How I learned how to price services and products for my business

I started an online jewelry business when I was in college to help feed a creative interest (and make some extra money.) As a nineteen-year-old, I didn’t know much about business practices, how to price products or services, or how to drive sales—so a lot of it was trial and error.

Over the five years of owning that business, I learned quite a bit. In time, I made thousands of sales to buyers in six continents, set up wholesale relationships, and was named one of Storenvy’s (www.storenvy.com) top-selling stores—all from a project that started in my dorm room. I closed the business in January of 2014 to focus my energy on new endeavors, but it was a fantastic learning experience.

Owning the business was wonderful, but it wasn’t always flowers and rainbows, either. Today, I’m sharing how I ventured through how to price services, how I learned to make a profit, and what tactics kept my arms full of little yellow padded envelopes at the post office each week. Here are the questions I asked and the answers I (eventually) came to find.

How much do I charge?

When it came to how to price my products, my theory was simple. I knew my cost for the items, and I knew that my retail cost would be about 3x times my cost.

How’d I come up with that?

I knew that if I only charged double my cost, I’d be making money, but I’d never really be getting ahead. The items were so low cost that it would be a constant fight to push for volume rather than making fewer sales with greater margin.

Also, I had to factor in the cost of time associated with assembling each piece. I wasn’t just dropping an item into an envelope and shipping it off—I had to sit at a desk with my pliers and wire cutters and piece together chains and connectors and clasps. That cost had to be accounted for, too.  There was also a time investment in addressing envelopes, packaging, and making trips to the post office that were factored in as well.

pricing strategy

What do I charge for shipping costs?

Every business has to factor in the expense for delivering their deliverables. For some, it’s the cost of getting the physical products into a retail store, or the travel and time to meet with a client—or in my case, shipping the products to the buyer.

Shipping was tricky because not only did I have to estimate the actual postage expense based on the package weight and shipping destination, but I needed to factor in the cost of the envelopes, packing materials, tracking, the little “extras” included with each order, etc.

I eventually came to understand my average shipping cost based on size and location, and then added in the costs associated with packaging and allowed myself an additional 50 cents to a dollar to that cost as extra padding to account for anomalies. Like my mom says about cooking for guests—it’s better to have a little extra than not enough.

When do I offer discounts?

There were always certain slow times in between holiday-fueled shopping sprees, so every once in a while, I’d offer discounts or free shipping offers to encourage a boost in sales. There were a few rules I kept in place to keep myself from over-discounting and to make sure I wasn’t cheapening the products:

  • Never offer more than one discount per month (so as not to you expose your margin)
  • Never discount more than 25 percent off (with the exception of Black Friday sales)
  • Offer discounts via partnerships (to increase exposure and reach a new audience)
  • Offer discounts that increase volume (i.e. Buy X, get Y)

pricing strategies

The most successful form of discounting I found: Flash sales. Putting a short time frame on a good discount made the sales conversion happen much more quickly through a sense of urgency.

What’s my salary?

So often, we forget the importance of paying ourselves when starting a business. Yes, it’s wise to keep investing the money back into the business (which I always did) but it’s also important to set aside money you’ve earned.

In my case, I wasn’t bringing in enough money for it to be a full-time gig—I had to supplement with jobs ranging from barista to optician. But at the end of every month when the orders had been shipped and the product had been re-stocked, I would look at the remaining balance in my business account and move any balance over $1,000 into my savings account. That was my “salary.”

I liked to keep the $1,000 in my business account so I always had means to buy supplies, pay for postage, and, really, it just made me feel safe. But as I continued to save those excess funds, my savings account began to grow. In time, I had saved enough to buy a car and make a down payment on a home, and was able to see the fruits of my labor turn into real, tangible numbers.

Overall, the jewelry business was kind of an experiment with entrepreneurship. It was a trial and error process that taught me what worked and what didn’t within my niche. There were times when I failed horribly, but there were also some amazing successes—which any business owner can appreciate. Figuring out what to charge and how to price your products or services is never easy, but in time, it starts to make sense.

What did you learn from your first adventures in pricing? How did you figure out how to price services or products?







Kaleigh Moore

Kaleigh Moore is no stranger to small business. She's the Founder of Lumen -- a business that offers copywriting, social media services, and graphic design. When she's not contributing to the EnMast blog, you'll find her running or at the movies (because the running helps manage the movie snack consumption.) Connect with Kaleigh on Twitter, LinkedIn, or read her blog.

Comments

  1. Great post, Kaleigh. Love hearing your personal experiences and strategies as an entrepreneur.

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