how to determine selling price?
Hello I am new in the balloon decorating business... but am having trouble setting priced for my products. I dont want to lose customers but I dont want to be giving this art worlk away for free either. I have to purcase the material, travel to lacations and build them onsite...
the easiest formulat I was looking into using is taking my cost and my overhead and timesing that by 2.5??
WHAT IF IM PAYING WHOLE SALE prices for my balloons, but who knows if ill always get this discount since its not neccesarily permanent (store closes, i stop being a student)
should my "cost" be retail, or wholesale. I want to make set prices, not a different total each time based on what I paid for each event..... HELP!!!!
- DonaldLv 79 years ago
First, while that formula is easy, it's likely wrong and probably cheating you.
If your traveling to locations and building them onsite, then your most expensive element is your time. And that really means working backwards. I don't know if you have set types of jobs, or each one is very different from the others. In either case, though, where your time commitment is substantial, you definitely do NOT want to use a multiplier of your costs. (I'll explain why in a minute.)
Instead, you want to figure out what your time is worth, and use THAT as the basis of your calculation. Suppose you figure your time is worth $15 an hour and that a job (buying the supplies, travel, building them on site, etc.) will take a total of 3 hours. That means your time alone is worth $45. You use that as your base.
Then you add up your supplies and materials--the balloons, the decorations, the gas for your car, etc. Let's say all that comes to $30.
Now there are a couple of ways to go from here. One way is to take the $45. Then take the supply cost ($30) and add a markup to it--say 100%. That brings supplies to $60. Add in a profit amount--say $25. (Could be anything. But it's important to add in the profit once you already have accounted for your hours and your supplies.) Add it all up. That way, we'd come up with $130.
Or you can take your labor rate ($45). Add your expenses ($30) to it. Then multiply it by some number--say 2.0 (an overall 100% markup). With this calculation, you'd come out at $150. (Now, that's not saying the second way is better; it all depends on your desired profit, your markup, etc.)
OK: So why don't you want to just take your cost and overhead and multiply that by 2.5? Because that doesn't reflect any of your effort. It'd be fine if you were selling balloons. You'd buy them for $10 per gross and sell them for $25 per gross. Your time isn't a significant factor if you're just standing behind a counter selling stuff. But that way doesn't adjust for a job that's 10 minutes away versus one that's 45 minutes away. Or, really, a big job versus a small job.
Should your cost be retail or wholesale? Whatever you pay for them. Right now, wholesale. If you no longer can get that discount, then you raise your prices slightly.
And what if you find that these formulas result in you charging far more than others--that you're losing customers? Then either find ways to cut costs or realize that the jobs aren't paying you a sufficient amount. You've got a bottom line, and you've got to recognize that and price at or above that. Actually, the right way to handle that situation is to market to people who are willing to pay more. And to offer some "bells and whistles" to justify a price that might be higher than people are initially expecting to pay.
Remember: You can't sell something at a loss and expect to sell so much of it that you end up making a profit.
Hope that helps.
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