There are a couple of different prices that people refer to, and it is essential for your professionalism that you know exactly what terminology to use. From the lowest price to the highest, there are:
The cost price:
This is your own calculation of how much it cost you to actually produce your products. It includes your time x hourly rate, material costs, but also overheads such as studio rent, telephone and transport. Costing your product or service correctly is the foundation of how you will price your work. Do keep this cost price confidential, and do not share with others such as your retailers or even competitors.
Trade or wholesale price:
This is the price you sell for to the trade. Normally this is your cost price plus a mark up or profit margin (recommended is 2 x the cost price). This is the price on your trade price list that you will share with retailers or galleries. Do not share this list with the general public or with the media (they might accidentally publish the wrong price!)
This is the price that is displayed on your work or on a price list, and is the price that retailers or you charge to the general public (e.g. on your website or open studio event). This retail price is normally around 2.5 to 3 x the trade or whole sale price, depending on the mark up of the retailer. Please note that the retailer really needs this mark up to cover their own higher overheads such as the shop rent, taxes, business rates and staff. Do not undercut a retailer, as they will very quickly stop buying work from you!
So this means that if your cost price is £15, your trade or wholesale price is £30, and the retail price is then £75 – £90.
A couple of additional notes on this:
You might want to offer a trade discount to businesses who regularly buy from you or who buy in bulk, but who don’t have a shop (for example interior designers). This trade discount is often around 20% – 30% off the retail price.
When you are working with a manufacturer and get paid royalties then ensure that you are very aware of the actual % royalty commission they will pay you, the expected unit costs, but also how this % will be calculated : based on their cost price, their trade/wholesale price or retail price, and if it is paid on products manufactured, ordered or sold. Be also very aware what additional costs will be deducted from the royalty calculation (i.e. postage, insurance, stock costs). Each manufacturing company who pays royalties does this in their own way, so make sure that you understand how it is calculated.
Did you find this post useful? Why not ‘like’ it or tweet it to somebody who also might like it. If you have any questions or have different experiences with pricing, then write a comment below.