We should form a soapmakers' union or cartel, because anyone selling under $5 is selling too cheap and then the race to the bottom (undercutting) begins. At $5, it's benefiting the buyer more than the seller, after all the planning, artistic skills, labor, materials, marketing, etc etc are factored in. If people balk at $7 they can go use zest! That can be our slogan. To those soapmakers selling $5 razor thin margins: you're hurting yourselves long-term. Find emerging markets online like Singapore, China, etc that have growing middle classes with a lot of disposable income. Better off doing that than selling local at too low a price.
Profit Margins
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We should form a soapmakers' union or cartel, because anyone selling under $5 is selling too cheap and then the race to the bottom (undercutting) begins. At $5, it's benefiting the buyer more than the seller, after all the planning, artistic skills, labor, materials, marketing, etc etc are factored in. If people balk at $7 they can go use zest! That can be our slogan. To those soapmakers selling $5 razor thin margins: you're hurting yourselves long-term. Find emerging markets online like Singapore, China, etc that have growing middle classes with a lot of disposable income. Better off doing that than selling local at too low a price.
If you follow commodity markets closely, you realize some industries do sell below cost (e.g. gold mines are notorious for this). The thinking is they'd rather have some cash flow, I guess? To me that makes no sense. If they all banded together to not sell at those prices (the DeBeers diamond cartel) rather than undercut one another in a race to the bottom, they could get not just fair market value, but many times even higher (by controlling supply. OPEC does this, too).
Here's a video on DeBeers if you're interested. It is fascinating.
[ame]https://www.youtube.com/watch?v=s4c1p_DMkIw[/ame]
Here's a video on DeBeers if you're interested. It is fascinating.
[ame]https://www.youtube.com/watch?v=s4c1p_DMkIw[/ame]
JustBeachy
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Well you lost me on two points. I'm all against unions. With all your talk about the evil cartels and such, I would've assumed you would be too. 
And second, I use expensive EO's in most of my soaps. My cost is still under 2 bucks. Add in some shipping and handling and lets say were up to 2.25. Selling at 5 would be over a 100% markup. That's a margin most businesses would love to have. Not saying to sell at 5.00 but still.
Sell at what the market will bear. It really doesn't get simpler than that.
And second, I use expensive EO's in most of my soaps. My cost is still under 2 bucks. Add in some shipping and handling and lets say were up to 2.25. Selling at 5 would be over a 100% markup. That's a margin most businesses would love to have. Not saying to sell at 5.00 but still.
Sell at what the market will bear. It really doesn't get simpler than that.
houseofwool
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I too use EO's I managed to get my pricing low. Most bars retail for $3.99 each for a4 ounce bar. My costs on some are as low as $.75 each and as high as a $1.50 each. Overall I average about a dollar a bar cost.
At the last show that we did there were at least two other soap vendors there. One of them has prices in the $6-$8 range for the same size bars. People came to our booth, walked away, went to her booth, then came back to ours and spent a boatload of money. The market here just can't handle having high-priced bars.
I'm still turning a decent profit. And have no intention of increasing my prices unless my raw material cost go up.
At the last show that we did there were at least two other soap vendors there. One of them has prices in the $6-$8 range for the same size bars. People came to our booth, walked away, went to her booth, then came back to ours and spent a boatload of money. The market here just can't handle having high-priced bars.
I'm still turning a decent profit. And have no intention of increasing my prices unless my raw material cost go up.
Well you lost me on two points. I'm all against unions. With all your talk about the evil cartels and such, I would've assumed you would be too.
And second, I use expensive EO's in most of my soaps. My cost is still under 2 bucks. Add in some shipping and handling and lets say were up to 2.25. Selling at 5 would be over a 100% markup. That's a margin most businesses would love to have. Not saying to sell at 5.00 but still.
Sell at what the market will bear. It really doesn't get simpler than that.
I am against unions and cartels. That was half joke/half frustration speaking.
Check out these sellers on ebay:
http://www.ebay.com/itm/HOME-MADE-G...592?pt=LH_DefaultDomain_0&hash=item1c124dd768
http://www.ebay.com/itm/Handmade-So...t=LH_DefaultDomain_0&var=&hash=item258be10664
http://www.ebay.com/itm/LOT-OF-12-H...739?pt=LH_DefaultDomain_0&hash=item19bc0c300b
They're basically selling at cost, if not below. They are paying themselves $0 for labor. The only rational conclusion is that they're either (a) bad at business or (b) are using the amazon.com model of selling at a loss with the hope of gaining market share and loyal costumers (i.e. future profits). The problem with that model, is the second you raise your prices to where they need to be to make real profit, you lose your customers.
Your cost is $2.25 per bar including your labor and opportunity cost (i.e. what you could have been using your labor on if not making soap)? I think many soapers miscalculate both of those and don't realize it because they do it as a hobby/part time and have other income coming in.
Which market? Because the market in Singapore will bear much more than the market in Punxsutawney. Name me an industry that sells a commodity (and soap is a commodity) that only sells local. The entire commodity space is based around global markets because that is the only way to get market price. People bringing these to local craft fairs and selling for under $5 could get more in the global market. There are some advantages to selling local (word of mouth, buyer can test it, etc), but if we're talking a commodity fetching the best price, in general, you need to be outside your local market.
The person who mentioned the homemade soap market is saturated was correct. The good news is the people above selling loafs for $25 on ebay will soon be out of business. The bad news is there are still many in that $4-5 range where you can technically eek out a paper profit (but at too much opportunity cost) who are undercutting. I think the big problem here is (a) people don't factor in all input costs, some not even paying themselves labor and (b) people selling local. These two things keep price artificially low.
What do you pay yourself per hour to make the bar? And not just make it, but cut it, test it, check it day after day to make sure it's curing correctly, checking scent, etc. What about the gas money to get to the show. Did you factor that in?
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If our profit margins were 100%, we'd all be getting bought out by Lush or some other business. People selling at $2.25 on eBay are taking a massive loss. Probably a [negative] -100% margin. At $5 maybe break even. Lush is not overpriced. They are priced correctly, like most successful businesses.
We haven't even discussed tax rates...I don't think many soapmakers are profitable, though many are convinced they are.
JustBeachy
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I don't claim to be an expert on anything, except maybe enjoying a nice day on the beach. I'm excellent at that.
But I spent many years, selling and marketing. Many year's managing those types of corporations. I probably came away with a little bit of knowledge of the process.
Opportunity cost is no where even in the discussion. If you like doing something, it's worth making less money to do it, rather than just making money and being miserable. If I just wanted a six figure income, I'd take one of the job offers I occasionally still get and re join the corporate nightmare. No thanks.
No offense intended, but I've given you sound, market realistic information, that you seem dead set on ignoring and just continuing to swim against the current. By all means, do it your way. That's your right. I genuinely wish you success.
It certainly does. If you are an attorney and can make $400 per hour, yet you made soap for free, then you took a $400 loss by making soap. This is a foundation of economics, and the reason we have specialization.
I'm not ignoring you. How do you even come to that conclusion when I have responded to every point of yours? Disagreeing = ignoring?
I'm asking soapmakers to explain how one makes profit at $5, no less at $2.50. I'd love to see a spreadsheet of costs, because I'm guessing many hidden costs are missing.
Generally speaking, yes, but that's a price you can't quantify. Some would argue it's worth doing the thing you dislike, where you make more money, so you can use that money to find enjoyment in your free time.
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JustBeachy
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Didn't say you were ignoring me, I said you were ignoring the information. Read it again.
I spent many a year living your example of "make more money so you can use it to find enjoyment". Wasted a lot of years and time with that mindset. Missed lots of time that could have been spent with my kids. That's a loss that nothing can compensate for. Certainly not more money.
Money is a great commodity, but it pales in comparison to the value of time spent doing things you love, with the ones that you love. Money can rent you some good times, but true happiness is something that money can't buy. I make enough money to do the things I enjoy, and it's way less than I use to make. I'm happier now than I've ever been in my life and I have enough time to realize that.
So, if it works for you, knock yourself out. Good luck.
But I wasn't I addressed everything. Just because I disagree with much of it doesn't mean I ignored it. I gave rebutle. That's how conversation works. I notice on this forum if you don't accept what senior members say as dogma, you get labeled a troublemaker who just won't obey. Well yeah, sometimes people will have different opinions. Sometimes if something is wrong I can't pretend it's right just to appease someone. If you show me your balance sheet/spreadsheet with what you think are all your costs, we can then see if you're truly turning a 100% profit. I'm open to being wrong.
If what knocks me out? Again, this is some kind of weird jab. Is this implying I'm some rich guy who chooses being in a fancy profession over making soap? Or money over a family? I don't understand the comment since I haven't given any info about me.
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JustBeachy
Well-Known Member
Not a jab at all. Just a, as you put it, a rebuttal to your ideas. Again, I genuinely with you success with your endeavor. Again, in my experience, the process I described works. It's worked in every industry and will continue to work. What you describe as conversation, I described as "swimming against the current".
I'm not a senior member, but I've had discussions with some knowledgeable people on this forum where I questioned the information. I've never felt like anyone has asked me to obey or felt like a troublemaker.
On the rest of it. I think you're just taking it all too personally, and looking for a reason to feel slighted. As far as spreadsheets. You're right I don't know you, so there's no way in hell I'd let you anywhere near my financials. haha. But it really doesn't take a degree in accounting to figure out the margins of anyone here.
Respectively, I'm done with this conversation Smee. I really don't see it going anywhere. I'm off to bed. Again, good luck.
Okay, goodnight.
I do want to address this last comment. It doesn't take a degree in accounting, correct. It does take factoring every expense (some examples: gas money, test batches, failed batches, oils that go rancid, dropped oils, wasting lye due to soap calculators inexactitudes, buying distilled water or distilling water instead of using tap, etc. There are so many more nobody thinks about), and then there is also opportunity cost.
Personally, I can't get those figures to work at $5 per bar, so I will never sell soap. I don't understand how some people claim the math works, and I'd like to see balance sheets that factor in all costs, most importantly labor. A trade should pay well, not near a minimum wage.
Goodnight, buddy.
Smee you don't sell so you don't know of what you speak. Theory is amazing but reality is totally different. Each market is different and if you look at any business model then you will find that wages come out of profits unless you are selling labour as in Graphic design, lawyers etc. So now take a look at your costs and speak to it from there. The 4 x cost, real cost not including labour or shipping (expenses come out of profit as well and are not something you make profit from).
The other thing, and I said this in another post, your market is what determines what you can sell for. In your are in a lower income area then you are not going to get premium prices. It is also totally uncool to put down another product to boost your sales. That is the #1 error sales people can make and they quickly learn that they are going to lose business over the long haul because people see you as so unprofessional that they are not going to want to deal with you.
There are good ways to help people understand the differences between commercial and hand-made. One of those is to use the brochures supplied by both the US & Canadian Guilds that get into the differences and what makes our products premium. Take the high road and you will get to where you want to be a lot quicker than playing the dirty politics game. I never, ever put down another person's or company's product because there are room for them all.
The other thing, and I said this in another post, your market is what determines what you can sell for. In your are in a lower income area then you are not going to get premium prices. It is also totally uncool to put down another product to boost your sales. That is the #1 error sales people can make and they quickly learn that they are going to lose business over the long haul because people see you as so unprofessional that they are not going to want to deal with you.
There are good ways to help people understand the differences between commercial and hand-made. One of those is to use the brochures supplied by both the US & Canadian Guilds that get into the differences and what makes our products premium. Take the high road and you will get to where you want to be a lot quicker than playing the dirty politics game. I never, ever put down another person's or company's product because there are room for them all.
I'm not sure I understand this. What if you make a loaf yet sell no bars from it. You don't consider the labor you put in?
Again, I am not sure what this means. Graphic design and law are mostly intellectual labor or a service. Are you saying these people pay themselves a salary, yet someone doing physical labor does not?
Can you show a breakdown of all your costs?
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I think that we need to make a distinction between selling soap and running a soaping business.
'Frank' has retired. He has an income that supports his family. He sells soap for fun and for new materials. If he doesn't sell anything for 3 months then he just makes a couple of batches rather than many until things pick up again. He doesn't need to worry about having a robust business.
'John' runs a soaping business. It is his only source of income. When he doesn't sell anything for 3 months, it's game over. Unless he prices his products so that he has a robust business, able to survive the leaner times.
This x4 figure is not just cash in the pocket. Frank can go and get an Orange Moch Frappachino after the market because he sold some bars and has profits enough for his beverage. John can't - that money goes in to his business.
While a market cannot take smee's idea on set prices (or price fixing cartels) as we see with the car example and the supermarket example, there is a point on the other side - a Kia costs less to produce than a Mercedes. Both make profits, though, based on different business models.
If your area can only take $5 a bar then the quality must drop - extra pure Shea making up 50% of your bar (yuck, anyway) won't work here. Think Kia not Mercedes. You have access to a top end spa? Throw in the goodies and charge accordingly.
The product should also reflect the market, it's not just the price that needs to change.
'Frank' has retired. He has an income that supports his family. He sells soap for fun and for new materials. If he doesn't sell anything for 3 months then he just makes a couple of batches rather than many until things pick up again. He doesn't need to worry about having a robust business.
'John' runs a soaping business. It is his only source of income. When he doesn't sell anything for 3 months, it's game over. Unless he prices his products so that he has a robust business, able to survive the leaner times.
This x4 figure is not just cash in the pocket. Frank can go and get an Orange Moch Frappachino after the market because he sold some bars and has profits enough for his beverage. John can't - that money goes in to his business.
While a market cannot take smee's idea on set prices (or price fixing cartels) as we see with the car example and the supermarket example, there is a point on the other side - a Kia costs less to produce than a Mercedes. Both make profits, though, based on different business models.
If your area can only take $5 a bar then the quality must drop - extra pure Shea making up 50% of your bar (yuck, anyway) won't work here. Think Kia not Mercedes. You have access to a top end spa? Throw in the goodies and charge accordingly.
The product should also reflect the market, it's not just the price that needs to change.
houseofwool
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It isn't in the costs listed above, but, yes, I still take a healthy draw every month during the fall, when we do most of our sales. The draw the rest of the year is the same percent of gross, but since sales are smaller, the dollar amount is lower too.
I am quite anal about not spending personal money on business expenses.
The competitor I mentioned? She sells at wildly inflated prices, particularly now that I can figure out her material costs. She is selling for 1200% over material costs. Not including labor or overhead for her storefront. But since we don't have a storefront, we can easily sell at a lower price and still have a healthy profit.
And I'm not sure why there is this idea that you have to have such a dramatic profit margin. Most industries I've worked in if profits were 10 to 12%, everyone was thrilled. I definitely don't want to work at such a small profit margin on a business that I can't contract any work out, but I don't need to be making 1000% either.
JustBeachy
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You make some really good points Craig, but I would differ with you on the quality having to drop. The car analogy I used was just an extreme example, used because for some it's easier to grasp if the example is wildly obvious.
Granted if you did use 50% shea in a recipe, it would drive the cost up, but in my recipe at 8% it's adding 7 cents to each bar. The most expensive EO Blend I use, to contrast, adds 70 cents to each bar.
I could use a cheaper FO blend and bring that cost down without sacrificing the quality of the actual soap.
That aside, there are some quality bars out there that are still inexpensive to make and if you buy in bulk you could easily get your ingredient cost down to the 1.25 range without sacrificing quality. Then using the 4X cost idea the bar would be sold at 5.00
My point is that, again, while all this may look good on paper, you should always follow your market when developing a price point. Marketing is there to help you sell more product, to help your product stand out amongst the horde. But you can't fight the financial demographic. If everyone at the craft fair you're selling at is selling for 6 bucks a bar, and you're selling for 8, your bar better cure cancer or it's not going to move well.
Your point on the differing business models of the guy supplementing a retirement income and the full time soaping business is spot on. No way to compare what margins the two will be willing to accept.
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