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Prices... Necessary and Evil

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So, I've maintained a largely arbitrary price scheme for about four years where the main interior light sets sell for $49.99.  Unfortunately, this is no longer reasonable due to increases in prices and my desire to pay myself for my time.

So, going forward I will pay myself an hourly rate.  The thought here is that if something for the business isn't worth my time or hiring someone else to do it, it probably isn't worth doing.  This is how I determined that the nice, but elaborate packaging I do is probably not sustainable or the best use of my time.  All considered between maintaining label stocks, designing labels, printing labels, labeling packages, testing lights, packing lights, labeling individual light packs, printing inserts, cutting inserts, folding inserts, opening the bag, arranging everything into a bag, weight-checking the package, barcoding and sealing I average 15 min per light set.  That works out to $5.50 per bag for my time and it's something strongly dislike doing.  Plus, it's very limited with respect to scaling.  When a significant portion of my time is used for this, it can't be used for other things, like maintaining listings and offering new products.

Enough about my time.  Pricing proper.  I've found that a general base rule for reselling relatively low cost items (think $2 each to maybe $30 each at wholesale), price should generally be 3x the cost you paid to purchase it.  The reasoning is 1/3 of that repays for buying the item, 1/3 goes to selling costs including shipping, advertising, returns, customer service, etc, and 1/3 to business operations and profit.  Even doing this for several years, I thought there was something wrong with this system, but it is a pretty reasonable description of what is necessary for One Way Light to be profitable.

Details... how I'm doing it:

  • Base cost: I figure the base cost of a light as the price I paid for it including shipping to me and any post-manufacture costs such as packaging and third-party testing.
  • Custom lights designed or made special get a 25% added to their base cost. *stacks with slow-moving
  • Slow-moving lights also get 25% added to their base price. (example: I had to buy 2000 pieces of certain instrument lights that were custom made.  It will take over 5 years to sell them all at current rates.  They represent money spent that won't make a return for a long time.
  • Preparation costs.  Some lights require additional work due to being made wrong or just having had a history of being unreliable.  In these cases, I may check each light in detail and make corrections to some or all pieces of a certain light.
  • Determining Price:  Base cost plus any custom/slow moving modifiers all times 3 with prep costs added at the end.  That's how I determine price, in general.

For individual lights and parts that are under $1, I might use a higher multiplier than 3 and for lights that are more than $5 each, I might use a lower multiplier than 3.  For some individual lights I've found other sellers and it seems like they're more or less using the 3x cost rule in their pricing.  Mostly though, I don't feel like I can price based on competition because there really isn't much competition at this quality level in my current niche.

This is probably more for me than anyone else out there.  Thanks always!

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