Wheat Wrote WHAT?!

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November 24th, 2013 at 12:35 pm

Pricing – Pt 6 – COGS Individual Components

Although not the only element in COGS (Cost of Good Sold) relates to the cost of your components = the second most common mistake I have observed is not using Replacement Costs when planning your price.

Not unlike insurance, your costing needs to reflect NOT what you paid for each bit and piece, but what it will cost you to REPLACE that item in your inventory.

What does she mean?

Recently I read in a “business” group of someone basing their selling price on the “deal” they got for one of the major components in their work.

Well, what happens when they run out of that, OR someone says, I want 25 of that design but in different colors. Or, you are working a local craft, flea or farmer’s market and up walks the “been looking for weeks but not buying” and want to know why that piece cost $5 last week but this time its $6.

It is always easier to lower your price than it will ever be to raise it, suddenly with no explanation. Nor does it make “sense” to the consumer when something that looks the same has different pricing without obvious – to the consumer walking by your table – differences.

There is often, especially for those who choose to create in an over crowded marketplace stuffed with similar products produced in less than fair trade conditions – can you really afford the “customer satisfaction” issue?

If you must – for some reason of your choice – decide to lower your price, then at least clearly mark it as a “special price” if asked, it is okay to say “I got a really good deal on the threads, but when these are gone, I won’t be able to replace them for the same cost”

Still if you are in this for the long run, especially if you are in the building stage of your business, far better to take advantage of the deal, but price the finished work as if you had to replace it “at full price” next week.

 

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