Your Pricing Formula
Why You Need to Add
A Profit Figure
In your pricing formula, the fourth element you need to calculate in the wholesale cost of your work is one many beginners forget to include—the profit.
Many jewelry entrepreneurs tend to think that profit and labor costs are the same thing. But they are not. "Profit" is the money left over after all expenses related to your business have been deducted from all income.
Above and beyond receiving the amount figured as labor, you should also be getting an additional amount for profit.
Profit is actually the reward for your creative and managerial abilities, for the extra hours you put in, for the initiative and responsibility you show. It's the return you get for the whole project—for the creativity that went into it, the skills required to carry it out, and the risks undertaken. In short, for being an entrepreneur instead of just a laborer.
Profit is also important to your business, because it is a hedge against contingencies, and a protection against loss. Profit is what will allow you to expand your business, to invest in it.
Profit allows you to buy new equipment, it also gives you money to gamble on new marketing efforts which may pay off.
If you do not add a profit to your price, you will just break even— assuming you have figured out your costs correctly and what you pay out in expenses isn't more than what you bring in, in sales. If your business isn't making a profit, your business isn't succeeding.
Everyone wants to make as much profit as he or she can, while still being competitively priced. The tricky question is how much profit can you add onto your total cost figures in your pricing formula without making your product seem out priced to a buyer.
Many jewelry designers feel a reasonable profit is about ten to twenty percent of the wholesale price, but that is only an estimate. Only you can decide what would satisfy you.
Another good approach to the profit question is to take a long look at your line and then go out and check the competition or the market you want to sell to. Get an idea of what prices are tagged onto items similar to yours.
For example, if you know your product is costing you $17.50 without any profit, surf the net, go check boutiques, gift shops and craft shows and see what kind of money they are getting for products similar to yours. Bear in mind that the retailer generally doubles the wholesale price on handcraft items. Therefore, if the retail price of an item is marked $40, you know that the wholesale price is $20. So your $17.50 item, without any profit, would already be selling for around $35.
If products similar to yours are selling for around $45, then you could make a $5 profit per item. If yours is a much better product then you may be able to charge a higher profit per item or if you'd like to be a little bit more competitive you could charge a little less profit.
After you have figured out your materials, labor and overhead, all you need to do is add a percentage of the total of these three costs and you are ready to set your wholesale price in your pricing formula.
Labour(1 hr x $15) $15.00
Overhead (20% of M+L) $4.05
Total Production Costs $24.30
Profit (15% of total Costs) $3.65
Wholesale Price $27.95
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