The following is a transcript for Girl-Preneur Power, episode 2. For the video and more resources, visit http://girlpreneurpower.com.
Welcome to Girl-Preneur Power, a short series that's going to help you get started running your own kid-business. I'm Stacia Guzzo from Handcrafted HoneyBee.
In this episode we're going to be talking about how to figure out the cost and the price of your products.
In the last episode, we talked about the benefits and the challenges of selling the things that you make. If you missed it, don't worry. You can go back and check it out at: http://www.girlpreneurpower.com.
Now as a quick reminder, in this series we're going to be using products that we make from the Handcrafted HoneyBee Lip Balm Kit. So we're going to be pricing out 16 lip balms that we make from the kit. You don't need to be using the lip balm kit or selling lip balms to benefit from this series, but that's the example that we're going to use.
What's So Important About Price?
Today we're going to talk about how much you should charge for each lip balm that you make from the kit.
We're going to get into a little bit of math in this episode, but if you don't like math—don't worry! Math's going to become your very best friend. You know why? Because it's going to help you figure out how to make money.
The first thing we're going to be digging into is why getting your price is so important. You have to get the right price. If you don't have the right price for the products you make, you're not going to be making any money. And that's the whole reason that you're in business in the first place: to make money.
The other thing is that, if you don't price high enough, you're not valuing your hard work. And the work that you put into making a business, to making lip balms or whatever you decide to make, that work is valuable! That should be honored.
So setting the right price honors that hard work and helps you feel better about all of the time & energy & work you put into it.
Alright. Are you ready? Let's do some math.
Counting the Cost
First, we have to figure out how much your materials cost. Let's think about how much the kit cost itself.
One lip balm kit costs $28 but if you want to make all the lip balms in your kit, then you're going to buy the expansion pack as well, at $7.50.
$28.00 + $7.50 = $35.50
So from there, we take the material cost divided by the number of lip balms that you make. If you use both the lip balm kit and the expansion set, you have 16 lip balms that you make, for a unit cost of:
$35.50 / 16 = $2.22 (rounded)
Not too shabby! That's not a bad cost.
Now, we can't forget: you need value your time. So the next thing we're going to add in is the labor cost. No matter what your profit ends up being, big or small, you always should factor in paying yourself, because your hard work is valuable.
You can do this one of two ways: The first way is that you can pay yourself a flat rate for the time that you work. For example, you could say, "If it takes me an hour, I'm going to pay myself $5 an hour."
The other way that you could do it is that you could pay yourself per lip balm that you make. In this case, let's say that you pay yourself 25 cents per lip balm. That would be $4 at the end you pay yourself. No matter what.
Now, that would raise the cost of each lip balm a little bit.
$2.22 + $0.25 = $2.47 per lip balm (rounded)
That brings us to a total cost of:
$35.50 (materials cost) + $4.00 (labor cost) = $39.50 to make 16 lip balms
You Decide the Profit You Want to Make…Mostly
Now comes the fun part. We get to figure out how much to charge for each of your lip balms.
Let's start at $3:
$3.00 per lip balm X 16 lip balms = $48.00
Remember, it cost you $39.50 to make that kit. So once you've paid yourself the cost of the product:
$48.00 - $39.50 = $8.50 (profit)
Now, what if you were to charge $4 per lip balm?
$4.00 per lip balm X 16 lip balms = $64.00
$64.00 - $39.50 = $24.50 (profit)
That's quite a big difference, isn't it? See how much of a difference changing the cost by $1 per lip balm can make?
And if that's the case…well, why don't you sell them for $10 each, or $20 each? Then think about how much profit you can make! But, it's not quite that easy. I mean…would you buy a lip balm for $10? Probably not.
So how do you know what the right price is? One good way of figuring out what people will buy a lip balm for would be to ask your family. Ask your friends. See what they usually pay.
Another good way would be to search a place like http://etsy.com to see what other handmade lip balms are going to sell for. And that really is important, make sure that you're searching for handmade lip balms, because you're not going to compare yourself to the price of the type of Chapstick that you would see at Walgreens or other drugstore.
You're going to compare yourself to other handmade makers. So see how much handmade lip balm is going for and see if you're falling within the right price range.
For what it's worth, at Handcrafted HoneyBee I sell my handmade lip balm for $4 per lip balm. That gives you at least one starting point to know what another handmade maker prices her lip balms at.
Now that you've figured out how much you're going to sell your lip balms for you have a better idea of how much profit you're going to have at the end.
What do you do with that money?
This is the kind of stuff that you use to invest back into your business to get new equipment, to buy things for marketing, even to pay yourself a little bit more.
But we don't want to get ahead of ourselves. I'm going to cover that a little bit later in the series. We'll go step-by-step to figure out the smartest ways to use that profit.
In the next episode, we're going to talk about building your business and spreading the word. How to figure out things like naming your business, and how to get people to know just what you are selling.
For notes from this episode, as well as a free downloadable PDF that will take you step-by-step through pricing your own product head on over to http://www.girlpreneurpower.com.
We'll see you there, and we'll see you next time!