Today I’ve got a great guest post to share from Eleanor Mayrhofer of e. m. papers. When Eleanor mentioned that after raising her prices she sold MORE product, I immediately asked her to share the story with DMBA readers. If you’ve been wavering when it comes to raising prices, I hope Eleanor’s story gives you the confidence you need to just do it! Thanks, Eleanor!
In the fall of last year I decided to raise prices on my flagship products, printable wedding invitation kit templates. As an entrepreneur, it was one of the scariest things I’ve done in my business yet. Here’s a rundown of the why, what and consequences of my decision.
Why?
1. The market started to validate what I had to offer – When I launched my products, I wasn’t sure if people were really going to go for form-based printable wedding invitations. After offering a free black and white version of one of my kits that almost crashed our site last April, and then hitting the four-figure revenue mark in July, I realized there was a market for what I was offering.
2. Market feedback and more research revealed that my pricing was too low – I had done some initial research to get a ball-park idea of what the market would bear, but after awhile I realized that I was pricing to low. I noticed that the blogs that reviewed my products kept mentioning how ‘outrageously affordable’ they were, which was ok. Part of my value-proposition is that DIY printable templates are a more affordable option for wedding stationery. It surprised me though. Like many new indie-business owners, I half-expected to hear ‘She’s charging how much for her stuff?! What nerve!’ But once I took a closer look, I noticed small-business competitors that I admired were offering similar products and services at much higher prices. It occurred to me that low pricing just creates a race to the bottom for a lot of female-owned indie businesses, and I didn’t want to contribute to that. I didn’t want to undercut my competition! Ultimately I feel a sense of solidarity with other indie businesses and believe there is enough work for everyone.
3. The thought of losing up to 19% of my profits forced me to make a decision – I’m in the process of scaling my business into the European market. That means I will have to charge a whopping 19% value added tax on all of my products. Since this tax is built into the display price of items, I would have to price my items at least that much higher, so that taxes wouldn’t completely eat away my profits. I also wanted to sell my items on other online marketplaces so, to avoid an administration nightmare (updating prices on a zillion different platforms) I realized I had to just make a decision and execute on it.
What?
1. I applied what I learned in my professional career – I figured out how much income I need and I determined what a fair hourly rate is considering my skill and experience. I also ran some basic business calculations: realistically projecting sales, profit margins, taxes, business expenses, and in my case – the impact of exchange rates between the Dollar and the Euro. Finally, I applied the best advice I ever got when negotiating for a salary: You should feel uncomfortable about how much you’re asking for.
2. I priced on value – I took a look at the product ecosystem in my niche to help determine what a fair price is for what my customer receives. I considered the external cost and effort the customer contributes (paper costs and time) as well as the benefits (ability to produce as many invites as desired, ‘one-stop-shop’ bundling of all wedding paper goods, the uniqueness and quality of my visual designs)
3. I refined my price points and customization pricing – I developed three packages at different price points with customization options. I’m still perfecting this, but the exercise alone helped me clarify how to price my products and define a sensible pricing structure for custom work.
4. I just did it – Then I took a deep breath and just ‘flipped the switch’, changing all the prices in the back-end of my E-commerce platform and Etsy shop. I didn’t send a mail out to my mailing list or blog about it, or in any other way make an ‘announcement’. Then, I went to bed and promptly had an insomnia – mental hamster wheel freak-out.
The Result
Despite my internal freak out, my business did not come to a screeching halt, in fact just the opposite happened. January has been my biggest month ever. I made more revenue in the first week of January then I did in all of July 2010 which had previously been my highest grossing month. And after all of this, last week I discovered my products had been blogged about by a photographer who described them as the ‘most affordable wedding paper goods I’ve seen’! So I’m sure this won’t be the last time I go through this process.
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Need help pricing your art or craft? Check out Pricing for Profit!
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it’s fantastic to hear that it has been so successful for you.
Thank you for explaining the process of how you made the decision. For a lot of people that can be the hardest part.
Thank you the article. I have not yet taken the leap of setting up shop I am in the research stage. I do agree with alot here especially the pricing. Still researching before I take the leap and finalize my prices Meanwhile perfecting my skills and finding my audience.
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“It occurred to me that low pricing just creates a race to the bottom for a lot of female-owned indie businesses, and I didn’t want to contribute to that. ” I really love this thought.
Love the race to the bottom sentiment too! Too many indie craft sellers underprice and it hurts everyone by creating an expectation that handmade items will be cheap. Thanks for sharing this article!
Thank you for this. I just raised the prices in my Etsy shop, but not to where I *should* have them (fear of offending potential buyers, I guess). Having someone explain the rationale and process behind their decision to increase the price of their product is so helpful…think I might just have to look at my pricing again.
i have to believe that we should be able to make a living doing what we love, and raising prices is always scary but you have just proved your intuition was spot on. congrats, good article!
There truly is enough business out there for everyone who is willing to make a quality product and offer it to consumers. What a wonderful success story!
” you should feel uncomfortable about the salary you are asking for”…
shouldn’t it be the other way around….know your value and your worth?
je suis confusee….
3. The thought of losing up to 19% of my profits forced me to make a decision – I’m in the process of scaling my business into the European market. That means I will have to charge a whopping 19% value added tax on all of my products. Since this tax is built into the display price of items, I would have to price my items at least that much higher, so that taxes wouldn’t completely eat away my profits. I also wanted to sell my items on other online marketplaces so, to avoid an administration nightmare (updating prices on a zillion different platforms) I realized I had to just make a decision and execute on it.
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Thanks for sharing! You are correct, but it is not VAT on your profits, but on your gross sales! You are required to charge VAT at the rate of the customer’s country – and there are 27 European countries… This all can get pretty nightmarish. There are facilitators who take care of all this for you, but it comes at a price as well.
I’m in the process of sorting out all my product ranges & prices – upping some, downing a few and ruthlessly culling several. I have a few different sales platforms, and over the years it’s all gotten a bit out of synch. I reckon it’s time to bring it all back together & make sense! I like the idea of feeling uncomfortable about pricing. I think the most important thing is to make it all make sense to the customer.
@Kerin – That’s a good point, but a good and very successful friend of mine who is an executive coach gave me that advice. I think it’s a case of often knowing your worth intellectually, but still being hesitant to insist upon (resulting in discomfort)
@Mark – That’s true, except I’m a U.S. expat with my business (partially) based in Germany, so my only requirement is to bill at the German VAT rate…it’s complicated!
The statement, “It occurred to me that low pricing just creates a race to the bottom for a lot of female-owned indie businesses, and I didn’t want to contribute to that.” shows how we sometimes under-value ourselves and our work. Thanks for reminding us of our worth.
I bit the bullet and raised my prices on my flagship product. My sales didn’t hiccup at all. I wish I had done it sooner.
I would like to know how to do “some initial research to get a ball-park idea of what the market would bear”, could you please share some ideas
thank you
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