Pricing your product

The price you charge for your product does more than determine how much money you receive. It must accurately reflect the value and quality of the product and position you competitively in the right market.

Price defines your margin - the difference between your costs and your sales. If you price your product too high it won’t sell, but if you price it too low you lose your margin and you will not be able to sustain your business.

Remember small businesses can rarely compete on price because of the high costs and minimums required for materials and production. Instead you compete on value, your unique POV, your quality standard and other processes and materials that set you apart.

When determining your product pricing there are a few things to do:

Research the price range for your market. Compare products in your line with similar items that target the same customer and marketplace. Understand how your target customer values product like yours and how they perceive your competitors. While prices of different products vary widely whether its a wool coat or a cotton shirt, a brand should be consistent within the market range.

Know your costs. One of the biggest mistakes new designers make is not charging enough to cover all of their costs, much less provide a profit. Price must cover both direct costs of making each item which are know as COGS (cost of goods sold) which you should track in a costing sheet, and the indirect costs of running your business. Indirect costs include design and development expenses such as trips to fabrics shows and hiring fit models, marketing and sales costs including photo shoots, website development, social media advertising, packaging and showroom expense. Administrative costs include rent, attorney and accountant fees, telephone and electricity, equipment and general business expenses. While COGS are charged to individual products, these indirect costs need to be divided up and allocated across the entire collection.

Understand the different pricing methods.

Cost-plus pricing is a common method which adds a standard mark-up percentage such as 2.5 to your COGS to ensure all expenses are covered and a profit margin remains. For example, if your direct costs are $50 and you use a 2.5 mark up, your price would be $125.

Value pricing starts with the price you believe the customer will pay and works backward adjusting your costs to maintain your margin. Some brands feature a lower cost product to build their audience in a strategy known as Penetration pricing. And last year innovative designer Telfar famously launched Dynamic pricing setting prices based on consumer demand.

Of course pricing depends on whether you sell direct to consumer or intend to sell wholesale in which case you must consider how the store markup will affect your wholesale price and margin. Retailers will add a mark up of at least 2.2 which in the case of our example above would increase the price of your product from $125 to $275. If this price doesn’t make sense for the market, you will have to return to your product and simplify the design or use less expensive materials, or move your manufacturing to bring down the cost.

Pricing strategy needs to be continually reviewed and small brands can test different price points for new items to see how it affects sales. Of course any discounts and promotions must align with your overall strategy.