Many of us struggle with setting the best retail price for our products. Here are a few helpful tips including a simple fill-in-the-blank model (free download below) that I use.
– Find similar existing items in stores and catalogs. Identify the price range and estimate your product retail price within that range (Remember: consumers are price sensitive and product entrepreneurs often think that people will pay more for their unique item. Think again.).
– Find other similar existing items on Global Sourcing websites like: www.Alibaba.com and www.GlobalSources.com. This is a great way to come up with an estimated production cost for your product.
– Estimate the cost to produce your product. Remember that your production cost should be 1/5 or 20% of the retail price. (For example: If your product retails for $10 ideally your production costs should be at or below $2.00 ($10/5=$2.00).
– Ask consumers what they will pay. Gather this critical information by hosting focus groups, surveys and interviews. (Note: don’t just rely on feedback from friends and family.)
– Ask retailers how much they think the item could sell for at retail. (Remember: small, local stores are often-times a great resource for gathering this information because the owners or managers are nearly always there).
– Do simple math. (Trust me… If I can do it…You can do it!)
|
You Sell Wholesale to Retailer |
You Sell Wholesale to Distributor who then Sells to Retailer |
| $20.00 Retail Price paid by customer | $20.00 Retail Price paid by customer |
| $10.00 Wholesale price paid to you by retailer per unit. | $10.00 Paid to distributor by retailer per unit. |
| ––––– | $7.00 Distributor pays you $7.00. |
| $4.00 The production cost that you pay your factory per unit. | $4.00 The production cost that you pay your factory per unit. |
| You earn $6.00 Gross Profit Margin(60% Gross Margin). | You earn $3.00 Gross Profit Margin(43% Gross Margin). |
What is your income goal for this product? For example, if you want to make $100,000 annual gross profit margin from this product and let’s say that you are working with a distributor and earning $3.00 gross profit margin per unit for this item, than you will need to sell 33,333 units annually to meet your Gross Revenue goal. ($100,000/$3.00= 33,333 units annually). If on the other hand, you are selling the item to retailers yourself and want to make $100,000 annual gross profit margin from this product; and, let’s say that you are earning $6.00 gross profit margin per unit for this item, then you will need to sell 16,666 units annually to meet your Gross Revenue goal. ($100,000/$6.00= 16,666 units annually). I hope this information serves you well. Here's a free download of this post: How to Set the Retail Price for Your Products
Watch a 12-minute video tutorial on How to Use a Margin Calculator to automatically figure out the best pricing for your product. CLICK HERE TO WATCH VIDEO
Want the calculator you viewed in the video? You can have it for under $20. Click here to learn more.
JOURNEY ON!
Tamara
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