I like to read forums because it gives me perspective on what problems are facing small business owners. The most common one that tends to come up is how to price your products and services.
Pricing Mistake Made By This Small Business Owner
The other day I was reading how a small business owner was wondering if the price of her handmade dog leashes seemed reasonable. She was selling them for $7 and said that it takes her one hour to make one leash. Right there, that sentence should have been enough to tell her “NO!”. As I have stated many times on my blog, you have to factor in your hourly wage if you are producing your products, otherwise you are making no money.
If the dog leash takes her 1 hour to make, then she is paying herself $7 an hour less material costs, less PayPal fees, less the fees of her online marketplace, less other business expenses. I’m guessing, but I would think that leaves her making around $4.50 an hour. This is not even minimum wage. So, in other words, her pricing is way off the mark.
She is under the assumption that her product has to be cheap in order to sell, but that is not why people buy.
If you ask someone why they bought a dog leash, they will typically answer:
- It was durable
- It was long lasting
- It was the right length
- It could be easily retracted
In fact, Google search shows people are looking for a “dog leash that”:
- Stops pulling
- Doesn’t tangle
- Won’t break
- Can’t be chewed through
By pricing the leash so cheaply, she is actually hurting the prospect of sales because potential customers probably looked at the price and thought a $7 leash would not last long. If she simply changed the price to $20, which is in line with most competitive products anyway, and instead touted the problem solving benefits of the leash, she would not only sell more, but she would actually make money. What a concept!
FINAL WORD: People don’t buy things because they are cheap, they buy things because they solve a problem. You have to price your products to make a profit, otherwise why be in business?
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