Setting the Right Price for your Product Line

Do you know how to set the right price for your product line?

It took me years to figure out how to set the right price for my product line when I first started out, so I can imagine you might be in the same situation.  If you are not sure if you are making any money, then there is a good chance you’re not pricing your products correctly.

Proper costing is the lifeline to your business and profitability. I’ll share some easy methods to figuring this out but you need to be able to find all the hidden costs. Once you have the actual cost (cost of goods sold) then it is easy to figure out the wholesale and retail price. COGS (cost of goods sold) is also important in figuring out your bottom line and calculating your companies gross margins.

This amount includes the cost of the materials used in creating the goods along with the direct labor costs used to produce the goods.

When figuring out your costs be sure to take into consideration the list below to be sure you are not missing anything.  COGS do not include your overhead or salaries etc.  ONLY the below items are included.

1. Raw materials such as fabric, leather, findings, ribbon, buttons etc..
2. The freight costs to get the raw materials to your factory (or home)
3. Labor to make your product
4. Packaging costs if any plus any freight cost involved
5. Labels, hangtags, hangers, plastic bags etc..

NOTE: If you are manufacturing overseas, your factory will give you a final price for the Cogs, but you’ll still need to add the overseas freight and duty to get the final Cogs.

Once you have the final COGS, you can determine your wholesale and retail prices.  Remember that the price on your website should always be the same as what you expect retailers to sell it for.  Don’t make enemies by selling it for less…..no one will want to carry it in their store or sell on their site.

How to Set the Right Price for your Product Line

When setting your wholesale price, you need to consider your industry and the type of stores and type of product you manufacture and sell.  Not everything is priced the same way.  For example, the food industry wholesale prices are not calculated with the same margins as fashion.

When determining your ideal wholesale price you want to make sure you cover all your overhead, salaries, sales rep commissions, and marketing which includes trade shows or showroom fees. Here is the ideal formula for a fashion or gift item that you can use to plug in your own cogs.  This formula adds in all the overhead costs.

Wholesale Formula: COGS x 2.5 (250%) = Wholesale price 

When determining the retail price, you want to be sure you are using a mark up for your specific industry here too.  These days, most fashion and gift Boutiques and Department stores use a 2.4% mark up.  If you sell to a high-end boutique like Bergdorf Goodman or the Anthropologie chain, they may ask you for a discount on wholesale as they require larger margins and want to retail at the same price as everyone else. If you are selling to a mass-market store like Target or Wal-Mart then the retail is going to be greatly reduced thus reducing your wholesale and your margins but the orders will be larger.

Retail Formula: Wholesale x 2.4(240%) = Retail price 

Note: Some boutique stores will only double the price  – there is no “set” way to determine pricing so many stores will just do whatever they want in the end.

These are average pricing methods. Like I said, depending on the stores margin requirement, they will ask for discounts when they need it to meet their needs.

Once you have determined your wholesale and retail prices you are ready to sell to anyone as you will have all your COGS ready to review in case anyone asks for reduced prices.

Want to learn more about how to get buyers to take your call and get more sales?

Once you learn how to set the right price for your product line and  are making more money, you will be able to expand your line and sell more products to more stores.

Click on the image below to learn my easy-to-follow method to handling buyers and closing more deals.

Written by Sarah Shaw