Adding Overhead to your Jewelry Pricing
Had a really interesting conversation with a friend recently about pricing. The jist of the conversation was about the cost of overhead. If you are not factoring in the cost of overhead, you are not pricing correctly and could even be paying your customers to buy your product instead of making money.
Overhead is your rent, travel, time spent accumulating supplies/materials, subscriptions, memberships, accounting costs, licenses and any other item that does not fit under the Parts or Labor category. A really simple formula is .25 x (Parts + Labor).
Here's a really good example of how you could end up on the loosing end of a booming business.
My friend, we'll call him Sean, sells products online to the tune of around $50,000 in sales per year. He has another friend, Tom, that sells to the tune of around $500,000 per year. According to these numbers you would assume that $500,000 is better than $50,000. Not so... Tom was not factoring in overhead into his pricing and at the end of the year had less money in his pocket than Sean. This was discovered when Tom started working with a business mentor. Tom was selling a gift basket really well and was super excited by how popular it was but upon closer inspection, every time he sold that gift basket, he was actually loosing $5.00. Not one cent in profit, only a $5.00 loss. After 500 gift baskets that's $2,500 he actually paid his customers to buy his product.
And don't forget to include the fees for venues like Etsy and using Paypal.
Overhead is your rent, travel, time spent accumulating supplies/materials, subscriptions, memberships, accounting costs, licenses and any other item that does not fit under the Parts or Labor category. A really simple formula is .25 x (Parts + Labor).
Here's a really good example of how you could end up on the loosing end of a booming business.
My friend, we'll call him Sean, sells products online to the tune of around $50,000 in sales per year. He has another friend, Tom, that sells to the tune of around $500,000 per year. According to these numbers you would assume that $500,000 is better than $50,000. Not so... Tom was not factoring in overhead into his pricing and at the end of the year had less money in his pocket than Sean. This was discovered when Tom started working with a business mentor. Tom was selling a gift basket really well and was super excited by how popular it was but upon closer inspection, every time he sold that gift basket, he was actually loosing $5.00. Not one cent in profit, only a $5.00 loss. After 500 gift baskets that's $2,500 he actually paid his customers to buy his product.
And don't forget to include the fees for venues like Etsy and using Paypal.
