As part of our What Would Doug Do? series, we asked members of our Talk Folky forum to tell us the questions they would like to put to creative business guru and original Dragon’s Den investor Doug Richard. Here Doug tackles a question from Ali from Calyx Handmade Jewellery about pricing and how new businesses should price their work so they can sell wholesale when the time comes.
Hi Doug. My little shop is teeny tiny and a fun hobby at the moment, which I enjoy doing alongside my work as a part-time lawyer / part-time tutor / full-time Mum! Time-wise it all fits in nicely at the moment, but there might come a point when I want to make more of it. So my question is this: how should very new Folksy shops structure their pricing so they are able to effectively and profitably sell wholesale in the future? Linked to that, is it possible to do a little reminder about pricing and wholesale pricing in general, please?
– Ali from Calyx Handmade Jewellery
Well, the short answer is, you don’t set the price for your products, your customers do. If you were to walk into the supermarket tomorrow to buy a light bulb, and most cost £1 but one cost £400, would you buy it? You probably wouldn’t because you know what light bulbs cost. People know what jewellery similar to yours costs. They compare the value you offer in terms of criteria like what stones you use, what metals you use, where the materials come from, who made them (are you well known?), who else has purchased your work (friends, collectors or even the famous!), where it is sold, how convenient it is to buy, etc.
So you set the price for your products by looking at competing products, noting the advantages they offer the customer (ex: 14K gold, made with rubies, sold on Amazon etc). If competing products cost £1,000, then you might price yours at £900, so your product looks like a good value. Or you may charge more if you feel yours offer more added value.
What you aren’t going to do, as a startup, is price your product at some multiple of its cost. Some people have this notion that if your product costs £10 to make, you should charge 2.5 to 3 times that. It’s not the right price, it’s the lowest possible price, and as a startup you can’t take that approach – it’s far too risky. If Picasso draws a portrait on a napkin, is he supposed to charge 3x the napkin price? That would be ridiculous. But new business owners always price their products this way.
Instead, analyse the competition and set your price in line with competing products. To test your price, assess what people have been paying in your Folksy shop, set up a pop-up shop or go to a local fair and try to see how your work is perceived at that price and whether it sells. If your work doesn’t sell, people don’t see its value as being in line with its price. That may be a problem with packaging, product description or the product itself. Modify the product, or the price, until it sells in the quantities you need in order to make a profit.
It is useful for you to know what retail mark-ups are so that you can make decisions about whether to wholesale or not – and for most retailers the mark-up will typically be 2, or 2.4 if they pay VAT. But remember that not every business can afford to sell in this way (especially at startup stage) and only ever apply a direct selling model. It might be that, in time, as your sales and production volumes increase, your costs per unit fall, creating a bigger profit margin which then allows you to sell at wholesale.
Pricing is actually one of the most complex operations a business undertakes. The wrong price can make it so your product never sells, or sells fine but doesn’t earn enough of a profit to keep you in business. Focus on the advantages that you offer over your competitors and how you communicate this so that you can justify the price that you’d like to charge.
I hope this helps. It really is so key, so if you want to investigate more, you could try my How to Start a Creative Business book which goes into significant detail – it’s on Amazon (shameless plug over).
Featured image: Textured drop earrings by Calyx Handmade Jewellery
You can get more tailored advice from Doug Richard and his team of experts as a student at his School for Creative Startups. Applications are now open for the inaugural Sheffield class. Find more information and apply here. Applications are open until 30 November.
You can also join Doug at the Foundry, Sheffield Students Union, on Thursday 20 November from 7.30pm, as he takes on the challenge that is PechaKucha Sheffield Vol#16 with the theme ‘Pushing the Envelope,’ exploring what drives those who see the world differently, take risks and forge new frontiers. Tickets for this event cost £6 and you can book them here.