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    11 Replies Latest reply on Mar 15, 2009 10:25 PM by msbeautyceo

    Pricing for Profits ~ Best Stratgies

    msbeautyceo Newbie
      Hello,

      I am repositioning my brand high end plant based cosmetics.
      I have struggled in the past with a straightforward way to ensure my pricing model is profitable. I do not want to ust break even.

      I have been short changing myself offering high quality prices but just making it, so I have to target a different audience.

      Finding help has been a challenge, so I would like to keep my volume lower, so I can manage more efficiently while it grows. ( I was always struggling to get products shipped on time, and I kept running out) I will be outsourcing the production and labels. The result will be more consistency and saves labor cost.

      I am planning to improve my online shopping experience, site design, customer service ( 800 line to shop), offer a print catolog, vend at more exclusive events and offer personalized interactive sessions on my site.

      My strategy is not to reach everyone, but find to the ones that will pay for quality and a high end brand and stay loyal.

      Do you set your prices and then determine what your budgets are or the other way around?

      Let's say I buy a product wholesale at $10.00 how do I know how much to mark it up and how much of the mark up is profit after expenses are paid ( web hosting, graphic design, virtural receptionist, everything)

      Previously, I would just have sales and expenses happening so fast I could not analyze it. And I honestly did not have a budget, I just paid for the bills incurred.

       

      Thanks in advance
        • Re: Pricing for Profits ~ Best Stratgies
          MrchntSrvcs Wayfarer

          Hello, I see you are tangled up. The first thing you can try is running some numbers base on VOLUME of cosmetics that your are planning to sale. Run this numbers with a break even average number since all the items have different prices. From there you can set your profit margin since it is not the same to sell one product that a dozen, the more you sell the cheaper it is to produce, market and pay overhead expenses. Hope this make sense. Also try to do some market research to find out what is selling and what is not, also find who should you market. GOOD LUCK!!!
          • Re: Pricing for Profits ~ Best Stratgies
            LUCKIEST Guide
            Pricing for Profits ~ Best Strategies, Welcome

            Who are you?? Where are you?? Tell me more. How long have you been in business??
            Do you have an Accountant?? Do you use spreadsheets to keep track of Sales?? Product?? Costs??

            Let's say I buy a product wholesale at $10.00 how do I know how much to
            mark it up and how much of the mark up is profit after expenses are
            paid ( web hosting, graphic design, virtual receptionist, everything). That is why you need an accountant, a spreadsheet etc.

            How can i contact you?? I can help you make a profit

            Talk to me, LUCKIEST
            1 of 1 people found this helpful
            • Re: Pricing for Profits ~ Best Stratgies
              Analysight Newbie

              Msbeautyceo,

               


              Setting your price first and then your budget - a process known as "price-driven costing" - is the way you should do it. Doing it the other way around - "cost-driven pricing" - opens you up to problems, as competitors whose cost structures are lower can eat into your sales and your margins.

               


              Your first step should be to conduct some market research - a brief survey - to determine the optimal price point your target customer segment would be willing to pay. (I've written about this in greater detail in another post in this forum - "Can you charge too little for services" by pdmiller).

               


              Once you have determined your optimal price point, you need to get the following information: your total fixed costs: the costs that stay the same, regardless of how much you sell (rent, insurance, equipment, etc.); your variable costs: the costs you incur with each unit change in what you sell. These would include the cost of each unit of the cosmetics you sell, shipping, production, etc. Divide your variable costs by the number of units you expect to sell.

               


              Using these numbers, perform a breakeven analysis. Compute your breakeven point as follows:

              *Breakeven point = Total Fixed Cost / (Optimal Price Point - Unit Variable Cost*).

              If, for example, your total fixed cost was $10,000, your optimal price point was $50, and your unit variable cost was $25, then your breakeven point is: $10,000/($50-$25) = 400 units.

              Msbeautyceo, if I can answer any further questions for you, please let me know. I wish you the very best.

              Alex
                • Re: Pricing for Profits ~ Best Stratgies
                  msbeautyceo Newbie

                  Thank you very much.

                  So

                  1 set the pricing

                  2 do a sales forcast

                  3 then set a budget

                  How do I determine true profit this way?

                  Can you clarify the steps?

                  Thanks again

                    • Re: Pricing for Profits ~ Best Stratgies
                      msbeautyceo Newbie
                      I am sorry Alex. I did not see your full post.
                      • Re: Pricing for Profits ~ Best Stratgies
                        msbeautyceo Newbie

                        I have done market research and I have found that my current client base is not willing to pay a high enough price for me to be successful. That is why I am changing my image/positioning/stratgies etc.
                        • Re: Pricing for Profits ~ Best Stratgies
                          msbeautyceo Newbie
                          Alex,

                           

                          Do I calculate this annually or monthy?

                          Let's say the

                          TFC for the year is 10,000
                          rent
                          phone
                          web
                          ecommerce
                          vending
                          stamps software
                          virtual receptionist
                          print online ads

                           

                          Optimal pp is 65.00

                          Unit VC is 27.00 (wholesale product 15 graphic design 3, copywriter 5, shipping cost 3, marketing materials brochure, card etc 1, )

                          10,000/(65-27)=263 units

                          So let's say 22 units per month to break even

                          Is anything after 22 if all profit?

                          Can you think of fixed or variable cost the I may have overlooked?
                            • Re: Pricing for Profits ~ Best Stratgies
                              Analysight Newbie

                              You can do either or both. In fact, it might be good to do both an annual and a monthly forecast, especially if your products are seasonal.

                              In your fixed costs, don't forget your insurance (all kinds - health, liability, property & casualty), your bank fees, accounting and legal fees, equipment leases, interest on loans, etc. Any cost that remains more or less the same, regardless of how much you sell.

                              In your variable costs, be sure to include anything that is affected by the volume of your sales - the cost of packaging them to send, hourly wages you pay for help in fulfilling orders, etc.

                              Your math is correct, and yes, every unit above 22 (assuming your volume is the same each month) is profit. Indeed, the difference between your selling price and your variable cost is your unit contribution margin. Hence, each unit above 22 adds - contributes - $38 to your profit.

                              Interestingly, you mentioned that your marketing research proved your existing customer base was unwilling to pay the kind of price you wanted to charge. Analysights has solid expertise in marketing research, pricing, and sales forecasting. I would be happy to give you a FREE hour of consultation via the phone and web to determine whether your marketing research gave you the right information. I'll also sign a non-disclosure agreement. You can find my e-mail address on my website at: http://analysights.com/default.aspx.

                              Have a great night!
                              1 of 1 people found this helpful
                        • Re: Pricing for Profits ~ Best Stratgies
                          Analysight Newbie

                          Msbeautyceo,

                           


                          Not to beat a dead horse, but I've just added a two-part post to my blog, Insight Central, on how to determine the optimal price point. Please check it out at: www.analysights.wordpress.com