If you are like most herbalists, you started making herbal products because you wanted to help others discover the wonderful healing properties of plants. You love to get lost in your apothecary, mixing this and that and coming up with gorgeous products that scream health. You can’t wait to offer them to the public and eagerly anticipate the customers’ reaction when they try them for the first time.
You lovingly package them in environmentally sound but visually mesmerizing materials and then stand back and admire them as if you were evaluating your children before you send them off to church. You straighten this ribbon and adjust that label, lost in the bliss of your accomplishment. Then you realize you have no idea how much to charge for your manufactured offspring and your blissful moment is lost in a whirlpool of despair. Why does money have to interject itself into my little world of plant utopia and make everything dirty?
Okay, I may have exaggerated a tad. However, be honest, I am not that far off of the mark. The last thing a herbalist wants to do is to figure out how much to charge for their products. It can seem like a hopeless exercise. You want to make your products affordable, but at the same time you are very aware you are running a business and you have to charge enough to make sure you can continue to be in business. How do you arrive at that magical sweet spot where you make a healthy profit and still charge a reasonable amount?
Before you go any further, there is one thing you need to get straight…making a profit is not obscene. There, I said it. You can make a profit and not feel guilty. Here is why, making a healthy profit allows you to create more products which in turn helps more people. If you don’t make a profit, you can’t stay in business and therefore you can’t help anybody. Okay, now that that is out of the way we can move on.
So how exactly do you come up with the perfect product price? First start with your costs. Write down the cost of every ingredient used and the cost of the packaging. This will give you the cost of your raw materials. Next you need to account for labor. Now I know a lot of you are going to say, I am just starting out so I am going to work for free. Well, it doesn’t matter if you are working for free or not. The true cost of the product includes the labor it took to make it and it must be accounted for. Now that we have settled that argument, take the amount of time it took to make the product and multiply that by the minimum wage or expected wage for your region. If you don’t know what that is, ask a more established product maker who hires help how much they pay their people.
The next cost you need to calculate is your overhead. Your overhead is the costs you incur keeping your business running. It includes the cost of your workspace, stationary, utilities, software, etc. These are
the costs that you incur even if you don’t make a single product. They are necessary for the running of your business and a percentage of these costs need to be added to the cost of every product you make. When you first begin your business, you won’t really know what your overhead is. Most accountants suggest using anywhere from 7% to 9% to start out with and then adjust this amount as you gain more sales data. If you aren’t sure what to calculate for overhead, talk to you accountant.
Once you have determined what percentage you are going to use for overhead, add the cost of ingredients to the cost of labor. Then take this sum and add the overhead percentage. This will give you the total cost of the product. Anything you charge above this cost is called profit. There is that dirty word again. How much profit you decide to make is up to you. Remember though, your profits give you resources that you need to develop and make more products. This profit amount is called retail markup and it is expressed as a percentage of your total costs. The standard guidelines for retail markup is 100% for wholesale sales and 200% for retail sales. However, it isn’t enough to just follow these guidelines.
Your region will have its own market that will require some price tweaking.
If you are feeling a little overwhelmed with all the math, take heart. If you use a spreadsheet and go slow you can work your way through. You can also use herbal dispensary software like Kerrii to do the calculations for you.
Once you have calculated a price, take a look and see what your competition is charging for similar products. Avoid going to established brand stores to do your research. They are not your competition, it is your fellow herbalists selling comparable products that you need to look at. When you do so, keep in mind your costs and make sure that you don’t charge less than those costs. Remember that you are making a quality product by hand. What you create is special and if you remind your customers of that
they will be happy to pay what you ask. Avoid the temptation to low ball your price, if you don’t value your product, your customers won’t either. People are funny, a nice package and hefty price can get you a lot more sales than an inexpensive ugly product. At the same time if you are completely outside the ball park of your competitors you will lose sales to them.
Unfortunately, there is just as much guess work in pricing as there is basic math. It can take some trial and error to find that perfect price but when you do, you can feel good about delivering a quality product to your customers that enhances their health and sustains your business. There is nothing as fulfilling as being able to support your customer’s health in a way that guarantees that you will be able to do so for years to come. Stop stressing over pricing. Stop feeling guilty about making a profit.
Embrace the pricing process and enjoy your very important job as a herbalist.
Article written by Bernadette Ann .