if you do not, you owe that tax. I got that straight from the Taxman's mouth as he was sitting in my shop doubting my method of inventory :shock: .