Tuesday, January 15, 2013

Pricing Secrets with Tracy Matthews

How to price your jewelry so you can pay your rent every month!

Are you pricing your jewelry to incorporate your overhead? Do you even think about it, or do you just throw a number out there and hope for the best? Staying positive and having faith are great on an energetic level, however, if you are trying to run a business, you’ll probably want to price your product with a solid understanding of your expenses and your goals.

My business partner, Robin Kramer, and I are asked about pricing all the time. Pricing your jewelry is a very touchy subject for many of reasons. If you price it too low, you cheapen your brand and can become stuck in the low pricing syndrome. If you price your work too high, you risk pricing yourself out of the market until you have an established brand. How do you actually find the sweet spot with your pricing so that you can cover your expenses AND make a profit every month.

You need to understand a few things before you get started.

  1. What are the COGs associated with each piece you design? COGs are things like materials and labor.
  2. What are your total monthly expenses for your other costs in your business? Or what is your overhead?

Once you understand your costs, you need to take a look at your volume.

  1. Do you sell roughly the same amount of pieces every month?
  2. Or does your volume vary significantly month over month?

I ask these questions because these are the markers that will determine how to incorporate your overhead into your jewelry pricing.
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Let’s take option #1. If you sell roughly the same amount of pieces every month, you can use this method.
  1. Calculate your total overhead.
  2. Divide that number by the number of pieces that you sell every month.
  3. You’ll end with a per piece overhead price.

For example, if you had $1000 in overhead and you estimated selling 100 pieces per month, you would add $10 to each piece as you were pricing.

Now let’s look at option # 2. If you have a business where the pricing range per piece of jewelry varies widely or you sell a different number of pieces every month the formula in the first option won’t work. In this case, you need to work backwards.

  1. Figure out your monthly expenses first.
  2. Take a look at the margin in your pricing so you can understand exactly how much profit you make.
  3. Then make sure that you sell that volume in order to cover your expenses.

For instance, I use this method in my current business model. I understand what I need to bring on from a profit stand-point, instead of per item. So let’s say I have an overhead of $1000 a month and a margin of 50% on my work. My average piece of jewelry costs $1000 and the cost to make it is $500. I would need to sell 2 pieces at $1000 to cover my monthly overhead of $1000.

Pricing your jewelry is a bit of a dance. You may need to adjust your method from time to time. Unfortunately, it’s not an exact science. 

The key to pricing your jewelry for profit is to start with the end in mind. If you start every month with clearly defined profit goals, you are able to work backwards to understand what you need to sell in order to make those goals. The big picture is a lot more detailed than a simple pricing formula regardless of your business model. It’s important to look at your profit goals first, make sure you account for paying yourself and work on generating cash flow to cover your expenses along the way.

Tracy Matthews is a bespoke luxury jewelry designer and founder of Flourish & Thrive Academy, an active community of dynamic jewelry designers who share design tips, sales successes and marketing secrets.

F&TA began as a solution to a problem many new jewelry designers face: how to treat their business like a business instead of a hobby. It has evolved into an answer to the plea, “I wish there was somewhere I can learn everything there is to know about starting a jewelry business so I can focus on being creative and work on the big picture.” 

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Tracy and Robin are offering a free Q&A call for any designers who have business questions. 

Do you have any burning jewelry design questions?
Sign up for their live Q&A call……it’s FREE

The call is Wednesday at 12 noon EDT. They'll be on the phone to answer questions.

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(This is an affiliate link, the Art Bead Scene is a proud partner with Flourish & Thrive Academy.)


Cindy said...

Thank you for the great information. I joined the Q&A session today and enjoyed it - so many great/informative things were shared!

Purky said...

That is a really interesting way of looking at the pricing issue.

Thanks for sharing.