Advice needed re pricing goods for profit.

motorguy

skippy64 wrote: »

As a rough rule I divide the unit cost by 4 & then multiply it by 6. I then add that new figure to the original unit cost and round it up to a sensible unit price e.g. if it comes out at £17.73, I'll make it £17.99. I know it sounds long winded but it works for me.:)

So say you buy it for £10. £10 / 4 = £2.50. £2.50 * 6 = £15. Add that to the purchase price = £25.

Would it not just be easier to multiply the purchase price by 2.5?

yallapilko

This is all really helpful and interesting.
There is something that I'd like to know .Where are all these formulas coming from?
I ask this because I've sold stuff before and slavishly just marked up with some formula without knowing why are where it comes from. Some stuff made as a result and some didn't. And I'm looking for a more logical way of doing things.
So what I'm looking for is the reasoning behind it all.
Why mark up 2.35 times, or 3 times or 4 times dived by 4..... ?????
Of course you always have to look at the competition too.

motorguy

Is there really a formula?

My reckoning is, buy it as cheap as possible, and sell it at a price that the market will sustain....

For example, if i know an item will sell at £20, and i find someone who can supply it to me at £2, i don't feel any urges to sell it for a fiver.... (divided by four, multiply by six and added on the £2)

yallapilko

Yes, it's all very well knowing when you are making a killing. We can all do that. It is just that you need to know when you are just making money and when you are well into profit... there are a lot of things to add on.
Here is some stuff I just found that may be or interest or not.... it's about breaking even. (you may have to make an account to log on)

http://www.shell-livewire.org/beyourownboss/main.php?catid=1&subcatid=31&artid=1025013018.663

COOLTRIKERCHICK

at the end of the day even if you add 50p on after tax... you are in profit on that item.....

i may be wrong,,, but i think you may be talking about turn over....

as at the end of the day....you are not going to cover your overheads etc with selling a few items.....unless you are talking high priced...items....

i feel you need to find out is there a market for the items you are going to sell....what type of mark up/price your competitors are selling the item for....and exactly how many you think you would sell... or need to see at diff margins of profit.....

as its no good working out how much mark up you need to put on.. when the other seller is selling them far less than you would....maybe they got less overheads than you.. or a vast turnover..to keep new stock coming in...to keep regular customers coming back.....

clothing/fashion is a finicky business......its all a matter of taste.... and a large amount of impulse buy....to keep up with fashion/trend......

is it only on-line you will be selling? or will you also be doing party plan selling etc.... so you have another outlet to try and get sales.....

also if you are selling on line..... have you worked out any return policy.... for clothes that dont fit/not suitable etc.....as i presume you are doing your own website?

i worked for a mail order catalogue.... and they worked on the mark up of 5x the buying in price.... to cover returns etc.....so if something was bought in for £5.... it was advertised in their catalogue/online at £25.

yallapilko

Yes I agree! If the customers will only pay £5 and for you to make some profit you need to sell it at say £6 then it is useless.
I think you are right. Turnover is the key and break even figure needs to be known. But I feel that it is still necessary to have some method of pricing in costs that is not just some number plucked out of the air.
I'm doing my own web site and my returns policy is in place and know what the competitors are charging.
The catalogue mark up is interesting.
Was that including their overheads cost? Or was it just the price they purchased from their supplier?

Paul1sh

clothing generally retails at 2.5 x the wholesale price.As for a breakeven figure then you would have to do a budget forecast of all your overheads and then take an average retail price of your goods and divide your budget forecast by the profit on the average retail price and this should give you a ball park figure of the quantity of goods you need to sell in order to break even.
i.e : weekly overheads £100
average retail price £5 (£2 cost)(£3 mark up profit)
100 / 3 = 34 items to sell to breakeven.
My family's been in the retail trade since 1818.

COOLTRIKERCHICK

[QUOTE=yallapilko;4717756
The catalogue mark up is interesting.
Was that including their overheads cost? Or was it just the price they purchased from their supplier?[/QUOTE]

the £5. items was the price they bought it from the supplier.. and the x 5 mark up..... covered all overheads....including returns...and the % of clothes returned... that would be either faulty.....or unsaleable for some reason.....worn.. or soooo full of pet hair etc.....

my mother has a ladies fashion shop... middle market as i call it..... not your cheap stuff.. for the older lady wedding out fits etc..... and as paul1ish said.... my mam works on the mark up of 2.25....some times even more depending on the item.... and if she feels as though it is worth more money.....

i dont want to be nosey.... but maybe if you have a chat with the person on the other thread.. offering her accounting skills and knowledge to other mser's for free.....

maybe if you have a pm chat with them.... and tell them your overheads etc.... also take into account your min wage you need out of the business...... they will be able to help you with the figures.....

also.... are you going ..to have links with cashback sites....? ......as this could help increase your traffic and sales.....on your site...by offering a % discount... just a thought when factoring your.....pricing....


good luck......keep us posted on how you do.......

yallapilko

Well, THANK YOU for such good advice.
Paul1sh if your family have been in retail since 1818 then you must have picked up a thing or two! It seems a logical way of doing things. I had worked out my break even figure for one of my products, but they range from £2.50 to £350. The expensive ones sell less. So I will have a go at doing that figure.

Cooltrikerchick I will look at that accountants advice. Thank you.
The cash back site is a good idea too thanks. Just how BIG do you have to be to go on one of those?

Thank you all for your generous input.