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One of the most common questions we hear from product decorators is, “How much should I charge for this product?” On the surface, this may seem like a simple question, but in reality, product pricing can be complex.
You have to take into consideration the real cost of production, market demand, competition, perceived value and desired profitability. Here is a look at each area to think through when approaching your pricing model, and some best practices to help you make the right choices for your business.
Whether you decorate mugs and phone cases at night and sell them at weekend events or have your own storefront servicing customers day in and day out, you are running a business. That business is costing you money every moment of the day – from the electricity running your laptop computer to the physical products you purchase and membership to the local chamber of commerce. All of it needs to be included in calculating the real cost of your enterprise.
You cannot look at the cost of a substrate, ink and paper and come up with the cost of producing one item. When you do that, you are not recouping what you’re spending on everything else needed to make your business run: event fees, utilities, shipping supplies, postage, software, graphics, marketing and promotional items, business cards, gas, mileage, subscriptions, memberships, maintenance essentials, etc.
The most important of these expenses? Labor. When you are working for yourself, your time is valuable. It becomes even more so when you grow enough to hire additional help. Even if you don’t see your own time as being a real cost now, think about how much money you would have to allocate if you had to pay someone else for what you do to run your business.
You would apply a specific per-hour salary value to that and should still do so when you are a solo operation. Why? Because you’re in business to make money. If you are not structuring your business so that you collect a paycheck from the beginning, you’re likely not on a long-term track for growth.
Take a look at what your competitors are charging for the same or similar products. This will give you a good idea of market demand and the prices it will withstand.
For example, customized doormats are popular among sublimators right now. They purchase the mat from Home Depot and then sublimate company logos, monograms, designs and even seasonal/event-specific messaging. Cost of production is about the same across the board. Yet retail prices can vary from $35 to $55. Why is this? It all depends on what their markets demand and the perceived value of the product.
Perceived value is the amount of money a customer believes a product is worth. A more generalized design, such as Christmas-themed image and text that says, “Merry Christmas,” may not be as in-demand as the same design offered with “Merry Christmas from The Matthews.” This is because anyone can buy the general design, since it can be mass produced. If a product can be owned by hundreds or thousands of other people, it is perceived as being common. But when you add a name, date, photo or other custom content, a product is perceived to be special and worth more.
The perceived value of your product can also vary depending on expectations within each market. Businesses with promotional and marketing budgets may consider paying $55 for a doormat with their logo a bargain. An individual consumer may see it as too much, as the product is simply decorative and not used to drive business. It’s important to get an accurate read on what your market is willing to pay for products before you start thinking about what to charge.
In addition to this, you also have to consider what your competition is charging. If they are coming in much lower on their retail price than you can, you may want to consider whether offering this product makes financial sense. But if you see that you can come in at the same or a lower price, then you may have a good selling point that can help you increase your sales.
Think about how you want to make your money. When talking about product decoration, there are only two options: retail or wholesale sales.
If you are following a retail model, your profit per item sold is high. However, you have to spend time finding customers, selling to them and delivering their products. This results in high profit margins, but maybe not as many units sold than if you followed a wholesale model. With this approach, use the tips above for calculating real costs and what the market will bear for pricing.
When you sell wholesale, you are selling to another business that will then sell your products to customers. You need to make a profit and so do they, so your pricing per unit will be much lower than if you are selling direct to consumer.
The key to pricing and making money as a wholesaler is the volume of units you sell. Your profit margins are much lower per unit than selling retail, but businesses will often buy in bulk, so you will sell more units per order.
Calculating the real cost of production is very important with this approach since your margins are much lower. You will also need to consider how much the product will retail for your buyer’s customers and determine if you can make a decent profit selling wholesale.
You could also blend these two models so that you’re getting profits from both volume and retail sales. This can help supplement income during slow times during the year.
As you can see, there is a lot to think about and consider when developing pricing strategies for your sublimation business. Don’t be afraid to experiment with your pricing and take a good look at all of your production expenses. You may find that you can get much more for your products than you thought before.
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