Calculating your labor costs into price of soap? ~Advice please!

[RocknRoll]

Hello all. So the little general store adjacent to the cafe I work at gets slammin busy in the summertime and it would be great exposure for selling my soaps. The manager finally sat dwn with me today to discuss a pricepoint for my soaps. They prefer to buy my soaps outright (25 bars for now and they would price them to sell at $5 ea. ) to see how sales go. She started out by wanting to give me only $2.80 per bar! I knew that was waaayy too low. My bars are artisan soaps with either coconut milk/goats milk, enriched with cocoa and shea butters and weigh between 4.75 to 6+ oz. (average at 5 oz). So anyway, I said I would want at least $4 per bar but she said the highest she could go up to was $3.00. I was like "ummm" so i said i would need to think about it and find out what my true cost is for making each bar.... (i was assuming somewhere like $1...i was way off.)

So for the last couple hours I have been calculating and have come up with an average of $2.10 my cost per bar. HOWEVER, this does not include any labor (or the miniscule electricity).

My question to you all is: Do you factor in your time when pricing your soap? I make small batches of only 5 bars and it takes me an hour to make. if I pay myself a modest $10 per hour, that adds another $2 per bar making it $4.10! I would be pratically giving my soap away at only $3.oo! So I dont know what to do, I have this oportunity but at the same time i dont want my inventory to be bought at this low price when I could be selling it on Etsy for twice that much.

Your thoughts? Im supposed to bring her soap tomorrow but I am having serious reservations. I work realy hard to produce a kick ass soap. On the other hand, is it a given that you wont pay yourself at first when trying to start your own business? Is the exposure and potential future customers worth the price reduction?

thank you for your advice, i look forward to your comments...

 

[melstan775]

If they are buying wholesale, you can make a minimum purchase requirement so you're guaranteed to make some money. However, remember the store needs their markup, too. $5.00 is low for 5-6 oz handmade soap in my opinion, so you might tell them your cost to sell and recommend an MSRP of whatever you plan to sell them for as well; customers should be paying the same price no matter where they buy. If she gives you $3.00 a bar, at 25 bars, that's $75.00 immediately in your pocket. Also you did say it would be good exposure for your soaps, so there is a marketing benefit. Include that benefit in how well you expect to sell, and decide if taking a small loss in favor of future opportunity is worth it to you. I think $6.00 - $6.50 retail is right on the money for a 5 oz soap, in my experience and what I would be willing to pay.

 

[bobbie.johnson]

Why not make a larger batch? Say you make 20 instead of 5. Labor cost would drop from $2 to .50 a bar.

 

[DeeAnna]

Thorny question.

I don't sell soap, but I do run a small business selling handmade leather goods. This has been my living for the past 11 years, and I most definitely must include labor, overhead, and profit in my pricing. Hobbyists can easily undersell my work because they can afford to pay themselves little or nothing for their labor. If my biz cannot pay its way and then some, I might as well go work for someone else -- I'd probably make more money and sleep better at night.

In the leather working guild I belong to, it's interesting to watch the hobbyists who try to leap from the hobby ranks to "doing it for a living". They learn real fast to value their labor fairly, or they (more often) go under.

Getting back to your situation... When I was just starting out, I priced my products based on the time I thought a moderately competent leather worker would take to do a project. I was far too slow and inefficient as a beginner, so it was not fair to charge my customers for the time spent on my leather-working screw-ups and learning curve. As I grew in ability and efficiency, I started to use my real labor time as my basis for my labor costs.

If you want to do this as a business rather than a hobby, I would first evaluate your work in the same light. Is your production process as efficient as it can be? Or can you realistically make changes in how you do things to become better at what you do?

You mention it takes you an hour to make 5 bars. Is this due to your art ... or to an inefficient work flow? Is it fair to charge your customers $2 for your labor if simply doubling of your batch size could reduce your labor cost to, say, $1 per bar?

I would suggest re-evaluating the size of your bars. There are some good, recent threads on this forum that discuss this issue. From reading a few of those, I suspect your bars are rather on the large size compared with what others are doing. If you can cut 6 bars out of a batch that you used to get 5, you've increased your potential gross income by 20% and distributed your labor and material cost over 6 sales, rather than 5.

--DeeAnna

 

[AlchemyandAshes]

This is a struggle with handmade items, no matter what the item is. I say you try it for $3.00 a bar, but negotiate either a minimum purchase, bar size, or as Melstan suggested, telling the retailer that they need to sell for $6.50. The store is looking out for their best interests and want to make as much profit as possible, but you need to make it worth your while also. Exposure is worth something. In the beginning of a small business, sometimes you do almost have to give your product away, or in this case, not pay yourself labor, to get your name out there. I DO NOT think you should cut corners and make a subpar quality bar of soap, but I do think you could make the bars smaller. I would discuss that with the retailer - maybe have a 4 oz bar for $3 wholesale? You could probably get another bar or two out of your mold by cutting them smaller, and increase your profit that way. And as bobbie.johnson said above, increasing your batch size cuts down on labor costs. Buying in bulk will benefit you also if you plan on selling. I think getting your name out there with a quality bar is worth taking the cut on labor costs, personally.

 

[RocknRoll]

Thank you all for your wonderful advice. You all brought up very valid points.

1) exposure is worth SOMETHING even if it means working for free at first.
2) It might be a good idea to start slicing my bars at 1" instead of 1 1/2 that alone will = more bars =more money.
3) I definately need to make larger batches. This means buying more molds lol...

4) a minimum purchase requirement is a good idea.

Time efficiency isnt an issue, I think i have found the quickest way to make soap in my opinion after trying a few methods. ( it would go a lot quicker if i didnt do such artsy fartsy stuff with my soap :shifty: )This hour also includes wrapping and cutting. I think if I approach this wholesale idea with bigger batches of smaller soap, it will be worth it.

I agree, i want to keep using my favorite recipe with all the goodies in it. That's what Im all about, producing a luxury type of soap that not only looks cool but feels lucious. I would never sacrafice my custom recipe to produce a cheapened version just to make an extra buck. I want to make a killer first impression! Now thanks to you guys, I have a new plan and a better explanation tomorrow when I go back to talk to the manager/owner. ~Thanks!

:razz:

 

[melstan775]

Thank you all for your wonderful advice. You all brought up very valid points.

1) exposure is worth SOMETHING even if it means working for free at first.
2) It might be a good idea to start slicing my bars at 1" instead of 1 1/2 that alone will = more bars =more money.
3) I definately need to make larger batches. This means buying more molds lol...

4) a minimum purchase requirement is a good idea.

Time efficiency isnt an issue, I think i have found the quickest way to make soap in my opinion after trying a few methods. ( it would go a lot quicker if i didnt do such artsy fartsy stuff with my soap :shifty: )This hour also includes wrapping and cutting. I think if I approach this wholesale idea with bigger batches of smaller soap, it will be worth it.

I agree, i want to keep using my favorite recipe with all the goodies in it. That's what Im all about, producing a luxury type of soap that not only looks cool but feels lucious. I would never sacrafice my custom recipe to produce a cheapened version just to make an extra buck. I want to make a killer first impression! Now thanks to you guys, I have a new plan and a better explanation tomorrow when I go back to talk to the manager/owner. ~Thanks!

:razz:

Good luck and let us know what you think. On a second thought, I didn't realize you cut your bars so big at 1 1/2 inches! If you want a big bar, I know a lot of people go to 1 1/4 inches. How about a second mold to hold three to four pounds, orone more 2 pound soap mold, to keep your production going but in bigger batches? After all, it doesn't take any more time to measure ingredients for four pounds then it does two pounds.

 

[RocknRoll]

Good luck and let us know what you think. On a second thought, I didn't realize you cut your bars so big at 1 1/2 inches! If you want a big bar, I know a lot of people go to 1 1/4 inches. How about a second mold to hold three to four pounds, orone more 2 pound soap mold, to keep your production going but in bigger batches? After all, it doesn't take any more time to measure ingredients for four pounds then it does two pounds.

ooops, I stand corrected, i measured and they are 1 and 1/4 " I would like to get a 5 lb soap mold and go from there. Id love to stick with acrylic but they want $89 plus shipping yikes! But knowing me i will buy it anyway.... all for the love of soap lol. Thank you and i will definately let you know how it goes oh by the way, cutting them at 1" also means buying another soap cutter (i like to use the wire cutter that cuts an entire loaf in one fell swoop) hmmmmm.... :yawn:

 

[melstan775]

I don't know why I keep getting double posts lately, but sorry. You know, you can make a 5 pound wooden loaf mold for $2.00. Lowe's has 4" x 8 foot furring strips for $1.88. All you have to do is cut the wood into pieces the right size and glue. 4" for the bottom is wide enough and 4"tall means you can make square bars or you can make them 3" tall or whatever size you want for rectangles.

 

[Rich23s]

This is an interesting post. I see that you received some great advice. I would like to throw something in there that wasn't discussed.

In the big scheme of things, you managed to get a wholesale account to accept a $2 margin on a $5 item. That's impressive! I would recommend increasing the MSRP to $6.50 or more and then try to negotiate the wholesale price up to your originally requested $4 and see if they bite.

Another option (that I really like) is to decrease the size of the bar (as mentioned above), keeping the MSRP at $5 per bar, wholesale for $3, and essentially increasing profits by decreasing volume of raw ingrediants.

Good stuff!

 

[sagehill]

I would go with smaller bars.

For one thing, a smaller bar fits better in women's hands, the primary buyers of soap. For another, the profit margin is higher with smaller bars. For a third, a large bar lasts too long. When I sold soaps 10-14 years ago, I started with 5.5 oz bars; some customers said it lasted too long and that they were kind of sick of the scent by the time it was gone. Not a good thing... :-|

Eventually I settled on a 4 oz bar that maximized profit, lasted long enough to keep customers happy without feeling like they were being overcharged for the size. I'm going back into sales after ten years off and have been selling 4 oz bars for $6 retail, and no one's complained about price, but like you I use premium ingredients. Haven't sold wholesale yet, but if I do, I'll probably sell for $3.50.

ETA: You also need to increase batch size... 4-5 bars are good for sampling, not sales. For most efficiency and cost I would make no fewer than 16-20 bars at a time.

Jenny

 

[sagehill]

ooops, I stand corrected, i measured and they are 1 and 1/4 " I would like to get a 5 lb soap mold and go from there. Id love to stick with acrylic but they want $89 plus shipping yikes! But knowing me i will buy it anyway.... all for the love of soap lol. Thank you and i will definately let you know how it goes oh by the way, cutting them at 1" also means buying another soap cutter (i like to use the wire cutter that cuts an entire loaf in one fell swoop) hmmmmm.... :yawn:

When I sold soaps before, I used homemade molds which I had to line.
After restarting soaping, I bought this one with two molds and a cheapie cutter, good for now:
http://www.ebay.com/itm/Y-LINE-HDPE...ld-Cutter-WOOD-WOODEN-LIDS-fri-/160962203641?

The molds are a little deeper than I like. Filled to the top they make 5 oz bars at one inch thick when I prefer a thicker slice, so I resized my batch to go only 2.25 inches high and can cut a little thicker for a nicely sized 3 x 2 x 1.25 inch cured bar at 4-4.25 oz.

I really like not having to line molds. I'm also planning to modify the cutter so I can use wire instead of a blade... wire cuts cleaner and more easily.

 

[DeeAnna]

I know you have already spoken with the manager, but I wanted to add a thought about talking with customers in situations similar to yours --

I read an interesting article recently about buyer psychology and how customers have an easier time deciding between just 2 or 3 alternatives, rather than a bunch of choices, and how they are happier with that choice in the long run.

That is so true in my experience. I have seen how clients can get overwhelmed and paralyzed when I present them with too many alternatives. What's worse in situations like this, I often find myself agreeing to do oddball work I really don't want to do -- for a price that is usually below what's fair. Ugh!

What works best for me is to decide in advance on a couple-three options and come to the discussion well prepared to explain the alternatives. Of course, the customer can change the game by asking for a design I hadn't considered, but I find I get a lot less of that if I do my homework in advance.

One way to handle your particular customer might be to say that you could do the larger bars at your preferred cost per bar OR you can do smaller bars at a price point closer to her preferred cost. Cut them thinner or make them smaller in cross section -- but decide in advance what will work best for you in the long run. Bring samples of your soap in both sizes, if you can manage that, to show her that although the size might vary, the quality of the product will not.

I hope your discussion was a success -- care to share how it went?

--DeeAnna

 

[Lindy]

I sell wholesale a lot and it is 50% off retail, that is the standard. I calculate my labour in and my cost is $1.47 per bar. I sell retail at $6.00 retail. You need to look closely at your recipes as well as how you package. My packaging is now a shrinkwrap (perforated so they can breath) with sticky labels. That has cut my cost way down.