Claire Morris is the director of Retail With Clarity, a boutique retail consultancy supporting small to medium sized product businesses to unlock their profit and take control of their stock levels.
“I need to make profit but I don’t want to price so high that I don’t sell anything”
Does this sound familiar?! Everything in retail is a bit of a balancing act – setting prices is no different. Here are five key things to consider when determining your prices:
1 | MARKET POSITION
Be clear on who your customer is, where do they live, where else do they shop, what newspapers and magazines do they read? Who are your competitors for these products? Benchmark yourself against your competitors on quality and market position. Accounting for your quality position, decide where you want your pricing to sit in relation to your competitors. Is that the pricing level that reflects your customers’ lifestyle?
2 | COST OF THE PRODUCT
How much does it cost you to make or purchase the product? No, how much does it REALLY cost? Have you taken into account shipping charges, the use of your electricity & other utilities, the cost of your time? This is the biggie if you’re a maker – do not give away your time for free!! 1) you are worth more than that, a lot more 2) if you scale up and begin to outsource production, your costs will increase and you will likely have to pass that cost onto your customers in your retail prices. Setting your prices at the right level at the outset will mean you can avoid annoying your customers by hiking them up later. (And make a bit more profit in the meantime).
3 | SALES TAX
Always factor in how much VAT you need to pay. Even if you’re not VAT registered (yet!), it is prudent to account for how much of the product price you will need to pay to the taxman when you are. Most products in the UK attract 20% VAT but there are some that are VAT exempt (for example children’s clothing) and some that attract a lower %. If you’re not sure what the VAT rate is for your products, you can check on the HMRC website. If you sell your products overseas ensure you know the correct sales tax for your products and account for it in the pricing in the relevant countries. And if you’re not sure whether to become VAT registered, have a discussion with your accountant – they will help you to understand the advantages, disadvantages and the right timing for your business.
4 | COST OF DOING BUSINESS
Outside of purchasing stock or materials, how much does it cost to run your business? Rent, rates, electricity, staffing costs, your salary, marketing, website, professional services (e.g. accountants), tax etc. Understanding this means you can work out how much of the product price will go towards running your business.
5 | HOW MUCH PROFIT DO YOU WANT TO MAKE?
Have you planned how much pure profit you want to have at the end of the year, after all of the costs of doing business? If not, do this! What does it equate to as a proportion of your planned sales for the year?
Put all of this information together to help you make your decision about the retail price of your products – when you do the numbers, does your desired market position stack up against all of the components of the product price?
If all of the theory sounds great but you’re not sure where to start or how to piece it all together, Claire offers Product Pricing Power Hours – these are dedicated sessions where she works through the figures together with you, and helps to empower you to make pricing decisions that will deliver profitability. Included in the price of the power hour is a product pricing calculator that you get to take away and keep to use again and again. The Product Pricing Power Hours are £60 + VAT.
You can contact Claire on Instagram @retailwithclarity and by e-mail email@example.com.