Forums: Discussions for entrepreneurs and small business.

A long time ago I pitched a new product idea to a local large chain store and got a no, because they wanted to buy the product at 1/4 the retail price minus two dollars.  That was BELOW my manufacturing price.

If a product let`s say has a suggested retail price of $24.95, what would a buyer expect to purchase the product for?  What is a good equation for determining suggested retail and selling prices VS tooling costs?

Dale

 

 

-------------------------

Design It, Print It, Wear It (TM)

www.thetfactory.com

Hi Dale

It depends on so many factors such as the type of industry, type of products, freight terms, return policies, warehousing costs, marketing allowances etc. Car dealers for example make 300-400% on a lot of their insurance products, whereas other retailers are lucky to make 20%. So their is huge variability.

I took a product to a mass merchant who negotiated hard on their price only to find they discounted it below my recommended retail price. So you need to careful.

So the first step is to research the industry and identify the typical margins on offer. Equally you need to be aware that large chains will hit you harder than small businesses, but in turn they can move substantial volume.

Most small retailers would be looking for 80-120% markup on a product. So if RRP is $24.95, then your selling price in some industries would be around $11-14. If you then plan to add in distributors and agents to do the distribution work for you, then you may sell to them at say $9.00 and let them negotiate the final pricing.

Again, there is huge variability and you need to do your homework on what is normal in this industry.

Hope this helps

SC

-------------------------

Business Development Services

hey there DjDale!  I put in my 2 cents in a post a while ago about this topic so I`ll summerize:

There are two schools of thought when it comes to pricing.

Competitive pricing basically matches what others with similar products are charging, but as a newbie or a small business you are at somewhat of a disadvantage because the big boys have volume on their side, but it is still important none the less to stay somewhat in step. I don’t know your industry but if you offer a truly superior or novel product you can get away with the slightly higher price but you don’t want to totally get way out there.

Cost-based pricing is simply calculating cost of goods then adding the appropriate profit margin. There are industry standards for most products but the very very general easy answer (which you know) is cost to manufacture x 2 = wholesale x 2 = retail. IE if something cost you $2.50 to make then the wholesale price is $5.00 and the retail price is $10.00. Pricing is far from an exact science, so if you’ve done your homework within your industry and know your costs I’m sure the price is fine. Supply and demand will tell you if you are too high or too low. If your stuff starts to fly off the shelves and you can’t keep up, that will tell you to raise your price. If you are doing more thumb twiddling than anything else, you might consider coming down.

Hope this helps!!!

-------------------------

Leslie
Founder and President
Charmed Life Products LLC
Grill Charms™… The MUST HAVE grilling accessory that is revolutionizing the American Cook-out AND The perfect gift for any occasion!
Grill Charms
                                                                                                    

Dale,
       Good advice from SC and Grillcharmer.  I think Grillcharmer is right regarding the two basic methods of pricing strategy.  It does vary by industry, but a general rule of thumb is a product is marked up 4x to 5x from manufacturer to retail, as Grillcharmer has suggested.  In thinking from a top-down approach, whereby you assess the value to your consumer--you want to think about how you can get your perceived value as high as possible.  I did a blog post on this topic based on an interview with Barbara Carey (a very successful inventor).  I think she said it better than I can--you can read it here:

http://productglobal.typepad.com/gss/2007/04/interview_with_ _1.html

Hope this helps. 

By the way, you want to not only look at tooling costs but your unit costs.

Ashton

Hello everyone!

I am glad to have found your forum!  I am posting on behalf of a friend who has a new invention and we hope that you all can help us with some basics.  I am helping him with the press and marketing of this invention.

My friend has invented an alarm which is able to be installed on air conditioning units to deter theft and vandalism.  He has gotten his patent on it.  There is nothing out there like this invention and with theft of air conditioning units on the rise to sell the precious metals for scrap this is a product that has huge potential!

We released a press release on Tuesday through PRWeb and as of right now he has over 35K hits on it with high pdf downloads, ebook and regular prints.  Home Shopping Network saw the press release and called him!  He has also already had numerous phone calls from contractors wanting to buy them.  At first he just figured it would be selling them locally however based on the press release he is starting to get calls and emails from all across the US expressing interest in buying them wholesale. 

After speaking with finance people, attorney, companies that help grow businesses, we know that we need to get a business plan together but how can you project the sales of a product when there is nothing like it out there?  Where would we begin to find a manufacturing company to produce them?  We have so many questions but really can`t afford to to hire expensive experts to help us. 

We would greatly appreciate any advice that any of you would have! 

Thanks in advance for your responses!

Jackie

-------------------------

Shouldn`t Life be Simple? We are the Solution to your Busy Lifestyle!

Jackie,
      Congratulations on your growing success.  My company helps businesses, start-ups, and inventors tap overseas resources to develop and manufacture products.  If this sounds of interest or you just have some questions you want to bounce off of someone, you can visit our website at www.productgss.com to learn more about us.  Or, contact me via the information below.

Ashton

Jackie, this first thing you need to do determine, Is there a market?  Seems that is completed.  Second, Can we sell it for a profit?  That is where you are at.  You need to get engineering drawings created, quotes from manufactures and some samples to see if it all works as designed.  Then you can answer that very important second question.  There are many websites that link entrepreneurs with manufacturers.  TradeKey, Global Sources, Alibaba to name a few. 

-------------------------

Travis Tschepen
Hibachi Bros. LLC

--My goal in life is to be as good of a person my dog already thinks I am.--

Hey Jackie, welcome to the board!  If you`re going overseas, I`ve worked with Ashton and he`s good people!  For domestic manfactuing go to www.thomasnet.com

Good luck!!!

-------------------------

Leslie
Founder and President
Charmed Life Products LLC
Grill Charms™… The MUST HAVE grilling accessory that is revolutionizing the American Cook-out AND The perfect gift for any occasion!
Grill Charms
                                                                                                    

"they wanted to buy the product at 1/4 the retail price minus two dollars.  That was BELOW my manufacturing price"

This is most unusual, IMHO.  Why not make the product and sell them direct on the internet for lower than their retail price?

OT: I`ve been to Home Depot and needed a swicth cover plate for 4 switches. They price them at about $4!  That`s something that costs Leviton less than $0.40 to make by injection molding, of a simple piece of plastic with 4 openings.  Likewise they sell screws at over $1  for a pack of 10-15 screws, or 10 cents each.  They don`t even sell them by the box after they acquire their local competitor Yardbird, where I used to buy a box of 100 for $3-4.  I knoiw I can buy 10,000 for about $66!  BTW an internet retailer sells the same box of 100 screws for over $10 !!!!!  Good luck with that!

Moral of how big retailers are pricing their ware: just because they can get away with it, for lack of competition.  I`d say: let`s use the internet to give them a run for their money.


-------------------------

Go Green and put more money onto your bottom line with award-winning LED-based light bulbs PearlLED. If you manage a good sized store/business and want to boost the bottom line, call us!

I would agree, researching your industry is going to be the key.  It seems to me the markups in retail are huge, but there`s lots of middlemen who provide the convenience of local shopping, timely delivery, some sort of guarantee, etc.

Something like Corn Flakes are probably only 5 cents (at cost) for the actual product, but the retail packaging is the expensive part.  For estimation purposes, a good guess is the price doubles every time somebody buys it, and does some sort of value-add like packaging, distribution, etc.  So the box of Corn Flakes is $4 or $5 at the retail level.  You can probably work backwords by halves to see how many levels of people touched it, right back to the farmer.

If your idea is a material item (not software), you are competing with competitively similar products made overseas.  Your low start-up volumes and high cost of local materials, labor, etc.  Make it a difficult deal for you, because your example buyer can get similar things from China for less than you can produce it.

Do lots of research before you tackle any direct-to-retailer deal.  You may be better off with your own website, with a retail price that allows wholesalers to buy from you at a 50% discount, if that is possible with your industry and product.

I hope this helps!

-------------------------

Hamilton Jones
wilham@hamiltonjones.com