In this month’s article, Andrea Evans, Sawgrass’ international marketing manager, tackles the tricky subject of pricing products correctly to make a profit.
One of the most common questions we hear from product decorators is, ‘How much should I charge for this product?’ On the surface, this may seem like a simple question, but in reality, product pricing can be pretty complex.
You will need to consider: the real cost of production, market demand, competition, perceived value and your business model. Let’s look at each of these areas and some best practices to help you make the right choices for your business.
The real cost of production
Whether you decorate T shirts and hoodies at night and sell them at weekend events or have your own shop serving customers day in and day out, you are running a business, which is costing you money every moment of the day and all of it needs to be included in calculating the real cost of your enterprise.
You shouldn’t simply take the cost of a substrate, the ink and the paper and calculate the cost of producing one item. What about all the ‘other costs’? Those costs such as utilities, shipping supplies, postage, software, graphics, marketing and promotional items, business cards, gas, mileage, subscriptions, memberships, event fees and maintenance. You need to make sure you can apportion some of these overheads and fixed costs into each unit that you produce.
And, don’t forget to include labour costs. Even if you are working for yourself, your time is valuable, and should have a cost associated with it. And as you grow and hire employees this is even more important. You should apply a specific per-hour salary value to what you or any other employee does, and factor it into the cost of producing each product.
Market demand, competition and perceived value
These three elements are very closely connected and concern the supply and demand of the same or similar products in your market.
You can get an idea of the demand for your product by researching your market and finding out which competitors are offering the same or similar product and what they are charging for it. Generally, the more competitors offering the same or similar products, the lower the price that can be charged (as there is a high supply of an undifferentiated product).
You might have to decide whether to compete on price or even consider whether offering a price competitive product makes financial sense. Perhaps a better option would be to offer some element of differentiation, or added value, which will allow you to charge a higher price.
This leads on to the perceived value of a product. This is the amount of money a customer believes a product is ‘worth’. A more generalised design, such as a themed image and text that says, ‘Happy Mothers Day’ may not be as in-demand as the same product offered with ‘Happy Mother’s Day Mummy’ with a photo of their child.
A generic product is mass-produced and can be owned by many people, whereas a personalised or customised product has a higher perceived value and a greater ‘emotional margin.’ So offering personalised or individualised products will allow you to charge higher prices, since the products will have higher perceived values.
It is very important to get a good understanding of what your target market is willing to pay for products before you start thinking about what to charge.
Think also about your business model. With product decoration, there are only two options: retail or wholesale.
In a retail model you would have to spend time finding customers, selling to them and delivering their products. You will probably have to deal with more orders, and smaller orders than in the wholesale model but the unit price and therefore margin would tend to be higher.
In a wholesale model, you are selling to another business, which then sells your products to end-users. You would tend to have fewer customers and orders would be larger. Your unit price and therefore margin will be lower than if you are selling direct to consumer.
The key to pricing and making money as a wholesaler is in the volume of units you sell. Your per unit profit margins are much lower than selling retail but you will be aiming to sell more units per order.
Many companies now successfully blend these two models to achieve profits from both volume and retail sales. This can help smooth any peaks and troughs in throughout the year.
As you can see, there really is a lot to think about when developing pricing strategies for your sublimation business. Make sure you really have factored in all your production costs, researched your target market well, understood the competition and don’t be afraid to blend retail and wholesales business models. And above all, remember that sublimation really does lend itself well to creating personalised and customised products, and that’s where greater margins can be achieved.