By: Mary Savel
So you’ve been working really hard at developing a new leather wallet for your online shop and you’ve been making sure the design is perfect before you put it up online. You’ve taken some well lit and clear photos and have got a catchy title and description that speaks directly to your ideal customer.
But you have a problem.
“How do I price my leathergood?”
Why Pricing For Profit Is Hard
Pricing for profit can be hard for the new leathercraft business owner for a few reasons.
Sometimes they make the mistake of putting themselves in their customers’ shoes and then thinking about what they themselves would pay for their new leathergood. Don’t think about what you could afford, but what your ideal customer could afford. Most of the time, you’re not your own ideal customer and can’t necessarily afford your own leather goods. I know I can’t afford mine!
Another reason why pricing for profit is hard is that the new leathercrafter for whatever reason doesn’t put a high value on their own product. They just can’t believe that they’d be able to create something of a high value. Obviously, this is not true, and it’s most likely just a mindset issue.
And finally, money is weird. Right?
For a lot of people, the exchange of money for something that they’ve made can just make them feel uncomfortable. Ever tried to negotiate a salary or ask for a raise? That queasy unsure feeling that can come over you is the uncomfortable feeling that I’m talking about. And to avoid this discomfort, people often times undercharge for their products and as a result never stay in business for that long.
Why Pricing For Profit Is Important
So the reason why we must price our products for profit is because if you’re not profiting from each sale that you make, then you’re breaking even or worse losing money on each sale.
If you’re losing money or just breaking even, then you don’t have a sustainable business. You have a hobby that you are self-funding.
Without a profit, not only are you not able to sustain your business and continue it but you’re also not able to scale and grow your business into something bigger.
The Simplest Way to Price For Profit
So to avoid going out of business before you even get started, use real numbers and two simple pricing formulas to get your base price.
We can use the following formulas for wholesale and retail pricing
WHOLESALE = (MATERIAL COST + LABOR COST) X 2
RETAIL = WHOLESALE X 2
So for example, let’s say you have made a wallet that you want to put up for sale on your website.
Your materials costs are $9 and say your hourly rate is $20/hr and it took you 30 mins to make.
Your wholesale price for the wallet is going to be $38 and your retail price is going to be $76.
Here’s how that math works:
WHOLESALE = (MATERIAL COST + LABOR COST) X 2
WHOLESALE = ($9 + $10) X 2
WHOLESALE = ($19) x 2
WHOLESALE = $38
RETAIL = WHOLESALE X 2
RETAIL = $38 X 2
RETAIL = $76
Now before you think “oh no, that can’t possibly be the price and this formula doesn’t work for me!”, just know that this price is not carved in stone. Many people think that they have to use the exact price that the formula gives them but this isn’t true and I’ll tell you why in a minute.
The biggest pro to using these formulas is so that you know that your base costs are covered. So instead of thinking, “what would my customer pay for this or what would I pay for this?” and pulling a number out of thin air, you can be sure that your costs are covered and that you’re making a profit on each sale.
Tweaking Your Price For Your Ideal Customer
After you’ve run your numbers through the formulas, you can now analyze and use this price as your jumping off point. Ideally, you know who your customer is and you know what kind of pricing strategy that your business operating under, right?
For example, if you’re targeting a higher end luxury customer, you’re probably going to price higher then what the formula gives you. Instead of a 2X markup, you might have a 4X markup (the markup is the factor of 2 that you are multiplying your costs by).
Keep in mind, that if you’re trying to reach the high-end customer you must be operating a high-end business across the board. This means having a high-end product, high-end customer service, high-end website, and branding etc.
If you’re targeting a mid-range customer, who expect quality but at a competitive and reasonable price you’re probably not going to veer too far from the price that your formula has given you.
So when it comes to pricing your leather goods, make sure you’re looking at the big picture. Think about who your audience is, what type of customer you’re targeting and that you’re using real numbers and these simple pricing formulas as a jumping off point.
In addition to profitable pricing, there are 3 strategies that every leathercrafter should be implementing into their business when they first get started. I’ve created a detailed guide that shows you exactly what these 3 strategies are and how to implement them into your business so you can not just sell your leather goods, but create a successful leather goods business that you can grow.
Download your copy at www.lucrativeleathercraft.com.
Mary Savel teaches people how to make and sell their traditional leatherwork online, at craft fairs and to stores. She runs www.LeatherBeast.com, and lives and works out of her NYC apt that she shares with 1 boyfriend and 2 cats.
