Ultimate 2-Step Pricing Strategy for Your Leatherwork
One of the biggest challenges that new leather business owners have is pricing their work.
It’s a challenge for good reason. There are many different ways that you can price your leatherwork. You can use a top down pricing strategy where your price is based on the actual costs of producing the leathergoods or you can use a value based pricing strategy where the perceived value comes into play. Determining which of these strategies you will use depends on your business model, who your audience and ideal customer is and who you are serving.
There are more than a handful of people on youtube and other blogs all over the internet telling you that their way to price is the best way to price. But all of this conflicting info can be really confusing when you’re just starting and you’re a new leatherworker, right?
Who should you believe? Which pricing method is actually right for you?
The stakes are high. Obviously, you don’t want to offend or turn people off and lose sales with a high price. But you also don’t want to break even or worse yet, lose money with a low price and risk going broke trying to start a leather business before you even really begin!
There’s got to be an in between where you can create competitive pricing that is also sustainable for your leather business.
The solution is to calculate your base price by using actual numbers and then adjusting that base price accordingly when taking into consideration your specific business model.
Pricing this way ensures a few things:
It ensures that you have profit built into the price
That your base production expenses like materials and labor costs are covered
That your pricing allows for future wholesaling to stores
And most importantly, it ensures that you’ll have profit to grow and scale the business in the future.
There are 2 steps to calculating your base price for your leathergoods
You first need to know your costs and then know how to run your numbers and analyze the results to come up with your final price.
STEP 1 | GATHER YOUR PRODUCTION COSTS
At the most basic level, you need to know 3 main things to determine your base product price. You need to know your materials costs, labor costs and how long it takes you to make the leathergoods.
1 | Materials costs - How much did your leather cost? How much did your thread, wax, hardware and everything else cost. You should only be counting the actual materials used to producing the item in your materials costs.
2 | Labor costs - Know what your time is worth. There are many ways to think about this one and there are a lot of different factors that can come into play here. Things like geographical location and skill level are things that could affect this number.
I like to think about it like this… if I were to hire someone to do this work for me in my location, what would I have to pay them per hour for work that is up to my quality standards?
3 | Time spent producing - Know how long it takes you to make the leathergoods. Have you made it a few times and have your method of construction down? Yes? Great. Then make it one more time and this time, time yourself from start to finish and make a note of how many minutes or hours it takes.
STEP 2 | RUN THE NUMBERS AND ANALYZE
Once you have your costs from Step 1 noted, then you can “run the numbers”. Ever heard anyone say that and been totally confused but what that even means?
It's ok, you’re not alone. There are a ton of people who aren’t quite sure what "running the numbers" actually means. But it's pretty simple. All it means is, plug your numbers into some simple calculations and analyze what you come out with.
The 2 simple calculations we’re using are going to give you your Retail price and Wholesale price:
WHOLESALE PRICE = (Material Cost + Labor cost) x 2
RETAIL PRICE = Wholesale X 2
I’m going to use the following sample data for a leather handbag as an example.
Materials cost for the bag = $35
Labor cost = $60
And this is how i'm getting my final results...
WHOLESALE PRICE = (Material Cost + Labor cost) x 2
Wholesale price = ($35 + $60) x 2
Wholesale price = $95 x 2
Wholesale price = $190
RETAIL PRICE = Wholesale X 2
Retail = $190 x 2
Retail = $380
My base retail price for this handbag is $380 and my wholesale price is $190.
Now time to analyze the data and make some choices. I have 3 pricing options.
Option 1 - I can take that retail price as is and price my handbag at $380 and call it a day. This is called top down pricing, because i’m using the costs of production as my guide.
Option 2 - I can decide I need my retail price needs to be higher because my audience is in a luxury market, or because I offer more value in terms of service and customer experience. Meaning, they’re not just buying the handbag from me, they’re buying the name, the brand the customer service and everything that comes with that. So the perceived value of this handbag is higher. This is considered value based pricing and it is up to you to determine what the perceived value of your brand and products is.
Option 3 - I can decide that the base price of $380 is a little high for my ideal customer so I need to find a way to cut my labor or materials costs to bring the retail price down. Or I can cut into my profit a bit and lower the price by 10% (or whatever you’re comfortable with) bringing it down to about $340. Becareful with lowering your price too much, because since you’re cutting into your profits this will limit you in terms of how much you have to reinvest in your leather business.
It is ultimately up to you how you choose to price your leathergoods.
Just make sure you’re calculating your base price by using actual numbers so you know that you not only are covering your production costs but you also have profit built in. This ensures that you’ll be able to grow the business and also scale by selling wholesale in the future. Regardless if you have a lower end or a higher end product, you must run the numbers to ensure that you’re making a profit. Once you’ve run the numbers then you can base your actual price on perceived value or top down value.
If you want to learn more about creating a profitable leathergoods business and going from a business that makes no sales to a leather business that makes consistent sales month after month, sign up to watch the FREE workshop, How to 5x Your Leathergoods Business
