A Quick Pricing Strategy Check

by Gail Oliver, Online Marketing Consultant

How long does it take you to make a product or execute a service? So many people leave their labor cost out of the price, and you need to determine this otherwise you will be working very hard to make little money.

Example of a Poorly Priced Product

For example, I’ll never forget this young girl who was making dog leashes and selling them for $10. She was knitting the leash and said it took her two hours to make one. Can you see right away why this is a terrible pricing model?

If it takes her two hours to make one $10 leash, she is essentially paying herself $5 an hour less the cost of materials, selling fees, free shipping, packaging and other business expenses. Does it seem worth it? Surprisingly, it was not that obvious to her.

The Most You Can Earn in a Day

Now, another way to look at it, is if it takes her 2 hours to make 1 leash, and she wants to work an 8-hour day, then the most leashes she can make in one day is 4. This also means that the most leashes she can sell in one day is 4, as you can’t sell more in a day than you can make.

Therefore, the most she can gross in one day = 4 x $10 = $40, and again, this is GROSS not NET.

If you are the sole source of labor for your product or service, you have to factor your labor cost into consideration when determining your price. If your labor costs knock you out of being competitively priced, then this might not be the business for you.

Work Backwards When Pricing

Try working backwards to determine your price. For example if:

Your goal is to earn $40 an hour
Your product takes you one hour to make
Your total costs per unit are $10

Then you will want to price the product at at least $50. Then ask yourself?

Is a $50 price competitive?
Does this price make sense for the product or service?
Does this price offer wiggle room for discounts and sales?

If you need more help with your pricing strategy, be sure to check out the pricing strategy and planning worksheets in my 60-page Strategic Business Planner.

Want to talk about your business? Try my very affordable one on one Phone Consultations.

Other Things to Know This Week

Shopify and Facebook announced the launch of Facebook Shops where shoppers will be able to find, browse, and buy products through Facebook and Instagram, with checkout powered by Shopify.
If you sell face masks, have you thought about targeting brick and mortar stores that are reopening, as some have stated that they will provide masks to both their staff and customers, if need be. I wonder if they will see it as an advertising opportunity to have their brand on the mask? Is that a value added service face mask makers should offer?
Even Vogue says face masks will be the hot fashion trend of the summer.
Online daily sales for pajamas increased 49% in April, due to people working from home. The major fashion retailers have picked up on this trend and are offering pajama-style fashions, like this silky outfit from Zara.
I love how online stores like Old Navy, Nordstrom, Modcloth now have shop sections entitled, “Cozy at Home”, “All Day Comfort”, “Get Fit at Home”, “Self Care Shop” and “Work from Home”, zeroing in on people’s needs right now.