When Pricing Products Too Low Can Actually Prevent the Sale

by G.B. Oliver

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.

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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
  • Floats
  • 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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© 2013 G.B. Oliver. All rights reserved.

The Benefits of Offering Group Discounts

by G.B. Oliver

One of the best ways to get volume orders, as well as repeat business, is to offer discounts to various groups. Here are what some top online retailers offer, that maybe you can apply to your own business.

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Group DiscountsC Wonder is an online store that sells women’s fashion, accessories and home decor. They have a Group Gifting Program, which means you can apply for special discounts (up to 20%) if you are shopping for the office, PTA or just a large number of people. It is a great way to get your products in front of a new audience because you have one buyer purchasing for many people. 

Trade Discounts Anthropologie has a House & Home Trade program whereby all qualified architects, interior designers and decorating professionals can apply for membership in this group to receive 15% off all regular and sale priced merchandise. West Elm, World Market and Restoration Hardware have similar programs. The trades typically expect discounts, and this ends up acting as both a referral and an endorsement.

Professional Discounts – Beauty companies such as Mac and Bobbi Brown Cosmetics also offers discounts to professional make-up artists, much in the same vein as the trade discounts above.

Student DiscountsAsos is a very popular UK clothing store, and they offer all students (with ID proof) 10% off all items. This offer is smart because they serve a younger demographic and, for this age group, even 10% can be a big deal. Plus, they will tell all their friends. Other stores offering student discounts include TopShop and Banana Republic. 

Teacher Discounts J.Crew recognizes the hard work of teachers and offers them 15% off in their stores, as does The Limited and Ann Taylor. This is a philanthropic gesture as much as a business decision.

So what groups could you offer a discount to that would help increase repeat business, spread word of mouth and expand your market?

If you sell jewelry, offer discounts for bridal parties. If you sell wedding invitations, offer discounts to wedding planners, If you sell pet products, offer discounts to dog trainers and groomers. If you sell toys, offer discounts to registered daycare centers or grandparents. If you sell art, offer discounts to hotels and office buildings. You can set minimum requirements on quantities, if that makes it more reasonable, but, at very least, even a small discount may be the reason someone chooses you over your competition.

G.B._OliverNeed Help Marketing Your Online Business? 

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© 2013 G.B. Oliver. All rights reserved.

How to Factor Your Labor into Your Prices So You Actually Make Money

By G.B. Oliver

Pricing is a critical component of marketing. Before you start envying the volume of sales of another online store, you have to remember, large quantity doesn’t translate into large profits. It could be that someone is working really hard to make very little money.

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The biggest mistake most indie online shops make is not truly taking into account the value of their labor. So before you set the price for your products, you have to understand your labor cost and what you want to pay yourself in terms of an hourly wage.

Pricing Example

Let’s say that you are a one-person operation and you are making iPhone covers. You decide you want to undercut everyone else in the market and charge $15 each.

Labor – If it takes you 20 minutes to produce one iPhone cover, that means you can make 3 in an hour. If you are selling each for $15, then you are essentially paying yourself $45 an hour. So that’s about $79,000 a year based on a 35 hour work week, and a 50 week year. But wait. That is not your true hourly wage.

Materials – Now you have to deduct your materials. Let’s say that a plain case is wholesale $1.80 each including tax. Then there is the printing charge, let’s say .40 each. You have to get it to the person, so even if you charge for shipping, you still have packaging costs, let’s say .30 each. So the grand total for 3 iPhone cases is $7.50. These are fixed costs. In other words, no matter what price you charge, these costs stay the same.

Selling Fees – If you are selling on an online marketplace like Etsy, you now have to deduct your fees ($.73) and PayPal fees ($.44). So for the three iPhone cases that would be $3.51 total. These costs are variable, so they go down when your price goes down, and up when your price goes up.

Ok, so now your hourly wage is down to $34 per hour, which is $59,500 per year in theory, if you sell 24 iPhone cases a day, 5 days a week, 50 weeks a year.

Other Expenses – But what about other business expenses? Gas to drive to the printing store and the post office, bank fees, business taxes, Internet use, advertising costs. You have to factor all of these costs in as well.

Now, obviously you do have to stay in line with your competition, so you can’t charge twice what they are for the exact same product, same materials, same delivery and so forth.

So, before you set your prices, start with your desired hourly wage and work from there. If you cannot come up with a pricing model that is also a viable business model, then it is not worth doing.

SMALL BUSINESS  HELP – If you  don’t know how to market your online business and are not making sales, ask me a question at attentiongetting@gmail.com or use the contact form below as well as check out my Small Business Consulting Services and my Ebook Shop.

© 2013 G.B. Oliver. All rights reserved.

Is Price the Reason You’re Not Selling?

by G.B. Oliver

When people come to your site and don’t buy, what is the first thing you assume is wrong? I bet you think it’s your price. Maybe. The truth is you have to think about what makes people buy, and price is not always a factor.

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There are many reasons people aren’t buying from you. Some include:

1. They don’t need your product.

2. They don’t need your product right now.

3. They don’t see the value in your product.

4. They are unsure that you will deliver what you are promising.

5. Your price was too high compared to similar competitive offerings.

So if you really feel price is your problem, then here is a way to test it.

Don’t lower your price permanently but instead offer a one-day only special with a coupon code for 50% (or pick a percentage in which you will still earn a profit – don’t take a loss).  Make sure customers know it is TODAY ONLY. If even at 50% off they are still not buying, then you know it’s not your price.

Do you know that too low a price can hurt you as well? If someone really loves or wants an item, and you have created that must-have feeling in the customer, price usually isn’t an object (unless it is obvious that you are completely overcharging). Sometimes too low a price makes the customer feel the product is cheap and of poor quality. So trying to undercut everyone will not always work in your favor either.

Do you know what makes people walk away from an online sale more than price? Shipping charges. Especially if you live in one country and you are buying from another. There have been cases where the shipping ends up equaling the price of the product. So sometimes it is better to offer FREE SHIPPING and buffer the cost into your product price. When a customer commits to your price and then gets to the checkout and sees it has doubled due to shipping, this is not the same exchange anymore and they WILL change their mind.

FINAL WORD: So, offer a fair price based on what it costs you to make your product and allowing for a profit, compare it to your competitors’ prices, test it with your market, and then make sure your customers understand the value that comes with this price.

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© 2012 G.B. Oliver. All rights reserved.