Calculating Your Supply Markup

by Jessi Burg

Anyone who has sold a product can relate to the struggle of product pricing. How much do you mark up your products from the wholesale rate? If you buy wholesale, and then create a new product, how do you track your markup? How do taxes work once you start selling products at a markup?

In today’s blog post, we’re going to lay out some of the basic things you need to think about when you start to sell products, as well as how to plan out your markup.

Let’s start with the cost of goods. If you aren’t familiar with the term cost of goods, it refers to the direct costs of producing the goods sold. For example, if you sell t-shirts, the cost of goods is the amount you pay for your shirts at a wholesale price. If you’re a painter, then your cost of goods includes paint, as well as the labor needed to complete the project. 

Knowing your cost of goods is important, because you need to charge more than that amount for your markup. The easiest way to start is by comparing your cost of goods with the retail cost of a similar product. The retail cost is the price that the customers pay for the final product that is sold – they are not buying to sell the product, so this is the final stop for the product. Sometimes, that price will be comparable with local or online stores that clients can directly purchase similar products from. 

Make sure you’re looking at retail establishments that cater to your clientele. For example, if you’re selling a luxury product, Walmart won’t be a good place to compare pricing. Next, see if you can find out what your competitors are charging. In some industries, it’s common to sell products for higher than retail pricing, especially if you’re delivering it or creating a custom piece. 

Once you have an idea of both the retail price and your competitor’s price (if you can find it), you can find the average price that other people are selling similar products for. Take the retail price of your product, and subtract the wholesale price from that. Take the difference, and divide it by the wholesale cost. Then multiply it by 100. That will give you the markup percentage. Your equation should look like this:

[ ( Retail Price – Wholesale Price ) / Wholesale Price ] x 100 = Markup %

For example, a screen printer buys a sweatshirt for $15, and a similar sweatshirt retails for $40. 40 – 15 = 25. 25 divided by 15 is 1.66. 1.66 x 100 = 166, so the mark up is 166%. 

In another example, a landscaper buys a plant for $8, and the retail value is $12. 12 minus 8 equals 4, and 4 divided by 8 is .5. .5 times 100 is 50, so it’s a 50% markup. 

Now, let’s do this in reverse. Say you’ve decided you want to mark up your goods by 40%. Start by dividing 40% by 100 – that gives your percentage as a decimal, which is .4. Take your wholesale price and multiply it by .4, then add your wholesale price. That will give you your selling price. Your equation should look like this:

[ (Average Markup % / 100) X (Wholesale Price) ] + Wholesale Price = Your Sale Price

For example, a moving company buys boxes at $0.50 apiece, and wants to mark them up by 150%. 150 divided by 100 is 1.5. 1.5 times .5 = .75. $0.75 + $0.50 = $1.25, so each box will sell for that price. 

Now that you understand how to calculate your markup, how do you decide the exact markup amounts? When you set any type of pricing, there’s a balance between how much you charge and how many units you need to sell to make a profit. The higher your price, the fewer units you need to sell. However, you can’t charge more than your clients are willing to pay. 

You also want to remember that not all of your products need to be sold at the same price or marked up by the same amount. You can have a range of products that give your clients choices between a lower price and a higher one. This way, you can sell more lower end products to clients looking for that, and still have something to offer clients looking for a custom or higher end item. 

Since your pricing ultimately needs to cover your cost of goods, any overhead, and still leave something left over for profit, it may take some time to determine exactly what works for your business. Try a few different pricing models and see what your clients respond to. Remember – it’s your business, so you can decide what works best for you. 

If you’re looking for extra help thinking through your pricing, check out our weekly co-working sessions. Each session is broken into two forty minute work periods with a break in the middle for troubleshooting and networking with other business owners. Find all upcoming dates here! We also have a newly released online course all about Pricing Your Services: Budgeting for a Mobile Business for a more in-depth look at pricing.

Pros and Cons of Including Pricing on Your Website

by Jessi Burg

Whether or not to include your prices on your website is one of the most common questions we get here at Outgrow Your Garage. The answer is….well, it depends. This week on the blog, we’re looking at the pros and cons of making your pricing public so you can decide what works best for your business.

In today’s era of instant information, potential clients often want to know as much about a company as possible before contacting them. They read reviews, peruse your website, and look for examples of your past work. For many industries, clients may not know quite what they need or how much it will cost. This means that pricing is one of the first things they ask about during the initial conversation or estimate. 

Pricing is tricky and can fluctuate depending on your business, the season, and supply availability. Before you can even think about putting pricing on your website, you need to make sure that you have a consistent pricing structure. Ask yourself the following questions:

-Are your prices clear and consistent across all of your jobs?

-Do you have a standard list that you refer to for pricing any given job?

-If you charge by the hour, how do you estimate how many hours a job will take?

Once you know those answers, you can decide whether or not to include pricing on your website or in your marketing materials.

Here are some pros and cons to consider when making that decision for your business.

Pros

Clients have an accurate idea of the price before calling you, which bypasses a situation where they’re shocked or angry at unexpected prices during an estimate.

Clients often don’t know how much a given service costs. Adding pricing to your website can help educate clients about your industry, as well as give them a starting point for their budget. This means that if their budget is significantly less than what you charge, clients can adjust their expectations in advance, saving you time during the estimate process.

Pricing transparency makes clients more likely to trust you. Since it is common to seek out multiple bids for a project, listing your pricing on your website ensures that clients know exactly what you’re quoting them for, creating a foundation of trust. If other companies aren’t as open, clients are more likely to choose you. 

You can set expectations about how your system operates before meeting with a client. Including pricing on your website means that you have to do some amount of explaining how you get to your price, which prepares clients to work with you. Do you charge hourly or as a flat rate? Do you have packages? What’s included in your prices? Having a reference about your process makes onboarding new clients easier and streamlines the process for everyone. 

Cons

Pricing of materials can fluctuate. Over the last few years, we’ve seen frequent changes in the supply chain, and recently inflation is impacting many industries. If you can’t predict what the prices will be when you do a job because your industry is being impacted by supply shortages or inflation, keeping pricing off your website will make it easier to have conversations with clients about their options. 

You have to make sure you can update your website pricing easily if something changes. One of the hardest things as a business owner can be remembering to update your website. As soon as you list pricing or talk about how you structure your fees, clients will be attached to that price. This means that when you raise your prices, it needs to be updated on your website immediately so that clients don’t expect an old rate.

If you’re on either the high or the low end of pricing in your industry, it may deter potential clients. Are you a luxury service, typically priced higher than others in your industry? Or do you price match to meet the lowest bid? If you’re at one end of the pricing spectrum, clients looking for a mid-range option may avoid your company because they think you aren’t a good fit for their needs. If you price match, then your specific pricing is less relevant to your clients because it’s adjustable.

The decision to add pricing to your website really depends on what you’re comfortable with. If you know how your pricing works, have a set system for estimates, and frequently get questions about cost from clients, then you may decide to include it on your website. You may be in an industry experiencing rapid growth or change, making it extremely difficult to hold a steady price. Maybe your business is still learning and growing, and you’re testing out different prices to see what works. 

For tips on how to present your pricing if you do decide to put it on your website, check out our free online course on How to Create a Project Gallery in 8 Steps. If you need help determining your pricing structure, keep an eye our for our upcoming course for June, Pricing Your Services: Budgeting for a Mobile Business.