Monday, October 27

Pricing Your Goods Part 2 w/Chris Parry

So what's step 2 when it comes to pricing your goods?
Well before you get too deep here maybe take a quick glance at Part 1 of this story:

Step 2 is simply this:
You need to (for a short while, we will come back to market value) forget what everyone else is selling a similar item for. Then you need to figure out what it ACTUALLY costs YOU to make the item.

This is broken down into four simple things:

ONE-Raw Materials. What is the actual cost of the materials used to make the item, including any waste produced.

Example: if you pay $30 per kilogram for a block of stone to carve a beautiful butterfly that in the end only weighs 100 grams, you don't charge for the stone that is left, you charge for the stone that you bought.

TWO-Labor. We can on for hours about labour but it is just like this. If you want to earn $20,000 year, crafting 40 weeks a year at 40 hours a week, which equals 1,600 hours a year, to earn $20,000 a year, you would have to charge $12.50 an hour JUST for labour.

THREE-Overhead. Everyone has overhead cost. Overhead is how much it costs you to run your business, with or without any orders. Things like, electric, gas, travel, rent, insurance, advertising, etc...This isn't a bill thats paid out of your pocket. It is a bill that is built into the cost of your product.

"Do you think that Mr. Coca cola pays for the running of his factories himself, or do you thing that part of your purchase price actually pays for it?",
says Chris.

So lets say that you spend $10,000 a year running your business, and you already stated that you will work 1,600 hours a year (40 wks @ 40 hrs a wk), for each working hour, you should be charging $6.25 per product.

"This isn't a rip-off, it is the cost of ACTUALLY making the product." , says Chris.

FOUR-Profit. Not a dirty word. Profit is how your business makes money. You already charged for labor, which is great because that will be spent on silly things like food and rent and by the end of the week it will all be gone. You have alreay charged for the raw materials, which you have already spent on the item and you have already charged for overheads which will go to those nice people like, Mr Electric Man, or Mr Phone Man, or Mr Business Insurance Man. So your business does need to make a profit. This profit is what will sit in your bank and make your bank manager happy as it grows. It is this money that you can then invest back into the business, so if you want to pay for advertising in a glossy magazine, to get even more business, then it is this profit that will pay for that, to make your business GROW. So profit is not a dirty word but VASTLY overlooked.

This price you now have for your product is called a WHOLESALE price, which means that if you sell your item at this price, shops will come along, buy it, you ill make a living and a profit and they will then typically add 100%-300% (or whatever) and sell it to the public.

Heres a FREE spreadsheet on Chris Parry's blog,
which you can download and it will help you through the process.

Chris tells me he put it up on his blog last December
and it has been downloaded over 20,000 times.

I must say I have downloaded the spreadsheet and found it very useful. I use it all the time because this is a business to me. My regular 9 to 5 is a part time gig and pays $14000 (approx) annually and I'd rather make that doing what I love, but I will not see it if I am not charging the amount per card... Again for some this is just for fun but for those out there like me trust me you need this!

Chris said in closing, "Ask Auntie sue what you should sell your precious hamster warmer for or actually work out what you should be selling it for."

Thank for reading and I hope this helps many like it did for me.
Article post original written by Chris Parry re-written by La-Mar D Lynch Thank you and see you later...

Remember if you think big,
feel big and act big about your business
your business will one day become big....

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