With inflation on the rise, it’s a good time to review whether your current prices are covering the cost of your materials, time, labour, and overhead.
There are many costs that go into a single finished product – including all of the expenses incurred during creation, sale, and delivery. Determining those costs, along with your desired profit, helps determine your base retail price. From there, experimentation and market research allow you to refine your approach over time, perhaps your best seller is your best seller because of the price point, or
1) Tracking your business expenses
There's a lot that goes into running a business! We're sure we don't need to tell you to keep track of your expenses, but just incase here's a list of just some of your expenses related to running a business.
- Business interest
- Car usage (excluding personal use)
- Home office or studio space
- Education
- Employee pay
- Entertainment, gifts, meals, and travel (entirely related to your business)
- Insurance
- Retirement plans
- Stripe, PayPal and other bank fees
- Listing and advertising fees
- Postage and shipping supply costs
2) Calculating gross profit margins
It's important to calculate your gross profit margin for each item, this is determined by subtracting all of the expenses that go into creating a product (cost of goods) from the sale price, dividing that number by the sale price (revenue), and then multiplying by 100 to generate profit margin as a percentage.
Here’s the formula:
(Revenue - Cost of goods) / Revenue x 100 = Gross profit margin
3) Allowing for experimentation
Remember, the prices you start out with aren’t set in stone. You can adjust your prices at any time, and buyers expect that prices will fluctuate over time, just be careful to track changes & impact when you make changes.
There are many internal and external factors that might influence price changes. For example, if inflation is increasing the cost of the materials you use to make and package your items, you may decide to adjust your base price to maintain your own profit margin. In contrast, discounting inventory can be a strategic approach depending on your objective, whether you’re looking to clear out seasonal inventory or appeal to new buyers.
Note: As an Floom Seller, pricing is at your sole discretion. This means that you are responsible for making your own pricing decisions and are free to set prices as you wish. That said, remember there are also legal considerations to be aware of around consistent pricing across all your selling platforms. Sellers must ensure the price on their own wesbite or store are the same as those lsited on Floom.