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WHOLESALE - SOME PRICING CONSIDERATIONS
Your ideal goal here would be to set your price at 2x your Total Cost. But, you will more often have to settle for a lot less mark-up. The compensating factor here is that when selling wholesale, you are selling in larger volumes than when selling retail. The larger volumes should help you reduce the costs of your parts, since you can buy those in volume. It should also result in a lot more "cash" flowing through your bank accounts. While you don't measure "cash flow" in actual dollar amounts and profits, "cash flow" definitely has a value because it enables your business to keep operating smoothly, and with less fits and starts.
The minimum return you should settle for with wholesale is the ability to price your items at 1.25x your Total Cost. If any less, you need to rethink your product or your marketing strategy.
A reasonable return you should aim for with wholesale is 1.5x your Total Cost.
Again, your ideal goal would be 2.0x your Total Cost. [If you are only wholesaling a few pieces at a time, then 2.0x might be your minimum acceptable amount.]
CONSIGNMENT: SOME PRICING CONSIDERATIONS
Many artists and craftspersons are dependent on consignment sales, since many of the retail outlets for these types of products must share the "risk" of sales with the artist. That is, the retail outlet cannot afford to buy the pieces outright. They can only afford to create a retail environment conducive for the sale of crafts and artwork.
Thus, the retailer, in consignment, basically agrees to accept a little less of a profit from the sale of any item. The artist/craftsperson also agrees to accept a little less money.
Typically, the retailer and artist/craftsperson might negotiate an item's "price" based on what they think someone will pay for it. Then they will agree how to split the money. A very common split is 60% of the sales price goes to the retailer, and 40% goes to the artist/craftsperson. Also common is 70% retailer/30% artist craftsperson. Less common is 50/50, 40/60 or 80/20.
Now the artist/craftsperson has to determine if the return is sufficient to result in a profit. If the decided-upon price for an item was $10.00, and the negotiated split was 60/40, the artist would expect $4.00 from its sale. This $4.00 would have to cover the cost of the parts, the general overhead costs, and hopefully some or all of the artist's labor, as well as some extra money to reinvest in the business.
Suppose the item was a pair of earrings, the cost of the parts was $1.00, the cost of labor $2.50, and overhead .88. The cost to the artist would be $4.38 -- .38 more in cost then in return. The artist could decide to take less for his or her labor. Or, the artist could renegotiate with the retailer to set a higher price for the item. The retailer would evaluate whether the item could sell at a higher price, or would sit around gathering dust, thus costing the retailing overhead costs, that could otherwise be offset with a better, faster selling item. [Retailers need to "turn" merchandise around at least 2x, and ideally 3x each year. That is, each square foot of selling space must generate a certain number of dollars each year to enable the retailer to pay the rent and other overhead costs generated by that square foot of selling space.] If the retailer is resistant to raising the price, and the return is insufficient to cover the artist's costs, then the artist needs to re-evaluate the product or the location for selling that product.
One of the greatest thrills of all time is when someone pays real money for something you have designed and created.
The first question pops up: Can I make some serious money making jewelry?
Why not? With smart planning, strategizing and marketing, you should even be able to make a living from your creative impulses.
Some advice:
First, buy your "parts" cheaply.
Limit your inventory at first. Buy a "few" parts in large quantities.
The more expensive your parts, the harder it will be to mark up your finished product in order to make a profit.
If you try to design your business so that you can meet every contingency -- that is, respond to every request or market niche -- you'll end up buying a lot of different "parts" to have breadth, rather than depth, of inventory. This will cost you. Each part will have to be bought in smaller quantities, and thus will be more expensive.
If, instead, you concentrate on replicating a limited number of designs, (perhaps varying certain design-features rather than coming up with completely new and different designs), you'll be able to buy parts in larger quantities, making them less expensive.
[As your business develops and matures, your goals will change, and you will seek greater breadth -- but this is a subject for another article.]
Second, know your market.
Who are your customers?
What will your customers be willing to pay, say, for a pair of earrings?
Where are your customers located? How will they get to you, or you to them?
What will it cost you to link up to your target market? - travel, displays, packaging, timing
You don't want to make a $100.00 beaded watch band if your most likely target market customer will only be willing to pay $20.00 for it.
Third, know your competition.
Check out similar merchandise in stores, flea markets and other places that sell jewelry like yours, and that target customers like the ones you want to target. How have they priced similar merchandise?
Fourth, mark up and price your products so that you will make a sufficient profit.
Sufficiency means that (a) you can buy replacement parts, (b) you can pay your overhead costs, (c) you can pay yourself, and (d) you can reinvest 5-10% of your earnings back into your business, such as expanding your inventory, or buying display fixtures and the like.
Remember, it's always easier to lower a price, than raise a price. Customers smile at lower prices, but frown on raised prices.
Some Formulas To Help You Price Your Pieces
You need to write down this information:
1) Cost of All Parts
Use your "typical" costs. If you got a good buy on some parts, don't use the discounted cost, unless this is going to become your "typical" cost.
2) Cost of your Labor
Figure out what you would expect to make per hour if someone were paying you a salary. $10.00/hour is reasonable for a beginner. Determine on average, how many hours it takes to make the piece. Figure out the hours to the nearest quarter of an hour. That is, if you took 1 hour 6 minutes to make a piece, consider that 1 1/4 hours. The number of hours times the hourly rate is your cost of labor.
3) Overhead costs (rent, electricity, consumable supplies, cost of travel to acquire your supplies, and the like).
Assume your "overhead" costs equal an additional 25% of the total cost of parts plus the cost of labor.
Now, compute your TOTAL COST:
TOTAL COST = Cost of All Parts + Overhead + Labor
It's always difficult to recoup your labor, that is, the amount of time you put into making a product. You usually have to discount your labor. Thus,
TOTAL MINIMUM COST = Cost of All Parts + Overhead + (Labor * 0.0)
TOTAL MAXIMUM COST = (Cost of All Parts + Overhead) * (1.5)
(1.5 is a labor cost adjustment factor)
If your parts costs $10.00 and labor cost $2.00, your overhead would cost an additional $3.00.
Your TOTAL MINIMUM COST (where you have charged nothing for your labor) would then be $13.00.
Your TOTAL MAXIMUM COST (where you have charged the maximum amount for your labor) would be $19.50.
Now you have to translate your "cost" into a "price".
For jewelry, you want to price your items at least 2 times your Total Cost, and preferably 2.5 to 3.0 times your Total Cost. Too many people underprice their products.
Don't be afraid to adequately price your products. Jewelry is typically marked up higher than other goods. There are many reasons for this. The cost of getting and maintaining an inventory of parts is high; you can't buy just 1 bead at a time as needed. Jewelry fashions change every 3-4 months, often radically, leaving you with some unsaleable stock.
In our example above, if your product cost:
$13.00 (Total Minimum Cost), it would be priced between $26.00 (2*cost) and $39.00 (3*cost)
$19.50 (Total Maximum Cost), it would be priced between $39.00 (2*cost) and $58.50 (3*cost)
Sit back and evaluate your situation. If you feel your target market won't pay at least, in this example, $26.00 for the finished product, you need to rethink. Either reduce your costs or redesign the product.
YOUR PROFITS: Assuming your cost was $13.00 plus $2.00 labor, or $15.00, and you sold your item for $26.00, your profit would be $9.00. You would want to set aside between 25% and 50% of this profit for "reinvestment" into your business. Thus, after you paid your labor ($2.00), bought replacement parts ($10.00), and paid all your associated overhead ($3.00), you would put between $2.25 and $4.50 towards purchasing additional things for your business, and the remainder in your business bank account.
