You Don’t Deserve a Profit!

My wife saw a post by a shop owner on Etsy this week that just drove us both absolutely crazy.  The shop owner posted how you should determine your wholesale and retail pricing.

The first step was to determine your costs.  What are your costs of materials?  Even what is the cost of your time?  While I agree with that logic, the cost of my time can be very subjective, but it makes sense.  There was a exhaustive list of what to include in determining the cost of a product.  A very large portion of it we agreed with.

After this is when it got interesting.

According to the shop owner, your wholesale pricing should be double your costs.  Your retail pricing should be double your wholesale pricing.

The shop owner was very firm that this is the only way to price.

Based on this logic, you are entitled to a 75% profit margin when selling it in retail and a 50% margin when you are selling wholesale.

So why are people going out of business?

Because, this is not correct at all.  The price is set by the consumer.  If the consumer, sees value in your product at that price then they will pay for it.  If they don’t, they won’t.

As a shop owner, it is your responsibility to control your costs to help control your profit.  If your costs are low and the market is willing to pay a very high price then you will get a large profit margin, but if the opposite is true then you may lose money.

If everyone deserved a 75% profit margin then no one would be going out of business.  Just because you are in business does not mean you deserve a profit.  If you want a profit…earn it.  Know your market.  Set the price appropriately and then control your costs.

This is the heart of entrepreneurship.

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Posted on August 19, 2013, in Accounting, Metrics and tagged , , , , , . Bookmark the permalink. Leave a comment.

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