Season 4 Episode 28: How To Price A Product And Figure Out Profit Margins

Transcript:

Hey guys, Megan here. And today I want to talk about pricing your products. I know that it can be something that people struggle with. I have definitely struggled with it throughout both product and service based products when it comes to pricing things. So I want to talk about a couple of different things to consider when you are creating pricing for your products, how much you should charge wholesale costs, things like that.

Now, first you want to just skip right through it. I have a fantastic spreadsheet that I use with calculations called PRICR and I'll link to it below. And Pricer can do all the auto calculations for you once you enter in all of your materials and things like that. It's been very useful for me and I absolutely recommend it for you if you are trying to make sure that you are developing products at a profitable rate. So first thing I want you to consider when you're thinking about how to pressure products is your cost materials.

So that includes packaging, stickers, ribbons, the materials, you know, like whether it's fabrics or wax or wicks or whatever, whatever kind of thing that goes into making a complete product. That's what you have to consider. Also, if you're a service-based person, then you should also think about the apps or the tools that you're using to deliver this for your clients. So something like I use a service called Deepti, which is digital product delivery, and it costs me, I think, fifteen bucks a month or something.

And that is a cost that has to be included. And also, as well as my hosting and the, you know, element or whatever I'm using to build the sales page for that service, those all have to be included in my cost, my raag, the raw cost materials, I guess next is packaging. And when I talked before about raw cost materials, but when packaging, I'm thinking about shipping packaging. So what it takes to like the cost of envelopes, of labels, of shipping, of your time to go to the post office or schedule a pick up or whatever costs come along with that, those all need to be factored in as well.

Number three is your salary. You need to pay yourself first. And I know that that is easier said than done when you're developing costs, because sometimes you feel like I'm going to be charging too much. No one's going to pay for this. And we'll cover that in a second. But so I'll just kind of take whatever's left over from the profits. And I feel like that is a it's a road that leads you to ruin. If you don't account for the cost you have value you have worth, you should be charging accordingly for that.

And that's a mindset thing that I think a lot of people deal with. I deal with that a lot with my clients when I do coaching. And also we cover that a lot in my live streams, which I do in my Facebook group. And if you want to join, I'll leave a link below so that you can come check it out. I'd love to see you there, but make sure that you are factoring in the cost of you into this product.

You know, you have like I said, you have value, but you are an expert. You should be charging for that knowledge even if you don't feel like you're an expert. The fact that you have manifested and created this tangible or intangible thing means you have gone above and beyond to solve someone's problem. And you should be. Ed, for that, so when you're thinking about your salary costs in a product, you can think about the time that it takes you to create each individual soap or widget, whatever it is.

Or you can think about your overall yearly, monthly, weekly salary, however you want to fit it and what you plan, what you forecast your sales to be. So let's say you have a weekly salary of a thousand dollars just for simplicity's sake. So if you want to be paid a thousand dollars every week from your business, then you have to factor in, OK, I think I'm going to be able to sell eight of these rings every week.

So if I want to break that, I'm to do the math here because my Brame will die. But this ring times eight means that I need to sell or I need to charge a thousand divided by eight to account for my salary. Now, if that seems like astronomical to you, like there's no way people are going to pay that much for just my salary, never mind all the other costs that come along with this, then you need to either sell different things, raise your prices and change your customer base accordingly, or you need to readjust your expectations or sell more.

That's just the easiest way to do it. Right. But don't let the fear of charging too much for this ring deter you from getting paid. No one is going to be able to afford a ring that doesn't exist because you can't spend the time in the money developing it because you still have other bills to pay. And this ring isn't paying your bills. Does that make sense? So next is overhead and overhead is everything else that goes along with that SEO rent or mortgage if you're working from home, utilities, car mileage, whatever.

Anything that comes into play with running your business has to be factored in to the cost of materials. Now, in terms of like percentages of that, that's up to you. That's how however you feel like you need to factor in. I was going to say pad the price, but I don't mean it that way. But I hope it's still coming across as what I mean, like in terms of how much you want to split that across every individual product that's really up to you to air on a safe side.

I usually recommend you take all of your product, all of your overhead cost and add about one percent, give or take into your cost of product. So if your overhead costs are 50000 dollars and that includes everything, just anything possible every year, then one percent of not doing the math, you take one percent of that and add that to every product cost. And that is a it's probably going to pad it a little more than you need to, but it's better to be cautious than to be scrambling.

Right. So now let's talk about the ways that you should think about pricing your products. I think that new entrepreneurs and seasoned, to be fair, but will get very anxious about charging the right price for their products. And what I mean by the right price is the full price, the full price of all of the costs that your product or service has. And a good rule of thumb is to take everything out, like the amalgamation of all of those cost real goods overhead, your salary, packaging, shipping, all of those things.

Take all of that and then times it by three. And that is the price that you should be charging retail for your products. Now, if that is a huge shock to you, again, that's a mindset thing. That's not a pricing thing. It's a mindset of people. Other people are charging less for this. So no one's going to buy. Why should I charge more and. It's to your detriment, it's to your detriment to feel that way, because no one else has the costs that you have, and if it feels really uncomfortable for you, you need to explore that and kind of dig a little bit deeper.

I have a great guide that has journal prompts about how to break through that with money and business, and I'll link to those below. But essentially, you really want to think about why am I afraid of this? What what is the thing that is stopping me from charging the correct price for my product or service? Why am I afraid to do that? And If it feels way too much, it just feels like I've explored this and it's just it's too much, I can't like I either can't break through this or I've broken through, I think.

And it still feels too much then like a couple of ways to think about that. You can think about, again, changing your customer base to find a customer base that does understand the value of what you're doing. You can find ways to lower your cost materials. So start buying in bulk or work out a net payment system with your vendors. Think about going to a new vendor, finding cheaper ways to lower the cost you can. I don't recommend it, but it really feels tough.

You can lower your salary or you can start cutting costs elsewhere like in your overhead. But cutting costs is not going to work out in the long run. The reason three times your costs overall is used is because, one, it gives you wiggle room, it gives you wiggle room. If you have wholesale pricing that you want to work or bulk discounts or things like that, it's much harder to work in that kind of relationship with customers, whether it's stores or, you know, people who are buying a lot from you.

It's much harder to work with that when you don't have a lot of wiggle room and when you're only charging one point five times your costs or things like that. So when you have three times your costs, you have the ability to work a little bit better in the system and do nice things for people or have wholesale relationships or affiliate like you have affiliate relationships or things like that where anywhere that is going to you have the ability to cut your bottom line willingly, if that makes sense.

Another reason is that costs fluctuate. Rate costs will always cost of goods will change. I remember when I was making soap, there was a how did this go? So I would get like 50 pound, fifty pound, fifty pound buckets of coconut oil because that was one of the big ingredients of my soaps. If you want that recipe, that's in Pudi Bizzaro. But it was, it was about a dollar a pound back then, plus shipping.

So let's say like a dollar fifty a pound then was I swear this is true or at least I know it to be true. There was a chocolate baron who bought up an entire year's worth of fut. of coconut oil, which means that for me my costs skyrocketed. I think it went to like one hundred and fifty total for fifty pounds. And it was just like, oh my God, that if I hadn't had that three times the padding, I would have lost my ass on that.

Right. Like my cost for one ingredient went up three times what it originally was. If I had just done like one point five times the cost or something, I would have never been able to recoup that. I would have lost money on every product I sold. So that's the reason you really need to factor in all of your costs, making sure they're all accounted for and padding that. If you're listening to this or you're watching this and you're thinking like that's kind of dick ish.

Why why am I, as a consumer paying for something else like that of maybe something will happen? That's another minds. I think you are paying for the value, not the cost. So we'll get into that another topic. But I just want to cover that quickly. So, like, if this is sort of triggering some kind of feelings of anger or frustration or annoyance, then that's going to lead into your own business issues. And that's a mindset thing that, again, we can talk about in another video.

But for the sake of brevity, I promise this is brevity. Think about the value, not the price. This thing solves a problem for you. The solution is valuable enough that it solves a problem which would cost you more in the long run rate. And it doesn't have to be tanjil costly. So I am ranting or. Moving on. You want me to ramble more? Leave a comment and I'll be happy to talk more about this, but another reason that you need to make sure you're having premium pricing and what I mean, premium pricing.

I just mean three times the amount. If you want to talk about even more than that. That's up to you. But as a baseline, have at least three times your cost. Another reason to have that is that having less padding. I can't think of a better word of it, but having less padding means you don't have the ability to grow as fast because you are limited by your profit and a business is created to solve problems and to exchange Problem-Solving for currency.

The more currency you have, the more problems you can solve and the bigger your business can grow. It takes money to grow a business, right? You have advertising costs or time or apps or services or coaching or whatever. All of these things cost money because of the exchange of value for currency. If you have less currency, it's harder to grow. It's slower. It's just more difficult all around because you're going to be scrambling for other options that take you more time, more effort, more energy.

Whereas if you were just able to automate it with an app that costs money. You grow faster. Does that make sense? So that's another reason that you really want to think about making sure you are charging the correct price. And what I mean by the correct price is at least three times your total cost. Again, this is difficult. That's a mindset thing. But also, if it's like physically different, like mathematically difficult, check pricer prices will definitely help you get to the next level and just make it easier for you.

Another reason to up your pricing and make sure you are accounting for everything correctly. It's probably not a very popular thing to say, but charging a higher price removes a lot of problem customers for you. I don't know how long you've been in business, but statistically, not only in my own businesses, plural, but in other people's businesses who I've talked to. Other masterminds are just, you know, shooting the shit. The cheapest customers are the most problematic because they are only looking at the price.

Think about think about Wal-Mart, Wal-Mart versus Tiffany's. You can buy jewelry at both places. But who has the more problematic customers? Wal-Mart. Wal-Mart does every time. I'm sure there is some at Tiffany's for sure, but they are going there for the value. Tiffany's has ticketless Preysing and I applaud them for it. They have like something ridiculous, some kind of paperweight or sterling silver paperweight and is thousands of dollars in it. It's nothing special. It's nothing like intricate or it's very plain.

It's sterling silver, which, you know, precious metal, but not like 18 karat gold or something like they charge what they feel the value is behind it and people pay for that. People pay crap tons of money into Tiffany's for things that do not cost that much to make. It's all about the value they perceive. And since they understand the value that Tiffany's provides, they're less complaining. Whereas Wal-Mart and if you shop at Wal-Mart, more power to you.

But think about just think about the difference. Wal-Mart, think about how long their return lines are. Whenever you go into a store out there or think about the quality of clothing, they're it's cheap. It's, you know, doesn't last very long. There's people in line all the time. It's just it's a very small mentality, if that makes sense. It's very small and insular and angry and it's focused on price and it's always focused on the lowest price.

And consequently, it's a lot of shit. They have to deal with Tiffany's again. I'm sure they have nasty customers occasionally. Overall, there is no People of Tiffany's website. There's a people of Walmart website. There's a difference. Right. So that's something I want you to think about when you're trying to think about how to price products. I wish for you to price your products at a rate that helps you grow your business and delivers value to your customers.

Don't focus on lowest price. Don't focus on what your competitors are charging. Focus on the costs that you have. And remember, those are raw materials packaging overhead and your salary. Pay yourself first, pay yourself every sale. You earned it. You are worthy of being paid for that. And I hope that you will. If you have any questions, leave me a comment below. Again, check out Pricer or my journal prompts. They'll be able to help you break through any kind of fears you have or worries about charging the appropriate price.

But in the meantime, it's just helpful.

PRICR: https://www.betterbizschool.com/pricr/

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