Understand Your Price Variables
We're going to move on tio understanding of price variables okay, surprise variables is ah big subject complex to some people were again we're going to break it down make it obtainable in bite size pieces now what dictates you retail price and that's going to kind of like quite an open ended question is it your market or your raw material costs because you can approach a retail price in very different ways? So it would be great to hear something in the chat room and also kind of like the twitter sphere um on kind of what what did takes people's retail price I think so we could throw something out there come back to that so really what do your route to pricing so that for me there's two there's two different rates on we're going to look at both of them briefly I'm going to focus in on one, okay? So pricing components um the certain things which everyone should include when they're building out a price when the figuring out what their pricing is ok, you have the cutting make and I call t...
hat I mean focus this really on if you're working with materials like fabric, but if you're focusing in on jewelry or cards it's the literally cutting, cutting out or molding and physically making the product so you have the cm or cutting make you have raw material costs you have a trims which I kind of put his labels hang tags care label if you're using are using clothing are any additional costs was diapers miscellaneous which khun b hiring a zipcar tio take something from from from a to z the markup on the proposed retail so in the very front of fundamental stages this is everything which I consider you should kind of build into a price okay, so we're going to look at two different approaches it's for working out you're costing retail we're going to look at something called the top down and we're also going to look at a bottom up okay? So top down top down starts with the retail price and it works down backwards until you get to your cost prize ok bottom up it starts with your cost prize and then gives you a retail price ok, so you have two different approaches when I am usually working with the companies whether it's ah designer or it's ah large brand I worked I worked with both simultaneously because they're good at kind of cross checking and making sure you're kind of pitched at the right level because sometimes you start with I have a great idea but I don't know what to do with it you know so I know what my materials are and this will take me to my retail price or sometimes you're giving us this slight well I want you to uh developer a range of sweaters and I needed to retail that, you know, two hundred dollars and he's just like, well, I don't know where to start, but then you start the top down and you bring it down to your cost prize. So both of these are ah, highly relevant and highly useful skills toe having to appreciate, but to keep it really simple and to keep out of fundamental level, I'm just going to focus on the bottom up version. Okay, so for the top down, a kind of a good explanation is you start with a retail price, he divided by the markup, and that gives you the cost price. Okay, so that's what the cost of the goods would be? Mccain said that so you have your cost price, you take all the elements away so you take your cut and make a way the trim cost and the miscellaneous costs, and that leaves you with your raw material cost okay, so raw material costs would be ah, your fabric if you'll make if I'm making scarves or if you're making purses or the paper or the card, if you're making letter press for they the metal's, if you're making jewelry so that is, you know and understand your raw material cost, I understand that in its kind of entirety will help you really select your suppliers that you work with, because that helps you picture and this is going to follow really nicely in the next session that we deal with right now, let's, focus on this and this is the top down approach next one that bottom up. Ok, so the bottom up is you're really taking your raw materials. So it's the exact opposite of what we've just done. You take in the raw materials you take the cotton make cost the trims, the miscellaneous, and that equals your cost price. Multiply this by your mark up and I get to your target retail price. So it's the exact reverse of what we are, what we've just done, starting out with retail working down now we're taking the real material cost and building up, okay, so I often get asked. Well, you know this is you know, if I can work in both ways, he says, I'm not great with with pricing, I'm not great with of mass, it gets me really computer, I start getting really stressed about it decide which is the best route to take. I would always start with the bottom up room on the reason why is you need to deal with what's really and physically what's really in front of you is how much everything costs um and then you just you work without use that as a starting point if you're not confident with your with your pricing or you're just getting a little kind of unease e or you're just starting out start with this work with this lay everything on the table in front of you you know how much how much is your fabric? How much is your thread? Do you want to use hang tags? What what's the cost of a hand tide lay literally everything out physically in front of you on the next in the next session, we talk a lot about every raw material aspect that some people kind of forget about, but we're going toe kind of focus in on that so yeah, clarification here we have people in the chat room who are saying what methods they use and how they come up with their prices and sassy seamster says I do a combo both I use a formula based on material costs and market research to see if I can price in the range effectively and still make a profit. But they had a clarification here saying I don't think I understand the benefit of top down maybe you could just clarify again with the benefits would be of using that method yes at the top down is if you are um so if I'm starting out with my scarf business okay, so I'm starting out with my scarf business I know I wanna build souls build six scarves and sellem, but I don't really know what my role materials are right now I don't really know how much everything is I know that I want to be kind of pitched around about one hundred twenty five dollars for my retail because that's where my target customer was shopping for the kind of product that I'm doing so so it's all it's all about kind of working with the variables and the actual kind of nuggets of information that you have if you start with a retail prices it's like I want my product to sell for one hundred twenty five but I have no idea how much I should buy silk for because silken vary from five dollars a meter or sorry a yard where am I working in meters and yards and I'm trying to get to get people here to work with meters but that is not interested for something I don't know why so okay to five dollars a yard or you can pay twenty dollars a yard for sock depending on the quality so I a designer I can't go to manufacturing just say just give me some silk I want some silk I want to make some scarves it's going to be an awesome brand and I tell them my back history and I thank you sounds great, but what kind of price range you're talking about? So I need to have that basic information. So by having our retail price, I can work back from that, and that will give me a number or a kind of a parameter in in which to work within to say ok, so I know in order to sell one hundred twenty five, that my price for almost again price per yard needs to be between, I don't know five and fifteen, so that is that's how I would use a retail price to work down. Okay, it's, it's to start with that level and to get like this to a ballpark, kind of like figure of where my raw materials just another quick technical question. We have people who have all different experiences in this and there's some terms that we just want to clarify. Just explain quickly what you mean when you say mark up markup is profit, it's how much you want to make it so it's, what will your profit margin is and there's different ways of explaining markup? I normally I'm usedto either using a percentage, so fifty percent mark up you'll see in the next slide so that I use to mark up so high times by two some brands use two point five. From a from a cost price up to retail, but basically it's it's, how much money you want to make out of it? Thank you. Okay? Or I might be jumping ahead, but I feel like this took me a really long time to do with my own business to figure it all out and to do the market research and to take in consideration also where eyeless yeah, where what my costs are versus comparing it to someone who lives say, in the midwest where their rent so much cheaper and yada yada yada. But I feel like the biggest thing I tend to leave out that as the years progress, and I'm trying really, really hard to not do this anymore is the value of my time. So I don't know where you if you're getting too that I will come, I don't mean to jump ahead, and I'm not told that definitely, like, so I build that into pointing a random screen here eventually, not on there. If you imagine that it is it's cutting make so I can make is also includes and I actually do have a full breakdown on I work. I actually gave myself an hourly the dollar salary salary work it down to the number of minutes worked out how many minutes he would take me to kind of cut a scarf out and I in it and press it and so it I didn't say an amount of detail you know I think I but it's again we go through it and the price variables about what you can adjust but the basically my my time it is built into the cotton make ok so I have put it in that because it is a business rate and it's it's hard it's one of the uses things to forget about this like oh it's not going it's a kind of hobby and you know it's fine and before you know it you're deciding everything is going back into the business and you know the hours that you've spent and not being financed for me it's like not an out of pocket so it's very easy to brush it away yeah yeah no definitely but we do feature okay think through sorry about that no you're welcome so uh so we have variables um now uh I could tell you a funny story um because uh when I was putting this light together I was talking to us talking to some people and they say oh you're talking about the levers that you can move you know and in the uk is levers not levers on its alevis just sounds wrong to me and I'm afraid so I had to take leave levers out and put variables in because talk it saying levers just makes me smile and it was probably a good thing but anyway, that's where we have variables, it's another way of saying levers, which just sounds strange um s o the variables we have two different panels of variables here from making the product and also selling the product and these variables are going to come back in the next few slides over and over again in different things that you can adjust to make your retail price work for either profit. For teo to kind of bring your cost price down and different things that you need to understand the relationship with in order to kind of really make your pricing work so on the making its side, we have got the raw material cost whatever that may be. The trim costs, the miscellaneous costs and the cotton make so the cut and make a zay just mentioned also includes my hourly rate my time that I'm taking on the selling its side, the variables, a retail price and profit. Okay, so all of thes every single one of these is adjustable in some way and it's it's it's having the confidence to adjust them in such a way that it's going to make your product sell and make you some money so really this is just about understanding the principles every every business is different, every price structure is different s o it's I want to kind of keep it a reasonably high level because then it can it makes it more relevant for everyone out there. So I've given a breakdown of a basic bottom layer scarf um my cut make cost is eight dollars, forty my raw materials of fifteen fifty my trends sixty cents in my miscellaneous is two dollars, so my total cost price in this case is twenty six fifty referee thirty seven by thirty seven silk scarf ok, I'm looking at two to mark up so it's going to be a fifty percent so my retail price I'm thinking about right now is around about fifty three, fifty three dollars okay, so I kind of take this price and I think this is a good theoretical price for me right now because I've done my competitor analysis, I've done my brand prison positioning, so I kind of know roughly where I want to be sitting on. I'm going to use this as a starting point to then kind of look generally and all the other layers just to see how it kind of clicks into place nothing is definite right now, it's just the kind of like it's an idea but working with the raw materials that I've researched so far ok, so in my collection plan we revisit this plan again exactly the same as before only now we've got some prices punched in approximately ten plus or minus as a kind of in indicative price is ok bottom layer is plus or minus fifty made his plus or minus seventeen and the top is plus or minus one hundred ok and you're talking just retail like you're just reason you're selling this straight to a customer absolutely okay yeah my business model is going to be on etsy is going straight to resale retail I'm not doing a whole cell is incredible right now um let's go back to this brand positioning just to kind of remind us so I'm pitching my bottom layer at fifty my middle layer at seventy on my top player had one hundred so if this is one twenty five and this is fifty this is not a bad position for me to be a kind of gives me flexibility to go down a little bit for the entry price this is pretty accurate for the mid and I'm below one twenty five for the top okay, so I keep reminding myself about my brand positioning as I'm thinking about the pricing thinking about where I want to pay okay so compared to my collection plan my costs are a workable for the entry price so I'm thinking ok, this is fine this is workable right now all right, so with this in mind I can start thinking broader about the whole collection about the mid layer and also the top layer okay, so so the first question from this particular segment is has stopped making a list of your raw materials and costs of the product that you're working with right now. Okay, so does everyone you will have a product that you're working on are that you know your raw material costs right now? Um there any that you have got kind of like no flexibility with a tall is no, no kind of like variables or do you have kind of like different sources and different flexibility? Actually, e I use kind of a specific fabric, right? I use one hundred percent cotton quilting cotton ok specific like a twosome base on the designer, right? So I don't feel like I have a whole lot of flexibility around that but they are more expensive, right? So I feel like that is sort of keeping my raw material cost higher probably than I would like it to be. Okay. All right, so you need to think about some of the other aspects of the kind of the variables in your pricing, okay, catherine, you're holding ahead and in the kind of agreement that yeah, but why I mean some of my clothing materials I can get either in scrap in at tab for abarca sheet or I could buy them full price but the colored mirror acrylic I can on ly get from mr plastics right at full at the other you know whatever for the trade price right? Yeah, so again you have some kind of flexibilities and variables but others depending on the actual technique here okay that you often find that that that's something that is really set in stone and using absolutely can't changer and then you have to kind of think creatively around the other areas that you can which is kind of one of one of the beautiful challenges of developing a product that everyone comes with. Okay, anything from the chat room you know we had a question come up and maybe getting to this in a little bit but how does the shipping and the packing cost get included on on activity like this is something that you would list out here is this come later in the process you know I put that into the miscellaneous okay? I should've broken that down it comes into the miscellaneous I have like two two dollars for that which I would then break down depending on well from my scarves they're very, very lightweight so kind of shipping cast is going to be kind of minimal across across the board right now so I would build into the miscellaneous is definitely included a group think