Saturday, October 8, 2011

Pricing Product

Q: Deb thanks for having your finger on the pulse of every new and not so new shop owner reading your blog. I am moving to a bigger shop which of course means much more inventory. I am trying to be careful not to get carried away. I would love to have you address pricing. Do you keystone everything? Do you price new merchandise differently than antiques? Any wisdom on this subject is much appreciated.

A: Some things are going to be tough to write about in this blog as my customers read this and they spend their hard earned money in my store. I don't want to reveal too much but I also know tons of business owners need to share and have questions on how to do this. Alas! This is one of those unspoken questions...

In reality, pricing is all across the map. I do not physically log in every single item that comes in the back door so my staff always asks, "What do you want to put on this?" There was a time I didn't even want my staff to know what I paid for something because I felt such guilt marking it up but they have become savvy and know how much work goes behind each and every item we have and how badly we need that profit to run the store and buy more. I was so naive when I first opened my store I had never heard the retail word 'keystone'. I know now it means to double the cost of an item. Six years ago I went to one of those fancy seminars they offer during the San Francisco Gift Show and the speaker told us if we only keystone our product we will lose. Shipping costs must be accounted for too.

I do not have a formula but I think I am in good company when I say you must know the market value of something. Shop your competitors and see how they may price a similar item. The Targets, Tuesday Mornings and T.J. Maxx's of the world do not count. It must be a store like yours. How many times have you seen something and noticed how much they have marked it up and vice versa. I think it's wise to be somewhere in between. Then again those 'experts' out there will tell you margin is one thing, but turning the product many times over is another which can keep the cost down. But then we aren't Wal-Mart. The hard thing in pricing is to find a balance.

I carry many antiques and one of a kind items. I have shopped for these things all my life from Thrift Stores to fancy Antique Shows. I have a good idea the price range I can sell this item for based on how many prices I have seen on a similar item. Lets take the ever popular little white side table: Did I find it on the curb for free or in an expensive antique mall? Did I rent a van, stay in a flea bag hotel, pay $3.00 a gallon for gas, walk 20 miles in the heat to hunt for it, take it home and clean it, re-glue it, paint, it, haul it out of this truck into this car into the store, etc. You can see the price just went up. I also cannot display two side tables, similar in style with a large variance in price even though one was cheaper than the other. That would be hard to explain to the customer so an average market value must be achieved. One table you will make a great profit on another a fair profit. And this is how the story goes.

Sometimes soap and candles can easily get a 2.2% markup sometimes a 2.5% sometimes not any of the above. I used to carry fancy laundry products and the shipping came in at 25% and I nearly flipped making a simple bottle of lavender detergent $28.00 or something. Things like this you need to consider. I just ordered 1,000 pounds worth of incredible iron urns and pots for the garden. It will be crated and a lift gate will be added and the shipping will run 28% or more. But these are hard to find, really fabulous and will make the store look great. So unfortunately they will have to be priced accordingly. I rarely do this but I am learning the rare items are worth the price. There are customers that will pay it.

Jewelry is an item that is hard for me to price. If special and handmade by an artist, the price is already up there. Sometimes I only double my jewelry. If I buy cheaper, I can add shipping costs. But the unusual designs are hard to make large profits on and it typically sits for awhile.

Large furniture (our sofas) can also be difficult as the manufacturers price keeps going up. Fabric costs, shipping costs, gas prices, foam, feathers, lumber- we have heard it all. Doubling a sofa price may seem like a huge profit to some, but we choose to pay the shipping and local delivery out of that so an actual keystone profit is never made. We have lowered the price before and then charged the customer shipping- I can't figure out what is best but I know the customer wants to hear one solid price without a bunch of extras. Expensive bedding can also fall into this category.

Cards and books are a big loser when it comes to profits as the manufacturer marks it accordingly so you cannot charge more. Books usually sell well but your profit is rarely doubled as quantity is the only way to make money from publishers. Consider the shipping, the percentage to your credit card company and you are lucky to profit 40%.

I do not know if I have helped much but here is another formula to look towards: If you have a POS system or are any good with your bookkeeping, your profit margin should come in at 52% or more. If it does, you are doing okay. So the average of all your sales combined need to come in around this amount- meaning some items you may only double the cost, some at a 2.2% markup and maybe up to a 3 or 4x if you can get that out of it. This is what smart market shopping is all about: finding items to make a good profit off of but still offer a great value to the customer. I have always thought it would be lovely to charge 3x an item for this reason: 1/3 of that money pays it off, 1/3 buys it again, 1/3 runs the business. Wouldn't it be wonderful if we could?

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