How to Price Your Physical Products for Retail and Wholesale

How to Price Physical Products for Retail and WholesaleHow to Price Your Physical Products for Retail and Wholesale

Hours of thought, research, and planning goes into a good pricing strategy when you are running a physical products business. The perfect balance is a price that is attractive to customers but also provides you with a reasonable profit margin for company growth. There are two price points to consider when you are developing your product. One is the retail price that you would like your product to sell to the public. The second price is the wholesale price of the item to retail stores.

Price Research

The final price of your product to customers should be on the forefront of your mind as you are developing the product. The first place to research to get an idea on the type of price point that you want for your final product are items currently on the market. Price research involves visiting stores or online shops and looking through their selection of products that will be direct competitors to your product. As you research, make a list of products, features and prices. Listing the features and overall quality of the products is important since there can be huge differences in prices between high-end and low-end items. This research will help you determine if your calculated costs are in line with the current marketplace.

Determining Your Cost to Produce Your Product

If you develop a product and have another company manufacture the items, you can ask for a final cost per unit from the manufacturing facility. You will need to add the cost of shipping the items from the manufacturer to your office into the final cost per unit. This final cost is the unit cost that you will use to develop your wholesale and retail prices.

If you manufacture or assemble your products, you can calculate your base unit price by adding the cost of each of the components of the products. Remember to include the cost of all items from main components to labels and ink to packaging. You can use a spreadsheet program to calculate your unit, wholesale and retail prices. Following is an example from one of our rock and mineral kits. This example does not include the time to assemble the kits. If it takes substantial time, you can (and should) add that line item to your estimate. To determine the time cost, divide the number of units that you can assemble per hour by your hourly salary and add that cost to each unit.

Product Price Calculatoin

Wholesale and Retail Pricing Calculations

Pricing a product properly can mean the difference between items that sell and items that sit on shelves. Generally, the retail price of a product is five times the cost that it takes to manufacture the item. For example, if you are selling a shirt that costs $3 to make, the shirt would retail for $15.

$3.00 (shirt) * 5 (markup) = $15.00 (retail sale price)

The wholesale cost of an item is typically 50% of the retail cost. Retailers will double the wholesale price to determine their retail price to customers. This markup is known as “keystone.”

In our example of the $3 shirt, the wholesale price would be:

$15.00 (retail sale price) / 2 = $7.50 (wholesale price).

These are simply general guidelines. You can, however, adjust these pricing methods to suit your products. For example, if your projected wholesale and retail price are too high or low based on your market research, you can increase or decrease them accordingly.

Volume Pricing Your Products

As you design your sales program for wholesale products, you will make a greater profit if you sell in volume even if you lower the per unit cost. This may seem counter-intuitive but the following illustration will show how you can adjust the per unit price and find the sales volume that will help you find the greatest profit margin.

Volume Product Price Chart

Note: These prices are shown as whole numbers for ease of example. You should use your actual manufacturing costs in this analysis.

In this example, the manufacturing cost of $7.00 per item stays constant while the wholesale price and the units sold change. You can see that the total profit per sale is maximized at a wholesale price of $11.00 and 100 units sold. By increasing your minimum order, you can lower your profit margin per item and increase your profit for the entire sale. Try this exercise with your own product pricing. You can use spreadsheet software to easily calculate your profit per sale at different price points and unit groups.

As you are putting together you price calculations, let us know if you need help. Leave a comment below or send us an email.

 

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Shoestring Creativity: How to Launch Your Product on a Budget

Shoestring CreativityNo matter how much money you have to start your business, it will never seem like enough. Different types of businesses require different levels of funding to get off the ground.

When you have limited money it takes more creativity and time to get things moving but it can be done. For service businesses, often a computer and some business cards and some basic supplies can get you started. Product businesses are a little harder to start with only a little money. Without significant startup money it would be hard to manufacture overseas but you could probably find a manufacturer in the United States that will work with you on lower volumes. You may have to pay a little more per unit but you can keep your overall cost down.

Other money saving ideas:

  • Work from home rather than renting an office space.
  • Use free boxes from shippers like the USPS to keep shipping fees down.
  • Ask family and friends for extra packing supplies. Many people throw away bubble wrap and packing paper. Ask if you can have it instead.
  • Enroll in savings and ink recycling plans at office supply stores.
  • Search for your supplies online at different stores. For example, Walmart and Target carry many office supplies online that they don’t carry in the stores. Often, their online prices are lower than you can find locally.
  • Print business cards, stationery and brochures yourself. You will avoid minimum quantities. As you are starting a business you will want to tweak your marketing materials fairly often. If you can print small batches yourself, you will be able to make those changes more effectively than if you have to use up 250 brochures before you can print more.
  • If you are starting your business by yourself, consider hiring a virtual assistant to proof read materials before you send it to a printer. Their hourly fee is certainly less than the cost of a print run that you must reproduce because of a typing error.
  • Use services like SCORE for free business advice.
  • Start as a service business then add product sales. Service businesses, like marketing, web design and public relations consulting, are easier to start on a limited budget than a product business. For service businesses, often a computer, business cards and some basic office supplies can get you started. If you want to start selling products, add them to the business after the service aspects are established and profitable.
  • Bartering is one of the best ways to get the items you need for a business. You may offer a website designer your services for free and they will then help you develop your website at no cost.Look for local community small business groups to join. Often groups are eligible for reduced fees at other businesses.
  • Buy used or refurbished office equipment.
  • Pay your bills online and use online shipping to enjoy discounted postage rates.
  • Review your bills regularly and look for ways to combine services. For example, we use Ring Central (ringcentral.com) for our toll free number for Mini Me Geology. We were able to eliminate our local business telephone service by adding our local business number to Ring Central for only five dollars per month. Ring Central also accepts faxes electronically, which saves us the cost of paper and ink.
  • Find a few, high quality vendors to save on shipping costs. If you can purchase all of your office and shipping supplies from one vendor rather than two or three you can save on shipping fees and ordering time.
  • Purchase business checks from private printers rather than directly from the bank.
  • Gather bids from at least three vendors when you are locating a new source for a particular product, part or service. Let the vendors know that you are receiving multiple bids so that they can offer their best price. Once you find a quality vendor, stick with them for the long term if possible.
  • If you own a brick and mortar store, share advertising with neighboring businesses to cut the cost.

If you have other money saving tips as you start your business that we should add to this list. We’d love to hear them in the comments or on Facebook.

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Enough Planning, It’s Time to Launch Your Business…Get Moving!

Enough Planning 2This is the question that people ask me the most: “How do I start?” You have a great idea and are ready to get underway but where do you start? Where do you turn? Research? Plans? How do you know? Without information you will likely spend hours in the library and searching online for direction. I think the best action you can take is to perform some initial research, quickly write a plan of action, then get to work.

Business Research

You have a great product idea and are confident it will be a hit. But, hold on! Before you jump and order 50,000 units from a manufacturer, you need to do some basic research to make sure that your product and business meets all of the applicable requirements of the local, state and federal government.

Licenses and Permits

Research all laws that apply to you with the local, state and federal government. Not knowing is not a valid excuse for not complying with the law. Call your local and state business license offices and ask them how to obtain the necessary licenses to operate in your area. Each state and local government will have a procedure for you to follow to obtain a business license and a sales tax license, if necessary. Your businesses may also need a federal Employer Identification Number (EIN), which is also called a Federal Tax Identification Number. You can visit the Internal Revenue Service (www.irs.gov) website to apply online. The IRS website also provides links to each state to help you determine what licenses and/or permits you need for the business. I recommend that you hire an attorney to help you ensure that the business meets all applicable requirements.

Product Safety

Research the safety and testing requirements before you order a large production run. Safety is an important aspect of developing your product. The Consumer Product Safety Commission (www.cpsc.gov) website provides information on the safety and testing requirements for products sold in the United States of America. If you plan to sell internationally, you must comply with the laws and regulations for each country.

The One-Hour Business Plan

Once you complete your research, start with a very basic plan. I call it the “One-Hour Business Plan.” Yes, of course, as you grow you will need a larger, more complex plan, but not now. Down the business road, if you choose to acquire bank funding or venture capital, you will need a full scale business plan. You can find resources for and assistance completing a formal plan at SCORE (www.score.org). For now, just concentrate on a basic plan to set you on your path.

I am a huge fan of lists. I highly recommended that you put together a basic business plan that lists the steps that you need to accomplish to get the ball rolling. As you progress, update your plan to make it more detailed and inclusive of all of the aspects of your growing business.

When you start your business plan do not take six to twelve months to finish. As I said before, this initial plan is just to get your thinking about your product or service and can be refined later. So get a piece of paper and a pen ready and a timer.  Set the timer for one hour and start writing.  Force yourself to finish your first draft of your plan before the timer rings. Do not worry if you do not have all of the answers or if you miss some minor step. Once you start the business you will learn more and can expand your plan at a later date.

Places to Find Help

At times you will find the start-up process potentially overwhelming or intimidating. There are resources available to you both online and in person. As I started Giverny and developed the Mini Me Geology products, I relied on SCORE (www.score.org) and the website StartupNation (www.startupnation.com) for business advice.

The SCORE organization is a nonprofit association which provides free advice to small business owners. There are SCORE offices nationwide that you can visit for mentorship meetings, seminars and to connect with other business owners. The SCORE website provides the ability to connect with mentors around the country who have experience in your area of business. You can ask for advice via email through the SCORE website. The association also offers free or inexpensive webinars for business owners who live too far from a SCORE office or cannot attend in person.

StartupNation is a website dedicated to helping new entrepreneurs with many of the topics you face as a business owner. In addition to articles and podcasts, this site has a forum section where you can ask and answer questions and search for help on many topics.

Other websites that I have found useful include Inc. Magazine (www.inc.com) and Entrepreneur Magazine (www.entrepreneur.com). Spend a few hours searching the internet and you will find some valuable business resources.

What challenges are you facing now that are stopping your from writing your one-hour business plan?

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It’s Time to Start a Business, Not an “Amazon-Business”

It's Time to Start a Business, Not an "Amazon-Business"

I’ve been an entrepreneur for a long time now and I think it is important for new business owners who are starting out by selling on Amazon, to understand that you are starting a BUSINESS, not an Amazon-Business. Amazon is great, don’t get me wrong. But Amazon is one single selling platform and it should not be your only one if you want to truly start a brand.

I hear the phrase, “I”m starting my Amazon Business” every week and it makes me cringe. First and foremost, you need to start a business before you think about selling your products on platforms like Amazon. Legally starting a business is not that difficult. You need a business name and a business license. You can start as a sole proprietorship so there is no big legal filings for forming an LLC or a corporation. I’ve had a few people ask me how to figure it all out but the easiest thing to do is look on your state website and your town’s website and look for the requirements. If you can’t find them easily or quickly, simply call and ask.

All product businesses should start out with their own website that show cases their products and their company’s story. Why did you start the business? Why do you manufacture and sell these products? This is your story. Once you’ve established your own company website complete with a little shopping cart so your customers can happily buy from you, it is then time to take on other selling platforms.

While Amazon has tremendous traffic, being a third party seller is not as easy as it sounds. If you are brand new to the world of product sales, you

I’ve been an entrepreneur for a long time now and I think it is important for new business owners who are starting out by selling on Amazon, to understand that you are starting a BUSINESS, not an Amazon-Business. Amazon is great, don’t get me wrong. But Amazon is one single selling platform and it should not be your only one if you want to truly start a brand.

I hear the phrase, “I”m starting my Amazon Business” every week and it makes me cringe. First and foremost, you need to start a business before you think about selling your products on platforms like Amazon. Legally starting a business is not that difficult. You need a business name and a business license. You can start as a sole proprietorship so there is no big legal filings for forming an LLC or a corporation. I’ve had a few people ask me how to figure it all out but the easiest thing to do is look on your state website and your town’s website and look for the requirements. If you can’t find them easily or quickly, simply call and ask.

All product businesses should start out with their own website that show cases their products and their company’s story. Why did you start the business? Why do you manufacture and sell these products? This is your story. Once you’ve established your own company website complete with a little shopping cart so your customers can happily buy from you, it is then time to take on other selling platforms.

While Amazon has tremendous traffic, being a third party seller is not as easy as it sounds. If you are brand new to the world of product sales, you definitely want to learn as much as you can about sales, inventory, shipping and customer service before you venture off of your own website. Once you establish a company presence on the internet and are comfortable with the ins and outs of selling, then it is time to add your products to platforms like Amazon, eBay, and others. In fact, in a lot of instances, Amazon will ask to see your website and products before approving you to sell on their site. So, the process is always to establish you company first and then take advantage of other selling platforms.

What are your challenges to setting up and running your own business? How to you plan to get your brand started?

want to learn as much as you can about sales, inventory, shipping and customer service before you venture off of your own website. Once you establish a company presence on the internet and are comfortable with the ins and outs of selling, then it is time to add your products to platforms like Amazon, eBay, and others. In fact, in a lot of instances, Amazon will ask to see your website and products before approving you to sell on their site. So, the process is always to estabish you company first and then take advantage of other selling platforms.

What are your challenges to setting up and running your own business? How to you plan to get your brand started?

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How to Choose the Right Business Model for Your Product Business

Your Store Here 2Once you choose your initial product, it’s time to decide how you want to sell to your customers. Take some time to consider the demands of your potential business before you make your final choice. For example, if you want to be able to work while the kids are at school but still be able to volunteer in the classroom, then owning a retail store where you can sell your designer chocolates probably is not a good fit for you because you would need to be present at the storefront during open hours. However, you could take your designer chocolates and sell wholesale to local restaurants, bakeries and candy shops allowing you more flexibility in your time.

Characteristics of a Product Business

A product business gives you many avenues to sell your new product. As an entrepreneur, you can sell your product directly to consumers or to retailers, who then resell your product in their stores. Some business owners choose one path while others choose both.

  • Can be run from home or brick and mortar store
  • Good options available for third party manufacturing, storage and order fulfillment
  • Possible high startup cost to develop and produce products or to purchase beginning inventory
  • Has potential for high compensation as unlimited amount of product can be sold
  • Able to hire third party sales representatives or affiliate marketers to boost sales with limited upfront costs

Wholesale Side (Business to Business)

  • Upfront costs can be high to get initial supply of products manufactured
  • Spend time developing new products each year to keep business viable
  • Has options to sell wholesale to retail stores and retail to private customers
  • Significant storage areas may be necessary to find and maintain
  • Credit card processing and inventory management necessary

Retail Side (Business to Consumer)

  • Medium to high upfront costs include store and/or website
  • Credit card processing and inventory management necessary
  • Has control of ultimate price of items
  • Has multiple selling options with store, online, and private parties
  • Significant storage not necessary as many suppliers will allow relatively small order

Retail Websites vs. Brick and Mortar Stores vs. Private Sales

In today’s technology world one of the biggest questions you will face is: “Do I open a brick and mortar store, sell online, or offer my products in small group settings?” If you are developing products and selling direct to the customer, then a website presence is a must in my opinion. Brick and mortar stores, I think, are optional in the beginning. Some business owners prefer to meet face-to-face with customers in small group parties so that that they can demonstrate and show their products personally. The choice of sales method has more to do with your personality than anything else. Do you like to be closed away in an office or out talking with people all day? Are you ready to hire and manage employees?  Here are some traits of each type of business model to help you decide.

Website (Wholesale and/or Retail)

  • Can be from home or small office
  • Basic websites are relatively inexpensive
  • No daily face-to-face with customers
  • Primarily phone and email correspondence
  • Lower rent likely than retail space
  • Costly decor not necessary
  • Can be isolating
  • Can reach national audience
  • May not require employees at first as many aspects can be outsourced

Brick & Mortar (Retail)

  • Daily face-to-face with customers
  • Set hours of operation
  • Must be at store during open hours or hire employees
  • Can have office at store
  • Must decorate store
  • Reach local audience – can target effectively
  • Monthly rent, possible contract

Private Sales Methods / Home Parties (Retail)

  • Set hours of operation
  • Organize home parties
  • Low cost to provide hostess with free samples
  • Face to face sales with customers

As I said, Mini Me Geology is both a wholesale and retail business that I run from home through the internet. As a geologist I understand the products and as a Mom, I like the flexibility of working from home. Through my website, I can serve our wholesale customers and also have retail sales which allow us to interact directly with our end users. Some days I feel like the house is overrun with rock and mineral samples but when I decide that I cannot stand them anymore, we will move the assembly, packing and shipping to a third party service provider in our area. (Confession – I actually love having rocks all around the house…) Even when we move these aspects of the business, I can still sit at home and run the daily operations.

So what type of business is right for you? Home-based? Brick and mortar? Retail? Wholesale?

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How to Choose the Right Product to Sell

sept-21-2016_my-first-product-blog-imageChoosing the type of product to sell is the hardest decision you will make on your road to product entrepreneurship. The two most important things that I can tell you about choosing a product is to pick a product type that you know and love. If you pick a product that you know and like, it will be easier to provide great customer service with you are faced with questions about your product.

“Consider your job and hobbies when searching for a product or product idea.”

Pick a Product that You Know

When you start to develop your first product it is advisable to choose something with which you have familiarity or something that solves a problem that you have in your own life. If you are a florist but decide to open a fine-dining hamburger restaurant, you may have trouble because you do not know enough about hamburgers or fine-dining restaurants. You may love to eat hamburgers but that does not mean that you know enough to be successful. Conversely, if you develop a new, partitioned flower vase that helps homeowners create beautiful arrangements with their garden flowers you may enjoy enormous success.

When you are trying to decide on a product business, make a list of all of the possibilities based on the things that you know how to do. Many of you reading this may be thinking, “I hate my job and I want as far away from it as possible!” I will tell you a secret. I thought that too. I worked for an environmental consulting firm and my boss was very difficult. I decided to open an online flower business because I liked flowers and it had nothing to do with geology. The problem was that while I love flowers, I know nothing about them! How I thought I could run a business selling flower arrangements and educate people on the different types of flowers when all I really knew was what roses and tulips looked like, I will never know! My biggest problem with the flower business was not that I did not like the flowers; it was that the learning curve for me to grasp everything that I would need to know about flowers to successfully run the business was too steep. I like flowers but not THAT much. What a nightmare!

But, I was so annoyed with my then current supervisor that I let that frustration push me in a bad direction. Then one day, my husband asked me “What is it you like about geology? There must be something or you would not have earned a Master’s degree.” He was right.  I had both a bachelor’s degree and a master’s degree in geology so obviously it appealed to me. I found myself telling him that I like the rocks and minerals themselves. That was the rocks and minerals and how they formed that I liked and that is where my final business idea came from.

To find your best product idea, take a notebook and make a table like the one below. It can be as long as you like. Make a list of all of the possible products that you could develop for your business. Start your list with things you know and add products that could solve a particular problem that you have in your life. If you already have a clear direction for your product then you are in a great position. If you do not, the sky is the limit so starting making that list.

Brainstorm Product Ideas

Use this chart to list your areas of expertise and the different products that you could develop. If you already have one product in mind, think of complementary products that you can use to produce a full line of goods for sale.

sept-21-2016-chart_2

My chosen product is:

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To Be or Not to Be an Entrepreneur

Be an EntrepreneurIt seems that today everyone wants to start a business either to earn more money, have more freedom or a combination of both. I started my businesses so that I could work from home and spend more time with my children.  It works for me because I am self-motivated enough that I can sit in my house and work, run over to the school, pick kids up, drop kids off and then return back home and continue to work while ignoring the mountain of laundry and dishes that need attention. Of course, that could mean that I really dislike housework, too!

During the past few years, I have met many other business owners who all have interesting stories about how and why they started their businesses and the unique companies that they run. Everyone has different experiences but the one thing that I noticed is that they all have is the ability to self-motivate. To build your own business you have to be willing to sacrifice a little sleep, a little money and some fun time.

If you are still undecided about taking the plunge, ask yourself these questions:

  1. Can I stay up late and give up some sleep?
  2. Can I make myself work when I do not feel well?
  3. Can I make myself work when I do not want to and would rather be watching television?
  4. Am I willing to take risks, both personally and financially?

If you answered “No” to any of these questions, then you are not ready to make the decision to forge ahead with your business venture. However, if you answered yes…let’s go!

Yes, I’m Ready to Get Started

Yay! Now that you decided to start your business you may be unsure where to begin.  I think the question people ask me most is “How did you start?” Honestly, I tried a few different products before I found the one that fit my experience and personality the best.

You should fully expect that you will make some mistakes along the way. Mistakes are okay because you can always try again, change your course and learn a better way of running your business or develop a better product to offer. But the absolute BEST THING you can do now is get started.

But I Can’t Quit My Day Job

If you cannot quit your current job and start something new without the guarantee of a paycheck you are not alone. Many of us, like me, start our businesses while still working either part time or full time at a traditional job. Depending on the type of business you start, this can be a great option for you. However, if your business is going to be in direct competition with your current employer, then you should not start your business while you are still working.  If your new business is in a different field than your current employer then you may be able to get your business off the ground while you keep your traditional job.  Check with your human resources department to see if starting your business while working part-time or full-time is within your company’s rules.

Remember that having what it takes to run a business does not mean that you have to know how to do everything before you begin. All you need is the desire to either learn how to get it done by yourself or by hiring other professionals to help you.

What is My First Step?

The very first action that you should take is to brainstorm what type of business you will start. I sell products so first, I had to decide what type of product I wanted to sell. I ended up choosing a product that I could design and create on my own that used my background in geology. I make rock and mineral kits and write educational books for students and teachers. What is your background? What product could you sell? Make a list of at least 20 product ideas. That is step one.

Need help?

If you are struggling with figuring out what to sell, tell us about your background in the comments and maybe we can brainstorm some ideas together.

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