Announcing a new series, the WTHI? series. (What The Heck Is?)
Good for you, you’ve decided to learn a bit more about running a business! Yay! Knowledge is power after all isn’t it? Hm, where to start?
You try to read some business books or websites, and they throw around these terms that you have no idea what they are. Nor do you understand how they relate to your little crafty venture, there are too many acronyms and graphs. A lot of the time it seems like the information out there has nothing at all to do with what you are trying to do - sell the fabulous work you make in your spare time. You aren’t a major corporation nor do you ever want to be.
Yet those major corporations, and all the small to medium size business have exactly the same problem that we do. Starbucks and Sailorgirl Jewelry (my company) have the same goal - we want to sell our products to one customer at a time. We just do it on different scales. While Starbucks has an army of MBA’s figuring out how to achieve this goal, I have one person - me. So I read those books that use the big companies as examples, and I try to understand what they do and how it can apply to me.
Since I’ve already read the books, I thought I’d pass on what I’ve learnt. Starting today there’s a new series here on the Business Chat. It’s the WTHI series. Every now and then, I’ll write a post defining a business term that it’s important to know. Better still, I’ll explain what this term has to do with you achieving crafty success.
What the heck is “what the market will bear?”
“What the market will bear” is a phrase you hear when people talk about pricing. Basically it means what people are willing to pay.
It is not the cost of making the product. It is not what the product should cost (knowing what it cost to make). It is not the price that the maker wants to sell the product for. Nor most times, is it the cost that people say what they will pay. (What people say and what they do are 2 very different things when it comes to spending money).
What the market will bear is the price that people will open their wallets and pay for. This cannot be calculated with a formula. It changes depending on the season, the economy, your competitors and the whims of the universe. Large companies do a LOT of research before releasing products. There are focus groups, surveys and trial releases. We do not have these options. For us, it’s a guessing game when you start out. The longer you are in business, the more you know your target market, the better you get at working out “what the market will bear”.
What does this mean to you?
It means that you need to find your sweet spot for pricing your work. If you price it too high people won’t buy it. If you price it too low people won’t buy it. (Or they will buy a lot of it but because you’ve priced it too low you lose money and go out of business.) It’s a lot like Goldilocks. You need to find your just right pricing.
Often “what the market will bear” is based on supply and demand. If you have the only cure for cancer in the world, the market will bear a very large price tag. If you have the same “Made In China” stretchy mittens that every dollar store has and you’ve embroidered on a flower, well, the market isn’t going to bear much is it?
For handmade goods look around to see what your competitors charge. Keep in mind, just because they are setting a certain price, it doesn’t mean that they are charging the right price. A lot of people complain of the very low prices on etsy.com. They are low, sometimes ridiculously so. But just because someone else is willing to lose money doesn’t mean that you have to. If you think the prices at a certain market (online or bricks and mortar) then don’t sell there.
If you find that a certain market (like etsy) is pricing work at a too low price, perhaps it’s not the market for you. Knowing what the market will bear means that you must be selling to the correct market.
Imagine you are opening a high-end coffee shop and you’ll be roasting your own coffee and making the cookies from scratch. You look for a location. Do you open in the ritzy neighbourhood where rents are expensive but so are the other shops? Or do you open in the university neighbourhood full of students who can afford one beer on a Friday night? The same cup of coffee will cost almost double in the ritzy neighbourhood because these are people who understand what you are doing and have the money to pay for it.
When I hear a maker complaining how “no one will pay that much for my work” my first question is where are they trying to sell. If you’re making expensive high end diamond jewelry and trying to sell it at the local farmers market, then no, the market isn’t going to bear your expensive pricing. Find a better market. (Side note - flea markets may be cheap but the market seriously isn’t going to bear much. Just saying.)
In order to price your work properly you have to understand who you are selling to. Find your ideal customer. Then find where that customer shops. Then look at see what sort of prices that market will bear. It’s a start.
Next week we’ll go through the process of finding your ideal customer.
ps. If there is a business term that you want to discuss, drop me a line or leave a comment. firstname.lastname@example.org