Costing and Pricing Your Products + How I Screwed it Up and Almost Went Out of Business
It was 2 days before my boutique’s grand opening. Every item in my store was designed by me and manufactured in small sewing factories in Chicago. I was thrilled and terrified at the same time.
I never really planned to have a retail store. It was more the designing and selling I was interested in. I opened a boutique based on advice I got from my friend Marcos, a classmate of mine friend from F.I.T. He owned a womenswear line in NYC and mentioned to me one day…
“Ya know Jane, if you really want to start a business and have a life, you could open a small store, design whatever you want in the back, and keep it simple. It’d be a lot easier than doing a wholesale line.” Bam.
He had me at easier and design whatever you want.
I took Marcos’ advice and started hustling to open my own boutique in Chicago at the age of 25.
There were definite advantages to starting out this young:
- I lived on the cheap since I was willing to live in a rather dingy studio with a view of the police parking lot (which of course was 24/7 and loud as heck)
- I didn’t have much to lose and I figured if it didn’t work out I could always waitress
- I had loads of workers willing to help paint my store as long as I provided beer and pizza
- I thought like a 25-year old – which was GREAT in the sense that I was innovative and willing to try new things
Certainly, there were disadvantages:
- I had very little experience so I had to make mistakes on my own time and money
- I couldn’t get a loan for the business since I had no collateral
- I thought like a 25-year old – which was NOT GREAT in the sense that I thought my reality was everyone’s reality
And this 25-year old thinking is what helped me screw up the costing and pricing of my line. You see, when I priced my line I couldn’t imagine that someone would pay more than I would for something. My life-stage had a big impact on what I thought the market would bear in terms of price.
If I wouldn’t pay $250 for a dress and my friends wouldn’t pay it either, I thought no one would.
I made the mistake of putting my values about what something is worth on others. I meet with hundreds of designers in my mentoring work these days, and this is a huge issue that holds them back and messes with their heads. Pricing confidence matters.
Back when I started, I didn’t have the real, deep-down, in-my-core confidence in my product yet.
Therefore, I priced so I could give my customers “a good deal”. On some level, all of us play this same game in our heads. We have this dialogue in our brain that goes something like this…
- Is my product really worth it?
- Who would pay the same for mine as they would for (fill in the name of a well-known brand)?
- I’ll just price it low to start and then raise the prices as I make a name for myself
So back to my big grand opening…
Luckily for me, a fashion industry insider (and my unofficial mentor) visited my store 2 days before I opened my business. She noticed my pricing and told me,
“Jane, you’re selling these things at wholesale prices! You’ll be out of business in 6 months.”
What the whaaaaa? Really? I just wanted to give people a “good deal”.
After I stopped panicking (and that took a while – there was crying involved), I realized she was right.
I wanted the business to succeed SO BADLY that when it came to costing and pricing my products I was buckling. But the truth is, why under-price? There’s no way to have “proof of concept” if the prices are too low to make a living.
The test of my business would be to price things fairly (not my scared-y cat pricing) and see what happened.
So I doubled the prices on everything the day before my launch.
It was probably the scariest thing I ever did in my life. I mean, the day of the opening I was down to $432 in the bank, I NEEDED things to sell. But I just held my breath that customers would still buy at the new prices. And I figured it was better to put it all out there and take the risk now. Do or die.
Customers did buy (huge sigh of relief, just huuuuuugggeee), my grand opening was a big success, and my business thrived until I sold it 14 years later.
Even just writing this story brings back the terror of those days. Yes, it felt like terror sometimes.
Here’s what you can do to avoid this costing/pricing dilemma.
- Use a good cost sheet and trust the numbers
- Do some serious research on who your competitors are and make a grid listing each company, their competitive advantages and disadvantages, and pricing
- Price your product to make a profit no matter what. If you price low with the intention of raising prices later, you risk having to find a whole new customer base
I still think about my mentor and how she SAVED my butt! Thank goodness for people who will be truly honest with us.
If you’re struggling with how to price your products, I can help. We have an online, on-demand, course about costing and pricing. You’ll learn suggested markups for wholesale and retail, get a GOOD cost sheet template (plus examples) with pre-filled formulas,
Thanks for reading!
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