Recently, my publicist and I sat down to figure out the year in regards to products and pitch schedules. Beforehand, I made a list of things that were important to me about the brand, and things that weren’t important for us to convey. The part of the list I wanted to talk about is:
I have the ability to pay myself and my staff a generous wage vs.
Saving the world
I think that a lot of smaller brands have trouble justifying to themselves charging a premium price. I’ve seen so many soapmakers at shows charge a ridiculously low price that is not an adequate valuation of their product. Sure, it out-prices someone like me at a craft show, but I think that it also shows buyers that you do not value the quality of your work. So if you’re trying to figure out pricing (I’ve covered that a little here), here are some reasons to justify charging more than you think you should:
1. You’re an artisan and are crafting an item made after learning the trade
I call my soap “artisan soap” because that’s exactly what it is. I’ve refined my formulas, worked on unique scent infusions, designed packaging…I’ve done it all. If the product is artisan quality, that means that it’s made by an expert with extensive knowledge of the product and it’s inner workings. A premium price denotes a higher quality product, and if it’s artisan quality then it deserves to be priced as such.
2. Hobby pricing will not save you from fluctuations in your costs
When I first started buying bulk quantities of oils, coconut oil was ~$1/lb for 50lb buckets. Then, suddenly, there was a coconut oil shortage, as a chocolate magnate (what?!) had pre-bought all of the upcoming years’ coconut oil. What was left was nearly double the cost. I believe the highest it went was in the $80s for a 50lb bucket. That’s a HUGE change! If my pricing didn’t have a cushion for something that like, how would I absorb the cost of a raw material nearly doubling? I can’t hope “maybe I’ll sell more to recoup the costs” because selling more would mean buying more raw materials. If my pricing, however, had a little bit of a cushion from my cost of goods, then I could absorb a little more of it or try to buy in larger quantities to get bigger discounts.
3. Hobby pricing will not cover your costs when you have a sale
We ALL get left with stock that didn’t sell at normal price. It just happens. Sometimes the best way to move it is to offer it at a discount. And while it’s true that getting anything for an item you don’t want any more is better than just tossing it, you’re still responsible for the cost of producing that product.
4. Hobby pricing will not sustain you
Shows cost money. Electricity costs money. Medical emergencies cost money. Even free business cards from certain printers end up costing money with shipping and customizations. YOU cost money. All of these need to be absorbed by your products.
Nevermind the thought that hobby pricing may cover these, or maybe it will cover adding a little to your savings. I can tell you that it won’t cover both. A well-rounded financial profile includes reduced or non-existent debt, sustained income, and savings (and investments if you’re fancy). Hobby pricing cannot cover all of these. Many small businesses start on the credit card, and many die because of it. Pricing your products to cover these will help you recoup those bad decisions (I’m not judging you, I started my company on the backs of credit cards, too) and can help you climb out of debt so that you can expand.
5. Hobby pricing will not allow you to grow
Many small companies think that starting with a low price and increasing their pricing later on is a better strategy than starting out with a higher price. The logic in this just baffles me. Going through this method of pricing will not give you the additional money needed to research and develop new products NOR will it make your customers happy. How will you justify price increases in a way that will keep a customer base loyal? They found you with one price, and liked your products with that price. If you underpriced your goods and you’ve begun to realize you’ve got no buffer room, then increasing the prices for the same exact product will only make you look bad in your customers eyes.
Have I drilled it into your minds? If you have customers that are complaining about your pricing, don’t think you’re doing something wrong, they just aren’t your real customer. There are places that will think your version of premium pricing is bargain-basement (looking at you, Bergdorf Goodman), so keep in mind that it’s all relative. There are customers that are looking for quality and are willing to pay for it, but if you’re getting a lot of guff then either up your quality to justify it or up your quality of customer.
I was actually surprised that when I raised my prices that I got more business. It can work in your favor.
I love your article and slightly disagree with #5. When I first started out making my product, which is a simple product, I hadn’t got the experience to decide exactly what my quality control would be. After doing it for a year I’ve realized that certain sizes work better than others, culled them from my shop and then raised prices. I feel in the beginning there is a bit of a learning curve on what you consider your “standard”. Mine changed for the better and did increase costs.
Hey Kim, thanks for your thoughts! I can completely understand where you’re coming from with that point. My thinking was more like the energy will be focused on trying to break even when you’re charging less, instead of spent on making your business grow, you know what I mean?
Super happy to hear that upping your pricing made your business more successful, I think so many people are worried it will go the other way and it’s just not the case.