Advice needed on setting a selling price!

[Spearmint]

Can anyone recommend any good websites or books which relate to calculating and setting prices or retail items?

I've prepared a spreadsheet already, based on the main product that I wish to sell which will be the theme of my website. However, I intend to sell other items which could be regarded as accessories to the main product, and like the main product they can be purchased separately as well.

After completing my spreadsheet, I realised that I'd loaded all the costs onto this one product and didn't spread it among other lines. Is this a flawed strategy?

Of course I had to guess the number of likely sales and the initial selling price, but I included those figures as variables so I can juggle them about to see what happens in different scenarios. I ended up using good, average and poor sales all sold at the same price, but I'd like to have some means of checking what price to use.

What is the normal rule of thumb multiplier between cost price and the selling price?
What is the normal % profit on an item. I assume that its not the same multiplier as costs/overheads and tax need to be taken into consideration.

Now, if I've already allowed for all my costs/overheads and tax within my items price, what should the multiplier be this time?
Likewise what % profit should I be aiming for?

I also wanted to know if Accountant's normally advise on what to set the selling price of goods at, or is this outside their remit.

 

[Paul Norman]

For most items, the market place will indicate a range of selling prices - you can research this. You then must decide whether you can operate profitably on the margin that gives you.

Many items come from the manufacturer with an indication of what they expect you to sell for too. Which is useful. Going above that is unlikely to work!

And you suspect right. Accountants are not the people to tell you the selling price, although they will advise you on the viability of your intended margins.

 

[S-Marketing]

Market and marketing research is what you need. There are lots of different pricing strategies, many of which ( such as cost plus pricing) are flawed.

As another member pointed out, the market will tell you what your price should be.

It's a marketing task, not an accounting one.

 

[Chris Ashdown]

For your first spreadsheet you can just use a total sales to work with and then latter break it into seperate items

Regarding retail price you will in most cases find a markup of 30% the minimum you could accept but it depends on the item, some items likefashion can have hundreds of % markup on manufacture costs others very little. as others have said research maybe by google your product and see what price its selling at

 

[Spearmint]

Its a new product, so I have no direct competitors. Indirectly, I do have competitors, so I am mindful of their prices, but I don't dwell too much upon them, as our products are different. Ideally, I'd like to find a price which gives me a sensible return, but keep it as low as possible for my customers.

 

[mpunaskar]

I would suggest reading "Dont just roll the dice" by neil davidson. It summarizes various pricing techniques for product based on competition, accessories and customer affordability.

Must have book for any enterprenuer.

 

[JamieM]

Who are you selling the products to? End customers, retailers, distributors, all three?

One thing I would suggest is that once you figure out a price range, launch at the higher end of the scale. It's easier to come down than go up.

With regards to your loading all the costs on to the main product, it probably is a flawed strategy but it depends on what portion of the sales you expect the accessories to make up. When it's not massively significant I actually quite like to apply all the costs to the main product and consider accessories a bonus. It just adds a bit of a cushion to your calculations. I'm sure some would rather create a more accurate representation though.

 

[Spearmint]

I will be selling directly to the customer mainly through a website but also at public events/shows

I suppose I too have looked upon the sale of the accessories as a bonus.

 

[Scalloway]

This website shows some of the ways of allocating overheads to products

http://www.ukeducation.org.uk/Printgetcontent.asp?key=1328

 

[JamieM]

I will be selling directly to the customer mainly through a website but also at public events/shows

I suppose I too have looked upon the sale of the accessories as a bonus.

Any reason why not to shops? And what if a company wanted to distribute the product in another country? Even if you don't have plans for this now you should think well ahead. If you go in too cheap on retail there may not be enough margin for this kind of thing later and like I mentioned it's hard to put your prices up.

I would recommend creating a price structure based on a price to distributor, a price to retailer, price to customer making sure there is sufficient margin at each level and importantly actually selling at the full retail price on your own sales. Otherwise it creates a conflict of interest. You can run promotions now and again but I'd suggest trying to keep away from regular discounting if you want longer term success with it.

 

[Spearmint]

I hadn't dismissed selling to distributors and retailers, I just felt that this may be something to look into later, however I can see where you're coming from, and it would be a good idea to consider what discounts both distributors and retailers would expect, and it may help in setting my starting price.

Do you happen to know what their respective discounts would be, either as a percentage or a multiplier?

 

[JamieM]

I hadn't dismissed selling to distributors and retailers, I just felt that this may be something to look into later, however I can see where you're coming from, and it would be a good idea to consider what discounts both distributors and retailers would expect, and it may help in setting my starting price.

Do you happen to know what their respective discounts would be, either as a percentage or a multiplier?

It really depends on the product, the demand, the industry, the projected volume and the retail price of similar products etc. Sometimes I will work back the way. Figure out the retail price so say it was £18 inc VAT. I'll then aim for a cost to retailer of £7.50 ex VAT allowing them a 50% margin. From there I'll look at the cost to land the product so say it was £3, I'd have an overall £4.50 to play with. I might charge about £4.50 to a distributor which allows them a 40% margin (based on the retail cost at £7.50) and with a 33% margin for me. You might need to work in their shipping cost in this too though. I'd also make 60% on wholesale to retailers and 80% on direct retail sales.

I'd then be able to tweak every level until it was right. The margins can start to change quite quickly with a few tweaks here and there.

It is very general but basically you just need to plan if you can make enough money at realistic margins to make it worth while. And obviously have a good idea of your marketing and overall running costs. If you think you can sell millions of units or it's high value for example then you can accept lower margins all round but there are just so many variables. For me the retail price and cost to retailers are the prices to start off with. Just make sure you don't leave margins too tight from the start.

 

[Spearmint]

While I can understand where you're coming from, it depends what you're selling.

If I was to apply the same calculations to my product, my product would end up being overpriced to the final customer, so they wouldn't buy it!

If you were to consider a simple product such as a man's comb, if after doing all the mark ups, for distributor and retailer you arrived at a price of £6, no-one would buy it!

By eliminating distributors and retailers at least you're keeping the final price down, but it has its disadvantages!

My product is a bit like a comb, there is a maximum sale price which can't be exceeded!

 

[JamieM]

While I can understand where you're coming from, it depends what you're selling.

If I was to apply the same calculations to my product, my product would end up being overpriced to the final customer, so they wouldn't buy it!

If you were to consider a simple product such as a man's comb, if after doing all the mark ups, for distributor and retailer you arrived at a price of £6, no-one would buy it!

By eliminating distributors and retailers at least you're keeping the final price down, but it has its disadvantages!

My product is a bit like a comb, there is a maximum sale price which can't be exceeded!

Not necessarily. You can still sell low cost items with a distribution model. How much are you thinking of selling it for? And how much does it cost to make landed?

 

[Spearmint]

I reckon that the cost price could be in the region of £1.80 to £2.10 (on the assumption of healthy sales) and ideally I'd like to keep the retail price under £5

Indirect competition probably retail from £3 upwards, but my product has distinctive advantages. It also has a disadvantage in one aspect, and although I'm bias, I'd consider it as a minor one, but some won't, and I've got to accept that you can't please everyone.

 

[Chris Ashdown]

With low priced goods like under a £5.00 than are people really looking at the price or just impulse buying, myseld I would not bother looking around for a cheaper item but just buy it. yes some people on low incomes may look around but i would have thought rather low numbers

 

[JamieM]

I reckon that the cost price could be in the region of £1.80 to £2.10 (on the assumption of healthy sales) and ideally I'd like to keep the retail price under £5

Indirect competition probably retail from £3 upwards, but my product has distinctive advantages. It also has a disadvantage in one aspect, and although I'm bias, I'd consider it as a minor one, but some won't, and I've got to accept that you can't please everyone.

In that case there is no margin for distribution or wholesale. Your own margin is that of a retailer. Where are you getting this made?

It certainly isn't comparable to a hair comb which could be produced for about 20p.

Are you sure you're buying cheaply enough? What kind of volumes are you buying?

 

[Spearmint]

In that case there is no margin for distribution or wholesale. Your own margin is that of a retailer. Where are you getting this made?

It certainly isn't comparable to a hair comb which could be produced for about 20p.

Are you sure you're buying cheaply enough? What kind of volumes are you buying?

I just used a hair comb as an example - I was trying to make the point that there is a limit on what you'd be prepared to pay for one.

I have only be given a ball park figure for the manufacturing at the moment, but because its a new product I don't know how well it will sell, so I will probably buy about 1000 units initially and see how it goes. So, my initial costs will be higher. Presently, I'm only intending to have the units manufactured here in the UK but if my product sells well, then I'll consider having them made elsewhere and in greater numbers, which should bring the price down.