How to Adjust Your Prices While Maintaining a Profit

Cut Red Cost Word With Scissor

First, you may want to read the two posts that lead to this article.

Let’s say after reading my previous pricing posts, you feel your prices are way too high for your market.  Perhaps, you did your calculations using the formula provided and your price per bar of soap was $22, while your neutrally priced competition are selling soaps for $8 or 9 each.  In case you forgot, this is your pricing formula:

Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail

What do you do?  Start by checking your figures.

  1. Double check your math.
    Make sure you plugged in everything correctly in the formula and made no math errors.  Did you figure the amount a full batch of soap costs to make but forget to divide it by the number of bars in a batch?
  2. Are you charging a reasonable rate for the labor?
    Labor should be figured at a reasonable amount that you would pay an employee to make the soap or cosmetic (or whatever you are making).  You might think your time is worth $30/hour, but would you pay an employee to make it at that rate?  Uh..no!  Then lower this amount to reflect what you would pay someone.
  3. Is your profit reasonable?
    You may be pulling a number out of the air, but it needs to be reasonable.  Perhaps $12 per bar of soap is too high for the profit, unless of course, you are using a premium pricing strategy.  Then you can use a high profit expecting to make fewer sales.
  4. Are your expenses through the roof?
    You can’t be running a business with expenses of $10,000 per month when you only produce 10 bars of soap.  You may need to refigure your expenses (especially if you are making a projection), or you need to cut your expenses.  Maybe you don’t really need an expensive studio when you make 10 bars of soap per month.
Now, let’s say all your figures are correct, and your $22 soap is too expensive for your market.  How do you fix it?

There is only one answer – cut your costs.

  1. Start by shaving your expenses.
    Get rid of everything you don’t need to efficiently run your business.  Perhaps you can do your own day to day bookkeeping and only pay a CPA during tax time.  Will taking a free class with the SBA (Small Business Administration) help?  Can you wait on investing in top of the line equipment until you are profiting?  Maybe turning the A/C off in your shop at night can lower costs.  Think of every way to shave things down, including if you are making projections.
  2. Rethink your ingredients/ materials.
    You may want to use real sandalwood essential oils in your products, but unless you are using a premium pricing strategy this may not be doable.  In fact, it isn’t doable.  Try using amyris essential oil instead.  It has a similar scent for a fraction of the cost.  If your 80% shea butter soap is too high, try using 20% and choosing a nicely priced oil for the 60%, such as sweet almond oil.  Go through each ingredient and see if there is a comparable replacement that will lower costs while not compromising your recipe.
  3. Work more efficiently to lower labor costs.
    Sometimes, you may need to invest in slightly better equipment in order to save money.  For example, you could buy silicone liners for your molds to cut down the time it takes to line them with paper.  Maybe investing in a professionally printed box or label will cut down time spent printing and cutting your tags for soaps you wrapped manually with fancy paper.I once had a lady tell me that she lined a cardboard box with a trash bag to use as a mold at the suggestion of a soap teacher.  Sure this was an inexpensive way to make some practice batches of soap.  But she spent so much time shaving down her soaps so there would not be wrinkle imprints that she was not making money.  Additionally, she was throwing away the bits she cut off.  Essentially, she was wasting her valuable time and a portion of the batch.  By buying a mold she didn’t have to line, she was able to save while keeping her sanity.
Even if your costs are low and your product is priced right, you may want to use a few of these tips to create a larger profit for yourself.

What can you do to lower your costs?  What can you do to increase profits?  Share what you come up with in our comments below.