I’m off to the Buyer’s Market of American Craft today, but I’ve got a great guest post to share from Eleanor Mayrhofer of e. m. papers. When Eleanor mentioned in The Creative Empire forums that after raising her prices she sold MORE product, I immediately asked her to share the story with CMBA 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.
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.
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.
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.