Re: Pricing - a Cautionary Tale

[Guest guest]

> Pricing your product is a tricky business, and

> you have to take many current and future variables into account:

>

> Materials

> Labor

> R & D

> Rent & Overhead

> Advertising

> Website

> Contract Manufacturing

> Employees

> etc., etc.

>

Anya, and all......I would like to add that this is the time of year

that i think over everything like costing ....and product launches

for spring, etc...and end of year summaries, 2006 inventories...all

these subjects are appropos for now.

thank you thank you, so much for making this a reality in our mass

consciousness, as it is ruminating here at Angelic Aromas and on my

desk these days.

A friend of mine has just confessed that he now outsources

illustration to the phillipines...for $5 a drawing, so the costs of

website development can be lessened. I bought some tuberose absolute

yesterday, for $130 for 1/2 ounce. I use it and had not made any end

of year EO purchases so i had to get it. My production manager said

we were out, in the process I found out that rose prices have

skyrocketed.....yikes, i use rose, but have plenty, and am hoping for

a drop. I try to buy enough of an EO so that i can adjust my costing

once per year...and hope to maintain the same prices. I have an excel

spreadsheet with all the EO's listed, their english names, latin ,

country of origin, and supplier (sometimes more than one), the per

size prices, by columns, and then i select which price i use

depending on what size bottle i buy by highlighting

that...column...in a different colour. I have roughly priced

everything down to a per drop price for MY COSTING purposes and have

plugged this document into an excel spreadsheet that gets updated

with all 1000 of my formulations over the years. *sigh*...it *IS* a

huge amount of work, and a labor of love. THEN, all the recipes and

formulations added through the year get updated in the BIG SECRET

FORMULA blending book. WE hand blend everything here!

it gets organized by alphabet, and plenty of other ways for cross

referencing....purposes. I have some LOSS LEADERS that are

underpriced and some products that are less expensive to produce that

i do volume in....that are priced at a higher margin. It is not a

perfect science by any means but it all balances out. I have alot of

serums that are not on my websites that are very popular these days

with my upscale hollywood clientelle....we'll see if they become a

staple enough to label them other than hand labels.

I have businesses that i am developing for sale...over the next few

years, and will be looking to sell the concepts, the formulas and the

designs, look, as well as consult for company who buys....and take a

royalty.

should be interesting...that's all i can say for now. i am also

consulting now for several larger clients who are going organic.

OK, well, that's it. If anyone doesn't use excel, I highly advise it,

and I am looking forward to 2007 as a good year.

I sell internationally and i am interested in a thread about the new

regulations there...any ideas welcome!

xoxoxox

Happy New YEAR~ 2007

L

[Guest guest]

>

> Pricing your product is a tricky business, and

> you have to take many current and future variables into account:

>

> Materials

> Labor

> R & D

> Rent & Overhead

> Advertising

> Website

> Contract Manufacturing

> Employees

> etc., etc.

>

snipped

> Anya McCoy

> Anya's Garden of Natural Perfume http://anyasgarden.com

> Artisan Natural Perfumers Guild http://artisannaturalperfumers.org

> Natural Perfumers Community Group

> /

>

Anya, thanks for posting this. Pricing is indeed tricky business. I can

vouch for everything you said-except the public offensive reaction. On

small scale I've been there.

Many want quick cash, high profits, but just as many try to provide a

really good product at a fair price. Working from home might not qualify

as overhead, unless there is a specific area set up strictly for

business purpose, and even then it can only be claimed as percentage -

ask your tax advisor, they can fill in all the details.

I've also struggled with pricing, at first trying to figure actual cost,

which quickly became frustrating, then trying to find comparable market

rates. As very small business, there were some complaints on

overpricing, which were not legitimate (in my oppinion), I considered

the pricing to be on the low end, considering the quality, but I didn't

have high end customers -all of it very subjective, until I just a

couple month ago bought the Apothecary Keeper. What a wonderful tool! I

ran my formulas, finding on many things, that I was so glad I didn't

grow quickly, since the pricing was a lot of times right around cost,

sometimes with a small extra, sometimes drastically short on cost even.

That's without figuring overhead, labour etc. Just material cost.

I think it is very tempting to underprice in the beginning, in hopes of

generating income, getting people to get to know the product, and love

it. It's also impossible to compete with stores, which people are used

to buy from (regardless if high end or low end). I also found that

people are so used to being lied to, that there is a suspicion, that has

to be removed before they're willing to invest any money. That's why

there is so much money invested into commercials and advertising.

Once a price is set, it's hard to change it. Store prices go up all the

time, and yet nobody argues at the register. The price is marked, take

it or leave it. I find that be it my herb products, or vegetables, even

small increases, or a sale (seasonal extra on vegetables) sometimes

causes debate on pricing. They know you make the prices, which means you

can change them. Many are blissfully unaware what it takes to produce

anything.

Another fact to consider is something I learned the hard way, and way

too late. Better then never though... Pricing categorizes. In other

words, pricing good quality low, attracts the cheap crowd, expecting to

get it even cheaper. Setting the price higher really does get you the

customer base which expects to pay more for a good product. They're more

demanding, but as long as you deliver a constant excellent quality,

they're wonderful to deal with. They might not be a huge crowd, but they

are also the ones that will talk about you, bringing in more business.

Just thought I chime in on this, hopefully it might help someone with

this subject. I haven't figured it all out yet. It's a tricky, tricky

subject. Even if I could figure out how much exactly it costs to produce

a pickle, an egg, a jar of cream, or vial of perfume, considering all

factors, what to charge for time and expertise plus growth profit, it

doesn't mean that this would be an actual working number. In farming we

long ago calculated, if we even calculated 10 cents an hour, we'd have

to pay to do it. And that's not calculating overhead and depreciation on

equipment.... Perfume price, can you calculate in the failed

experiments, and time for that, probably not. Some things are labour of

love, and the best we can do, is to be sure, that when success hits,

we're in a position to have enough profit to allow for growth, while not

being afraid to change prices as necessary.

I feel for Andy, but this is also good publicity. Many know him, and

hopefully speak up for him. His creations will speak for themselves.

ne

[Guest guest]

>

> Pricing your product is a tricky business, <snip snip>.

>

>

> Anya McCoy

><snip>

Hi Anya,

I have been wrestling with this subject for weeks now on my solid

single-note perfumes. I eventually put all materials (including

shipping costs paid to get it here!), packaging, labeling, etc into

an excel spreadsheet together with the formula so I could work out

materials cost as I adjusted the recipe (it's the engineer in me!).

I only purchase in small quantities at the moment, which makes

material cost per item higher - my hope is that as sales increase, I

will increase the size of my purchases, my material costs will drop

per unit, and my profit margin will increase or at least cover any

new expenses...

Of course I struggle with what to charge for labor, overhead, etc as

I do work out of my home, design and print all my own labels - as I

am sure many of you do. So I take the easy way out, add a little to

the material cost and multiply by 3 for retail, by 2 for wholesale.

Then I spend hours on the internet researching what everyone else

charges for theirs, and what do you get for the money (all natural?

synthetic? organic? quantity? packaging?) to see if I should increase

the retail price at all - I never shift them down from the base

point. I am not sure this method will work when I start blending

more complex perfumes... I am not sure if it will work for the

simple ones!

I have 2 price points for each perfume - the modest tin packaging,

and the deluxe silver case packaging. They will hopefully hit the

shelves in January - I like to think of it as not late for Christmas,

but early for Valentine's day :oD

I recently worked up a quote for a wholesale customer to develop a

specific single note perfume in a specialized container - they knew

the approx retail price range. They wanted the deal at half the cost

of the wholesale estimate so they could mark it up higher on their

end, and I had to walk away... a very hard decision in my newbee

state... But I would have been doing it for only the cost of

materials.

I don't know if I am doing it the right way - our plan is to always

remain small and hand-crafted.

I look forward to hearing more opinions on this subject, and will

hopefully learn lots! )

Thank you for bringing up such a complex and important topic.

Warmest Regards,

[Guest guest]

>

> Pricing your product is a tricky business, and

> you have to take many current and future variables into account:

>

> Materials

> Labor

> R & D

> Rent & Overhead

> Advertising

> Website

> Contract Manufacturing

> Employees

> etc., etc.

>

>snip

> My advice is be prepared, get your business

> finances in order first, and avoid this kind of problem.

>

>

> Anya McCoy

This is excellent stuff, just what I needed to lift me out of my

seasonal blues:] I find paperwork completely mind numbing unless it's

oragami, seriously! Here is my method: I have a huge drawer, I throw

everything in and I say these magic words " I will wait until I can't

close it anymore then I WILL DO MY BOOKS! " . Now the way things are

turning out I have no choice, I have to face the dreaded !!!DRAWER!!!

and find a bookeeper/accountant/housekeeper/nanny.

I'm going through the motions of setting up an online merchants

account with my bank, (head exploding stuff) and one of the conditions

is a nice set of books for last year...GASP!

Ruth

[Guest guest]

> I'm going through the motions of setting up an online merchants

> account with my bank, (head exploding stuff) and one of the conditions

> is a nice set of books for last year...GASP!

>

>

> Ruth

Yegads, ruth, I know how you feel. As a freelance writer/editor, I

have no huge supplies of materials to keep track of, but things like

printer toner, paper and a whole lot of yadda yadda already make my

bookkeeping kind of unbearable (I'm not, er... inclined towards

numbers), so I finally gave up and hired an accountant who comes in

every few months to make sure I'm not completely messing things up.

Of course, he's been my lifesaver at tax time, too...

Jes