What's a reasonable profit margin?

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What's a reasonable profit margin?
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sally_in_wales
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Joined: 06 Mar 2005
Posts: 20809
Location: sunny wales

Posted: Sat Apr 07, 07 8:06 am Post subject:
Just do it, you may lose one or two customers, but the next sale will compensate. Or, have a fortnight of telling the whole world that prices are going up dramatically and order now or else. May get a few sales that would be welcome at this precise moment

jema
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Joined: 28 Oct 2004
Posts: 28239
Location: escaped from Swindon

Posted: Sat Apr 07, 07 8:19 am Post subject:

I think you have to be hard nosed about it, ask yourself what are you doing it for?
If you do want to do it for a living, then given each product takes your time, then the price must reflect the living you need to make.
There is absolutely zero point (unless there is some sort of grab share marketing you are doing, which would not be the case with crafts) in selling at below what you need to sell at.
If at the price you need to sell at you do not sell, then you have a failed business idea and need to move on.

Craft when you are doing the work has a different set of rules to other businesses. In say the Restaurant trade you have to price to get customers bums on seats, and then make a margin on that price and there are many ways to produce a meal to give a margin at any price.

With crafts, your scope is much reduced, each item is I'd guess simply not that flexible in cost of materials or in time taken, but you should still look ruthlessly at what gives the biggest bang per buck of your time!

I think the answer by and large with crafts is developing an air of art/exclusivity perhaps advertising that items are signed by you as the "artist". Anything to give people the impression of added value.

tahir

Joined: 28 Oct 2004
Posts: 45676
Location: Essex

Posted: Sun Apr 08, 07 7:41 am Post subject:

Stacey wrote:

Having reviewed my pricing strategy with the tutor of the marketing course I'm going to have to change all my prices - some of them to nearly double what they are now.

About flipping time. Make each sale profitable.

tahir

Joined: 28 Oct 2004
Posts: 45676
Location: Essex

Posted: Sun Apr 08, 07 7:47 am Post subject:

I'd agree with Jema that both Stacey and Sally need to "sign" their work in some way, maybe a makers mark like they used to do on China?

Also for both of you I don't know whether selling of your website will ever make huge amounts of dosh. Sally have you looked at supplying costume stuff? Must be loads of work there for someone with your historical knowledge AND the ability to translate it into a real product.

Stacey, you should consider selling designs to some homeware firms, you could do some great designs for all sorts of products.

alison
Downsizer Moderator

Joined: 29 Oct 2004
Posts: 12918
Location: North Devon

Posted: Sun Apr 08, 07 9:00 am Post subject:
For a signature you could have a printed button with a logo on, sewn onto every item.

Maxwell Smart

Joined: 29 May 2005
Posts: 607
Location: London Town

Posted: Mon Apr 16, 07 10:35 am Post subject:

Margins are a difficult thing and vary from industry to industry.

I don�t know what you are trying to sell but assume that it is the items on your Cledry Yarner website and also assume that you want to have a proper go at it and make a living from it � forgive me if you already are but just trying to differentiate the scale of what you are hoping to achieve.

The first question is what is your route to market? Direct to consumer or through stockists? Direct to consumer will give you a significantly larger margin but will limit you in getting your product out there. Likely you will be doing a mix. Your margin will also depend on whether or not you are VAT registered.

Most people will tell you the general rule of thumb is to work out your costs (material, labour, expenses etc) and mark it up appropriately � roughly 2x. if selling wholesale. Double or even triple that again if selling direct to consumer (retailers usually make more than manufacturers unfortunately.) While this may work it may also make your pricing unrealistic.

I personally like to go at it all a bit backwards and IMHO you need to calculate it for the quantities you would realistically like to be selling. I would go about it as follows:

1) Work out your production costs currently and work out achievable break points if you were to scale up production.
2) Market research what other people are selling similar �successful� products for and try and set yourself a price accordingly according to your product's USPs.
3) Finally see if you can make your costs then fit in with the going market rate. You may need to alter your product slightly to ensure that your production cost can make it competitive.

In my experience it is important to set your selling price point first to help guarantee sales and then work backwards from there to see what you can produce at what cost. Be prepared to accept that you may not make the margins you hoped for initially on the smaller volumes until you increase production where your costs begin to fall. This is where step 1 comes in.

There is no sense in pricing yourself out of the market before you have even begun to sell. By working this way it will also get you thinking about streamlining production in order to increase your profit without increasing the selling price.

The exact margin you then make will depend on your product - the numbers you hope to sell, the profit etc. You need to balance high profit and low volume or low profit and high volume.

Sorry a bit more than I meant to write but I hope it helps.

Good Luck with your venture!

Stacey

Joined: 18 Jul 2005
Posts: 8380
Location: Kernow

Posted: Mon Apr 16, 07 11:09 am Post subject:
Thanks Maxwell I was waxing lyrical about my new pricing strategy on thread in the Trading Post for some reason I've reached a conclusion on my prices and some of them are going to have to go up fairly significantly. However, I've looked around at what other people are selling and it seems to be fairly evenly matched - my prices are a bit lower than theirs but as you say I'm only starting out.

jema
Downsizer Moderator

Joined: 28 Oct 2004
Posts: 28239
Location: escaped from Swindon

Posted: Mon Apr 16, 07 11:35 am Post subject:

Maxwell Smart wrote:

In my experience it is important to set your selling price point first to help guarantee sales and then work backwards from there to see what you can produce at what cost. Be prepared to accept that you may not make the margins you hoped for initially on the smaller volumes until you increase production where your costs begin to fall. This is where step 1 comes in.

There is no sense in pricing yourself out of the market before you have even begun to sell. By working this way it will also get you thinking about streamlining production in order to increase your profit without increasing the selling price.

I tend to think this is where crafts don't conform with a standard rule book, for any commodity item, there is a going rate, and the price comes foremost and you have to alter your costs to match or face a low profit margin.
With crafts the primary cost is time, so unless there is scope for automation or ditching more time consuming items from the product range, there is a whole lot less ability to produce to meet a target price.
Hence the need to concentrate more on how to push the price up by creating perceived value.

Maxwell Smart

Joined: 29 May 2005
Posts: 607
Location: London Town

Posted: Mon Apr 16, 07 2:33 pm Post subject:

jema wrote:

True price is probably much more elastic in which case the same model applies as it does to the niche or luxury market by promoting the products USPs to create value for money as you point out.

But it is still possible as with anything to price oneself out of the market. Its better to price lower and increase the price if succesful.

Another option is to also create similar objects of differing complexities at differing price points.

She also needs to consider whether people by the item for themselves or as a gift and price accordingly.

Stacey

Joined: 18 Jul 2005
Posts: 8380
Location: Kernow

Posted: Mon Apr 16, 07 4:08 pm Post subject:
I've just done a 6 week marketing course which was pretty intensive and covered all that. After initial reservations it proved to be enormously useful.

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