Pricing Your Woodworking Product for Maximum Return
By Tamara Korremans
As a woodworker you take great care and pride in your work. Many woodworkers are often
disappointed that their products do not fetch them the price that they truly deserve. As entrepreneurs
pricing product is a difficult but important issue that must be dealt with. There are a number
of ways that the price of a product can be determined, however it is best to select a pricing
model that best works for you.
Factors Affecting Pricing
Before deciding on a pricing strategy, you need to consider the factors that will influence
your strategy. Your product positioning plays an important role in determining the strategy.
If you position your products as creative masterpieces, a low price point will affect your
image. If you position yourself as a discount furniture maker, customers will always expect
low prices, even for high quality items.
The market demand for the products you sell will also determine the price you can command.
The best way to determine this is by conducting some market research. Ask a few prospects or
customers, what price they would be willing to pay for a particular product given three price
point - Price X, Price Y or Price Z. If you have a large woodworking business, you may opt
to use the services of a research company to conduct research on a larger scale.
You will also need to determine your production cost for the woodworking items that you
wish to produce. This should take into account the fixed and variable costs. Overheads are
often overlooked by woodworkers in their price calculations and must be factored into the price.
Whether you wish to achieve short term profits to generate cash flow or are focused on
long term returns through increased market share will also play a role in your pricing strategy.
Lowering prices could increase revenues through larger volumes being sold. While this increases
revenue and market share, you will have to be patient to see some real profits.
Determining Your Pricing
Once you have taken stock of the factors affecting your pricing, you can use the pricing
model that is most suitable.
Cost plus model
In this model, first determine your cost of production for the item. This should include
the fixed cost, the cost of raw material and other costs. Then add a mark up that you consider
reasonable and which will produce a fair profit for your woodworking business. For example,
if the cost of raw material is $150, the production costs is $50 per unit, then your cost works
out to $200 per unit. Based on current market conditions, you feel justifies in operating with
a markup of 20% markup, so you add $40 so your final price works out to $240 per unit. Using
this method it is important to work out the costs accurately and estimate the volume of products
you are likely to sell.
Return On Investment Pricing
The principle behind this method is to arrive at a price that will enable you achieve
an expected rate of return on your investment. For example say you have invested $10,000 in
your woodworking company and you estimate that you will sell 1,000 items in the year, and want
to recoup your investment in one year. On the 1,000 units you need to make a $10,000 profit.
This amounts to a profit of $10 per unit. If your production cost is $80 your price will then
work out to $90.
Perceived value pricing model
This strategy involves pricing your woodworking product on the perceived value that our
customer attaches to the product. For instance if your customer has an art-deco home and is
excited that your wooden furniture is just what he has been searching for months. Buying the
furniture from you will easily save him $10,000 searching all over the world for just the right
furniture, and the expense of shipping it, you could easily charge $16,000 for the products
that cost you $9,000 to make. While this may not be a common pricing strategy, it is one that
yields the best returns.
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