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Why is price so important?

Discussion in 'General Business Forum' started by The Efficacious Gentleman, Dec 29, 2016.

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  1. Dec 29, 2016 #1

    The Efficacious Gentleman

    The Efficacious Gentleman

    The Efficacious Gentleman

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    Hello SMF

    Having seen a number of newbies selling at stupid pricing (when they shouldn't be selling at all!) and seeing some regulars who are thinking about starting to sell, I wanted to post about why pricing is very important, even for (or especially for!) a hobby soaper who sells.

    People who make a living from making things have a pretty standard method of calculating price:

    Total cost of materials + (time * hourly rate)+ location and "running" costs = total costs

    Total Costs * 2 = Wholesale price

    Wholesale price * 2 = retail price ​

    Running costs are things like rent, utilities, insurances and business fees.

    That is a pretty standard way of calculating the price of something, in this case soap. Someone who is selling their soap as a sole income will need to work on this principle.

    Why is it important for hobby soapers? Because if you come in and only want to cover the costs of your materials and not your time and other costs, your soap will be cheaper than the true cost of selling hand made soaps. As time is one of the most expensive costs, this can make your soap a lot cheaper. Why is this bad?

    Because people will then expect that a bar of quality hand made soap costs 2€ or $ and so on. Commercially made soap can be cheaper because they buy ingredients in bulk and make massive amounts at once, so the costs are much much lower. For an artisan soaper, there is only so far one can go in making larger batches or getting cheaper ingredients.

    Which means that if there are two stalls in a market, one being a artisan soaping full time, the other a hobby soaper looking to make the "hobby" cost less (I use " because when you monetise a hobby it is no longer a hobby!) and both are offering soaps of similar standard, if one stall is a good deal cheaper than the other then people will tend to go for "the better value" option. They will think that one is well priced and the other expensive.

    Of course, if the quality differs then people can work that out, but for many of us here at SMF there isn't a massive difference in the quality of our soaps (in fact many people here thinking about selling make better soaps than many who do sell).

    Soaping is one of those things where it is fairly easy to get in to it, and for some reason it seems to be something that a fair few people get in to just to sell, which makes it all the more important that the true costs are always reflected in the pricing.

    This is not price fixing, by the way. This is not about putting a massive mark up on things to make a massive profit. This about a proper valuation of a product.

    You could take many different business as examples where someone who does it only for fun can charge someone a lot less than the actually market value. If you enjoy fixing cars in your spare time, you might charge only the cost of the parts used plus a little extra, whereas a garage costs a lot more than that. Someone who enjoys photography might do a wedding for a lot less money than a professional could do it for. If people assume that these lower prices are actually what it should cost, they will only want to pay those prices.

    So, if you are going to sell your soap, please please please PLEEEEEEASE do it properly. Do not sell cheaply "just to cover ingredients" to keep your other half happier about the amount of money that you are spending on your hobby. Do not think that as a new seller you should sell cheaper because you lack experience. Use the formula above - if you are a lot higher or a lot lower than your local compeition for the same sorts of things, have a look at why. Did you forget something like insurance? Are your ingredients too expensive? Is your hourly rate too high and/or do you need to up your batch size?

    While some might see this as a rant, I hope that those sensible folks who are considering selling have found some points to think about a little bit more.
     
  2. Dec 29, 2016 #2

    BattleGnome

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    This is a very subjective post but it builds on what TEG said....

    Give yourself credit in your hourly rate. Don't count your rate as less that minimum wage in your area and remember to give yourself a raise to reflect your experience and talent.

    While there is no official "School of Soaping" or degree required anywhere, your time and knowledge are worth something. A doctor or mechanic get paid to reflect the time and skill they out into their work. Many people forget that handicrafts take time and skill to learn. Some people will even scoff, "anyone can do that" before walking away. While anyone might be able to do something, you are the one who actually did it. Give yourself credit. (Having that number in your pricing now helps later on if you ever need to hire an employee. You might be willing to work for nothing but very few people will volunteer their time like that)



    (Side note: I don't sell. I once looked into selling my knitting and found many similar discussions for hand made items)
     
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  3. Dec 29, 2016 #3

    Susie

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    Craig is exactly right. I am planning to use pretty much that formula, except I saw it first here:

    [ame]https://www.youtube.com/watch?v=FqVNU9eN9DU[/ame]

    If you are only paying yourself minimum wage to make the soap, you are cheating yourself. Remember that you are paying yourself back for some of the R & D time and ingredients it took to get that recipe with every bar you sell.

    And before anyone asks why I told the person earlier this week that his/her soap was not worth what they were charging is that it was a horrible soap recipe, poor curing, and they did not have ANY R & D behind it.
     
    Last edited: Dec 29, 2016
  4. Dec 29, 2016 #4

    DeeAnna

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    I see the same thing in my day job of leather working -- hobbyists have turned the idea of "hand made leather goods" into a synonym for "cheap, poorly made leather stuff."

    I don't sell a lot of soap, but what soap I do sell is priced at a competitive, realistic level that compensates me fairly, yet is reasonable to the consumer. Another lady sells her soaps at the same shop I do for about 2/3 the cost. Although her soaps are slightly smaller and plainer, I still think her soaps are priced a bit lower than they should be.

    You'd think her sales would be very good and mine would be not so much, since the "common wisdom" is that casual shoppers buy mainly on price. I don't think that's entirely true. Having looked yesterday at the year-end sales analysis for my soap, I realize I can sell just about all the soap I want to supply to the shop, even with a lower-cost direct competitor.
     
    Last edited: Dec 29, 2016
  5. Dec 29, 2016 #5

    Steve85569

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    The price for my time is not what I earned when I started work.
    My time is worth the years of experience that I have accrued.
    Bottom line is charge enough for your time to make good payroll wages ( think trade union not retail sales wages).
    You are after all a Craftsman ( woman)!

    I do not sell and have no plans to. If I did TEG's formula is a good place to start and go UP from.
     
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  6. Dec 29, 2016 #6

    penelopejane

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    Prices in Australia range from $4 to $15.95 a bar.
    A huge range.
     
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  7. Dec 29, 2016 #7

    CTAnton

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    I'm going to give one example of a locally successful business model(not my own!)
    The local goat milk soap maker offers 12 or more different 5 oz. bars with the difference being the color and the scent. She's been a presence locally for 20 years. Soaps are wrapped in cigar bands with all the proper information. Her booth is at every local farmers market and if there's a fair she's there with a bunch of goats. In my estimation, she deserves her success for all the effort she puts into her product. She is also a presence in all the small business owner's associations. Average price of her bars (5 oz.) is 6 dollars. Vegetarian base but needless to say, not vegan. Think market saturation and customer loyalty and ALOT of work.
    My point is none of this success happened overnight.
    Locally I see "new kids on the block" offering gift sized bars ( 2 oz. or less) to bring down their price point. Time will tell how successful these soap makers will be. Someone undercutting another soaper at a farmers market can't afford to do that for long. To me, it's all about long term presence and ultimately your own version of success. I'm thinking the race between the tortoise and the hare...
     
  8. Dec 29, 2016 #8

    susiefreckleface

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    Craig you're just awesome.

    Toxicon and Steve make valid points. I have made a couple of concessions once in a while. I too have worked very diligently over the years at my main talent as a seamstress. I built quite a reputation and followed proper pricing structure. It is very difficult to maintain these days though. Different counties in southern Calif have different average selling prices for the same services which is such a slap in the face. Orange County where I came from is more affluent... Inland Empire where I’m now located, not so much. Earlier this year I booted one of my newer dry cleaner customers because they kept harassing me to go lower in my pricing... They are new to being shop owners having been worker-bees from San Bernardino (far out in Inland Empire) then buying a shop in a better part of Riverside (a different part of the Inland Empire) but didn't keep the pricing that the previous owner had. These new owners lowered their prices to the San Bernardino pricing (and expected me to follow suit) to keep customers claiming they were being hoodwinked by customers (Oh that’s not what they used to charge us). More likely customers also preferred to deal with the previous owner at the counter (a pretty blond) instead of the new owner (middle age man with a “you owe me attitude”). Any way – I agree – keep your price point whenever possible. You’ve earned it with years and tears.
     
  9. Dec 30, 2016 #9

    The Efficacious Gentleman

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    In some ways, yes - if this seller is full time and needs to live from it. A hobby soaper who sells and doesn't charge for time, in fact only wants to cover the ingredient and cost of the farmers market, they CAN consistently undercut and meet their goal.
     
  10. Dec 30, 2016 #10

    karenbeth

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    Where it comes undone is when the cheaper seller gets a wholesale order. They are so excited that their hobby may become a business but often end up working for nothing, hobby becomes a burden, then all their soapy stuff is for sale.
     
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  11. Dec 30, 2016 #11

    Scooter

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    Now that is just marketing brilliance. Talk about making a connection with your buyers.
     
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  12. Mar 21, 2017 #12

    Neve

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    The photography industry is in total disarray because of this. The general public does in fact now demand and expect the hobbyist price :( and as someone who has been shooting for decades I am honestly offended by this. And trying to figure out a new career... the soap just isn't selling except to a few friends. So I don't think that's gonna save me. I have bashed my head against a wall many times over the ridiculously priced hobbyist with a day job but ultimately there's no cure for that. They won't change. In fact if questioned they defend their pricing.
     
  13. Jun 26, 2017 #13

    wetshavingproducts

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    Yes! Don't cheat yourself. Don't pretend you're running a business when it's really a hobby. If you just want your F&F to cover your ingredients cost, go for it. Who cares what you do in your spare time. But you're just making a job for yourself at less than minimum wage by pricing your time too low. And then you'll never be able to hire someone else to do the stuff for you.

    That said, if you're happy, who am I to burst your bubble.


    Your job is to convince them that your time is worth more than "their" time. That's really it. That's your job. Taking photos is only ancillary. Heck, I'm sure you can take great photos sleepwalking. But selling is the real work.
     
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  14. Jun 27, 2017 #14

    cerelife

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    Great advice from TEG!
    When I first decided to create a business I signed on with a local accounting firm to help me do things the right way and to keep me straight with sales taxes/tax ID's for the two states where I sell in person. They gave me a pretty much identical pricing model as the one TEG provided.
    While my business is not my sole source of income; I have no wish to undercut anyone else's prices. I created my business because I love making my products; I'm very proud of them; and I want to share them with others! Making a profit is pretty far down on my list of reasons, but that doesn't give me the right to do as I please with my pricing if it's going to hurt someone else's business, so for the most part I follow this pricing model and I never price my soaps for less than other reputable soapmakers in the areas in which I sell.
    However, I make products that I personally would want to purchase and sometimes that would mean exceeding the current market price for soap (and ONLY soap) due to expensive ingredients/FO's by using this model. In this case, I don't inflate to price of that soap to reflect this pricing model - I just charge the same and choose to make less profit.
     
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  15. Oct 5, 2018 #15

    I_like_melts

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    Great advice! I am glad I found this thread (and commented a year later) I keep feeling like my prices are high (around $2/oz for wax, sometimes more if I'm using a ton of colors or an expensive fragrance and supplies). I'm still told I'm not charging enough, but people are undercutting me by a lot. But, as a small/new vendor my supplies cost MORE (2 oz of fragrance vs. the cost of 8 oz vs 16 oz can be big)

    Edit: my price is $2 - 2.5/oz., others are between .75 and 1 for wax. I just saw a vendor with bath bombs - 5 oz for $3... how can you even produce it at that price?
     
    Last edited: Oct 6, 2018
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  16. Nov 10, 2018 #16

    HoneyLady

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    I started out pricing soaps without including labor. I live in an area where the folks are known far and wide for being . . . frugal.
    :rolleyes:

    Cheap. Okay, ridiculously cheap. Cheap like a flock of chicks. They all have 75 cents of the first dollar they ever made, kind of cheap. Save, wash and reuse vegetable baggies from the grocery store cheap. Tightwads. Your Father-in-law-who-survived-the-Great-Depression cheap. You get the idea.

    I couldn't sell it for a really good price. ("Why should I pay $5 for a bar of your soap, when I can go to the Dollar Store and buy 3 for $1?")

    But now that I've got my toe in the door, and a following, I've been slowly raising my prices to include labor. I also have some things I do that appeal specifically to my local market. Most of my soaps have beeswax and honey from my bees. I have a local sausage packer in town from whom I buy my lard. And their name is on the label of my lard bars. I have bars colored with the local school colors. I tailor my marketing and packaging with an eye toward basic, frugal, and local. I could sell the same stuff with different packaging at twice or three times the price in Austin, and the market there would support it. But I'm not in Austin. I'm here.

    I have a few soaps geared to locals. I make my own version of the old Lava bars, some with lanolin, and a "Texas Special" that includes tallow, cottonseed oil, pecan oil, and peach kernel oil. I have a pecan oil bar. I use scents that appeal locally. I rename scents so they have better appeal. DH calls it "cultivating the market". I call it herding cats.

    Sometimes, it's a process, not a given. But always, ALWAYS price your product realistically. If you don't know how to figure cost, learn. (I once explained this is in very basic terms on the business thread somewhere.) There are LOTS of people out there who can help. Your local chamber of commerce / business development center can help put you in touch with mentors. Undercutting your competitors does nobody any favors. Find your niche and OCCUPY it. Be the BEST at what you do, not the cheapest.

    Anecdotally: My soaps are a sideline ("Value Added Product") to my local honey business. I raise bees, harvest and sell the honey locally, both wholesale and retail. DH is retired, and does a lot of the day to day sales and glad-handing. In Oct. of 2017, DH had a heart attack. In the last year, he's had 4 surgeries, 19 hospital stays, and over 35 different medications. Three of the surgeries were done 200 miles away. This does not include *my* full time job that puts food on the table, one DD in college 300 miles away, and a Jr. in HS at home. My hands were . . . full.

    I continued the business, just differently. When I couldn't drop everything and make a delivery, I just explained why, and delivered when I could. DD2 bottled honey and delivered in *her* spare time. Once, neighbors made a delivery for me, when I suddenly made yet another hospital trip via the ER. I lost a few customers who just didn't think it was okay that I couldn't always fulfill their order as soon as they wanted it, and wouldn't leave the hospital (and drive an extra 400 miles) to do it. A couple of them started buying honey elsewhere.

    :smallshrug:

    To date, all but one has come back to me, citing better product, better service, and better relationships, despite the delivery hurdles. The one who hasn't come back is a financial loss, but I don't miss him otherwise, as he was a problem child. Be the best at what you do and occupy your niche fully. The customers worth having will stick with you. And also do some of your best word of mouth marketing for you!

    ~HoneyLady~
     

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