Originally posted on October 27th, 2011
Typical mistakes that folks make in understanding cost:
The Wal-Mart mentality: They think cheap. People want cheap. This is not true. People want quality, personal service and a product they can be proud of. People are tired of cheap.
We are our own worst enemies because we know what it costs to make this stuff. Some sub products can be made for a few dollars but even an undecorated version on the open market might cost $15. This means ours should sell for over $15 but people want to keystone the stuff saying, â€œIt only cost me xxxxâ€. Forget what it costs to make it and look only at perceived value.
Perceived value is what the customer sees a product is worth. If you make a product for $1 and the perceived value is $20, sell it for $20. If the PV is $20 and it costs $15 to make it, donâ€™t offer the product. Simple. Not all products carry a PV high enough to make them worth selling.
Each area of the country is different. What people want and are willing to pay for in the West may not be the same in the East.
How do you go about deciding pricing?
I look at PV and work backwards. Then if Iâ€™m not sure, I test the product at what I think is the PV and mark it as an â€œIntroductory Specialâ€ to see if it sells. If my PV is low, I can raise it. If it is high, I can either lower it or if the margin isnâ€™t big enough, I can drop the product.
The ideal product allows for 600% or more markup. A good product allows at least 300%. Some more expensive products that arenâ€™t hard to make can go as low as 100% but be careful with these. Example. A $13 laptop case might have a PV of $26.95. Far from the 300% I want but it is easy to make and the sublimatable part is only $3 if I mess it up so it is a very good product to offer since it goes fast and I am only putting $3 at risk.
Always keep prices high enough you can drop them 20% for quantity. The first question that comes is, â€œwhat if I buy 20 or 50 or 100?â€ Each level deserves some discount depending on the product the margin. Start small with 5% for anything under 50 or 100 pcs and then go up. People arenâ€™t as interested in how much discount as the fact you are giving them something.
Always up sell. A customer almost never tells you how much money they are really willing to spend. Find out what product and price range they are comfortable in and then bump it up to the next level. Sometimes you can go way up, especially if you can justify it in some way. â€œThis one will last longerâ€ or â€œThe wood on this is so much nicerâ€ or â€œadding the extra pics will turn this from a nice gift to a family heirloomâ€.
Add value to increase profit. â€œIf you go with this one and buy 3, Iâ€™ll throw in this added valueâ€.
Add value to secure the sale or win the customerâ€™s loyalty: â€œWant magnets on those badges but canâ€™t justify the extra $2 each, Iâ€™ll tell you what, I upgrade them on your initial order for free.â€ At $8-10 per badge, it might be worth it to insure that customer is always going to come back to you for badges, etc.
â€œI normally charge extra for that, but Iâ€™ll throw it in for youâ€. Just a thank you for your business, especially if what you are throwing in doesnâ€™t cost you anything anyway.
Low Ball the Competition
I try not to do this. I try to refuse to sell by price. I sell by quality and on-time delivery. Thatâ€™s all I have to compete with. I canâ€™t usually compete with Wal-Mart or a Screen printer anyway. If I am competing with another sublimator, I think that if I canâ€™t beat his quality, he deserves the job. If he is doing an equal job and wants to sell with little or no margin, he will eventually go out of business so let him go.
The problem comes when it is a regular customer that is comparing prices. Sometimes an explanation is enough but sometimes, you might choose to meet the price just because he is a good customer.
Remember Rule #1: Make money. This ainâ€™t no hobby.
What drives people to low ball their prices is fear: They are afraid of losing a job â€“ even a bad job. They are afraid their products arenâ€™t good enough to merit the price. They are afraid if they lose one customer, it will lead to another and another and they will go out of business. These are all unreasonable fears. Replace fear with confidence in your product and yourself. People donâ€™t want cheap (at least most donâ€™t). They want quality and personal service and on-time delivery, etc. They want to work with a â€œfriendâ€, not a salesman. They want you to remember their name and have some kind of relationship with the owner.
Pricing is hard, no doubt about it. Most people, by nature, think the lower the price, the more they will sell and in some cases, that may be true but here, it usually isnâ€™t. Think quality, personal care. Build a relationship. Shake their hand. Tell them a funny story. Laugh with them. Drop them a note in the mail. Give them something extra when they pick up their order and most important of all: When something is wrong and you make a mistake on their product, fix it â€“ fix it fast and fix it free. Deliver it to their home or business to save them a trip. If it is their mistake, things get a bit tricky but if at all possible, if the loss isnâ€™t too great, I treat all mistakes the same â€“ even if I did everything right and the mistake is clearly theirs. If fix it fast and I fix it free. The good PR is usually worth far more than the cost of the product, especially if I priced the product correctly in the first place. With a 300% profit margin, I can easily replace the product and still make a reasonable product.
Want to beat Wal-Mart or the guy down the street? You canâ€™t do it with price â€“ it just never works. You can do it with quality and personality. Just do a better job and you will win most of the business.