Thursday, June 14, 2007

Naming Your Price

These questions were submitted by Estella on the “My Reason for Blogging” post.

Price is an important decision; I remember going over this again and again when I started Robeez. Here are some recommendations for a mom who is just starting her business.

I am trying to figure out how to price a product for retail. Is there a formula?

I know of two simple ways to price your product.

  1. Market-based pricing
  2. Cost-based pricing

In market-based pricing, research the retail marketplace and your target consumer. Using this information, select a retail price that reflects the positioning of your brand and what consumers will pay for the product. Factor in your costs to ensure you have a reasonable margin. As a rule of thumb, apparel retailers will typically double the wholesale price to determine the retail price. (This is referred to as keystone pricing.)

In cost-based pricing, compile your costs and add the amount of margin you need to make on the product and this establishes your wholesale cost. As I mentioned above, the retailer will typically double the wholesale cost to set their retail price.

I am getting my product produced in China and with the Canadian dollar being strong right now, it's great, but what happens when the dollar gets weak again and the cost goes up to produce?

I recommend factoring fluctuations in the dollar into your cost calculations. By assuming that you are paying for the goods with a lower value Canadian dollar, you cover yourself when the market changes.

Right now, I have the actual cost for a small run to test the market. I've taken the amount ($6), doubled it ($12 = $6 to produce & $6 profit) and when it goes to retail, do I suggest $24 to stores?

Your cost calculations are quite typical for the baby industry. You can provide retailers with a Manufacturer’s Suggested Retail Price (or MSRP for short); however you cannot enforce the price. For more information about pricing, I recommend you review guidelines for the country you will be selling in. For Canadian regulations, I recommend reviewing the Competition Bureau’s website.

Also, how do I handle cost of Point of Purchase displays? Does the retail store purchase that from me separately or add that to the total cost of manufacturing to determine the unit cost?

This will vary, depending on your business. Some companies provide displays free-of-charge, others require partial payment, and others still will pass along the full cost of the display to the retail store. However, since you are starting a new business, I would recommend building the cost of POP displays into your wholesale price. Offering branded displays can ensure retailers merchandise your product in an effective manner and helps increase sell-through. Consider the size of your display and the type of store your product will be sold in. These factors will greatly impact the scale and budget for your POP display. Ideally, I would recommend working with retailers to develop a display that will suit a variety of needs.

Good luck with your product launch!

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1 comment:

Laura said...

This is a really informative post. Thanks for sharing this information.