There are many factors to consider when setting prices, that's why it is one of the hardest parts of starting a business. Figuring out what's too high, too low or just right can be a daunting task for even the most seasoned business owner, and that's why we created this simple price setting guide to help you get started.
There are a variety of different types of pricing strategies in business, but the simplest way to calculate how to set your prices is to add up everything it costs to buy your hair extensions, and then put your profit margin on top of all of that. To do this, you need to do the following:
1. Know your Cost Of Goods Sold (COGS): Knowing the price that you’re going to pay on each order going out is the best way to start the pricing process. If you are selling a bundle deal of hair in the lengths 12, 14 &16, you need to calculate every product that goes into that bundle deal. This helps you to make your foundation for your retail price.
2. Add up your variable & fixed costs: When calculating your costs not only do you need to look at your COGS but you also need to look at all of the factors that go into getting that hair out of the door.
Variable costs are costs that increase or decrease depending on the amount of hair going out to a customer. For instance, you ship two silk bags out to a customer, rather than one.
Fixed costs on the other hand are constant charges due whether you sell an item or not. These includes the hosting of your website or rent of your store.
3. Add your profit margin: To do this, you have to decide on how much of a profit you would like to make from each of your orders. It is vital that you don’t arbitrarily pick a percentage for your profit margin, rather when deciding on your profit margin, consider factors like your competition, branding strategy and industry standard to mention a few.
4. Test it: Now its time to go to market. Remember this is just your first attempt at pricing your products, so don't worry if you have to adjust and change your pricing a few times before you get it right. As long as your price covers your expenses and you can make a little money from it, you're on the right track.
We know getting a handle on your prices takes a while, so to save you some time, we have created a free downloadable price guide for you to use as your first test price list. We used a 20% mark up, which is a little under industry standard (40-50%), in an attempt to attract new customers and penetrate the market, plus it gives you room to take your variable and fixed costs into account. Try it and keep trying until you find your sweet spot.